Same old story. Investors start to lose money and have to get into riskier investments to regain their positions. It just so happens that these risky investments paid off because everything was booming. These guys ARE smart, and even they knew it was only a matter of time before the house of cards came down. They milked it in the meantime. Nothing new. Live fast, die young. The bailout was only to make sure thing didn't go catastrophic, but it didn’t fix the problem. It’s going to be tough going for awhile and people are going to be feeling the pain.

As for your 65 year old friend, it’s usually a good idea that as you approach your retirement, you should move your investments out of the stock market and into more stable investments. If you don’t need your 401k for awhile, you can wait out these bumps. Not so for someone wanting it now. Although I understand it is difficult to move out of the market when things are good (like they have been), you can get bit pretty quickly.

Of course hindsight is 20/20.