Leverage absolutely was out of hand in certain sectors of the economy, partiularly mortgage debt and the securitized products associated with it. However, all modern economies are leveraged and have been for some time - they cannot really function otherwiser nor should they. Banks only work if they utilize some amount of leverage - if they didn't put the deposits they hold to other use on a leveraged basis, the depositors would receive no interest and the economy would forego the benefits of that invested capital. It is true and always has been that if all the depositors ask for their money back at once the bank would fail.
For another example, any person that puts 20% down on a home is utilizing 5x leverage to buy that house. This is reasonable. What was unreasonable was 5% down (20x) or 0% (infinite). Unfortunately, in financial products as opposed to housing the collateral required to maintain a leveraged balance works on a mark to market basis. In the housing example this would mean that if you put $50,000 on a $250,000 house and made all your payments but the market price of you house dropped to $200,000 the bank would demand you put up another $10,000 in cash (or more if they changed their collateral requirements which some are doing) - this is a margin call. If you failed to come up with the margin cash they would seize the house and sell it; probably for $175,000. Now your neighbor has to come up with $15,000...and on it goes. This is what's happening to the credit markets right now. So even if you did everything right and avoided the over leveraged products and made all your payments it doesn't matter.
And that is why people like me are screaming from the rooftops to take down the clowns that created this mess, tar and feather them and run them out of town on a rail.