It is, says financial journalist and Early Show contributor Vera Gibbons, the classic domino effect.
And, on the show Wednesday, Gibbons told co-anchor Julie Chen Wall Street can't fix itself to get out of the hole it's dug for itself.
"We need a bailout package," Gibbons observed. "This is the worst financial crisis we've seen in decades. It's affecting the markets, it's affecting the economy. Something needs to be done. It looks like, by all accounts, something will be done soon."
"There is no confidence," Gibbons continued. "Confidence has taken a huge hit. Banks have made a lot of bad bets on real estate to the tune of hundreds of billions of dollars, lost a lot of money in the process. In the meantime, too, (we've) lost a lot of trust, lost a lot of confidence. And that affects Main Street.
"Now, there's a credit crunch, a credit freeze. People are going out there, trying to get a mortgage, can't get a loan, can't get a student loan, can't get an auto loan, none of that stuff. So, there's a broader impact on the consumer here."
That in turn deepens housing market woes, Gibbons says, since, "Housing values continue to go down because desperate sellers can't sell their homes to prospective buyers, because buyers can't get the financing. That's pushing prices down even more. In order for the housing markets to stabilize, you really need to wipe out some of that inventory. We have an over 11-month supply -- a lot of homes on the market right now sitting there. For stuff to stabilize, we have to get rid of some of that. And that will be awhile."
What's more, Gibbons points out, "Businesses are having the same problem in that the banks just aren't lending to them. So, they're not lending to them, they're not lending to consumers, they're not lending to businesses. So, we've seen more people lose their jobs. We've had over 600,000 layoffs so far. The unemployment rate is to up to 6.1 percent, a five-year high. It could go up to seven, seven-and-a-half percent sometime in 2009. Small businesses in particular are really having a difficult time. They can't get the financing they need to expand their operations, to buy new equipment, to hire new employees. And some of them can't even fund their existing payrolls. So more layoffs are inevitable."
Meaning people aren't spending. "That's the issue," Gibbons says. "They don't have jobs or they're losing their jobs, they're losing their homes. There've been a lot of stock market declines. Wages are virtually stagnant. Costs are going up -- the cost of living, everything from gas to groceries is up. Home heating bills are ridiculously high. So, there's no money out there to spend, which has caused a panic.
"Look what happened on Monday: Over $1 trillion in stock market value gone. Thankfully, we regained a lot of those losses yesterday. But people's retirement accounts or college funds have been totally wiped out. So, there's a wide sense of panic out there. No one knows how long, how deep this recession is actually going to be.
"It's depressing. But things will better. The first step is actually to get this bill passed and then, move on."