As instability in the credit market has spread from sub-prime mortgages into commercial sectors, demand grows for a cogent account of what has happened and why. To that end, I emphasize the role of market and funding liquidity dynamics in the current credit crunch. After introducing the major themes in terms accessible to a nonfinancial reader, I draw on economist Hyman Minsky’s work on financial instability to analyze the special liquidity dynamics of leverage cycles. In particular, I focus on market structure factors vexing financial market regulators: the rise of nonbank lenders, the growth of floating-rate debt; the dynamics of secondary and derivative markets for credit; and the attitude shifts that come with financial euphoria. I then zero in on the corporate version of sub-prime borrowing that many U.S. corporations used to finance the recent wave of mergers, acquisitions, and other types of “shareholder-friendly” transactions: leveraged loans. These are secured, sub-investment-grade, floating-rate loans priced off LIBOR. I conclude with recommendations for how regulatory and financial models can better reflect the new realities of the credit market.