Editor’s Note: Liz Peek is a financial columnist and author of wOw’s Wall Street Weekly. 

It may be too early to reflect on the blowup on Wall Street. After all, there’s every indication of more calamity ahead. In case we were uncertain on that point, Standard & Poor’s, with the timeliness characteristic of the ratings agencies, pushed AIG to the brink yesterday by downgrading the insurance giant several notches.

Still, there are several things that we can learn from the disappearance of Lehman Brothers and Merrill Lynch — two of Wall Street’s most prestigious firms. The first is that downturns are typically as deep and treacherous as the preceding boom was giddy and extended. The rise in real-estate prices went on for more than a decade, beginning to outpace inflation in 1997. In fact, in each of the 36 years 1968 through 2006, home prices rose; for the entire period the gains averaged over 6% annually. That was quite a run.

Those of us who have lived through several severe investment cycles have a tendency to see opportunity when share prices — or real-estate values — plummet. We have seen brilliant investors like Warren Buffett or David Swenson (who so ably manages Yale’s endowment) leap on beaten-up assets and enjoy heady returns as a result. So, we are trained to move in early.

Sometimes that works out well; sometimes it does not. In the current cycle, even very smart fellows like Dick Fuld, CEO of Lehman Brothers, simply didn’t understand how bloody the downturn was going to get. As the real-estate bloom was distinctly fading last October, Mr. Fuld joined Tishman Speyer to buy for $15 billion the nation’s second-largest owner of apartment units, Archstone-Smith. The exposure to that company, and to a developer named SunCal Companies, contributed a good portion of the $60 billion or more in toxic assets held by Lehman at the end.

Another thing that has become apparent is that when things start to go bad, they do so in a hurry. Fuld seems to have dawdled, in trying to sell assets and in making other moves necessary to buttressing the company’s balance sheet. For months the company considered selling Neuberger Berman, a top-notch money management firm worth at least $8 billion. They should have done so. Up until the very end the company was in discussions with Korea Development Bank. The two firms could not arrive at a price; Fuld should have folded. He simply could not accept that he might have to sell assets — or indeed the entire company — at a big discount to book value.

Of course, the real trap in this forest was the availability of easy credit. Whether it was house buyers who had no income or private-equity types that had no talent, far too many people were lent too much money. The ease with which investors could borrow made them careless. They assumed the lenders knew more than they did. They were wrong.

I also think that, once again, it has become clear that Wall Street can trip itself (and everyone else) up by developing financial instruments that are simply too complex. Remember Long Term Capital Management? That team of Nobel mathematicians that nearly dragged down the entire financial system? No one had any idea what they were up to. This time around, in building the towering SIV/CDO structures on a foundation of weak subprime credits, the financial engineers made a lot of money, but it must have been painfully obvious that the buyers really had no idea what they were adding to their portfolios. As the drama unfolded, that lack of understanding created its own problems.

At the end of the day, if anyone promises you “outsized returns” or “easy money,” take two aspirins and go to bed. Such inflated promises — and prospects — are most definitely too good to be true.