That uncertainty has made banks much more cautious in lending, both to consumers and to each other. Banks carrying bad debt don’t want to take on more that they might not be able to cover, and banks are wary of lending to each other, in case the borrower bank collapses as Bear Stearns did.

And Higgins said the fallout will extend beyond the web of banking interests. Everyday people whose money was — directly or indirectly — invested in Bear Stearns, will now find themselves crunched for cash. That could lead to further problems with bad mortgages, which could spiral into more difficulty for banks.

The collapse has other indirect effects, he said. “People forget there’s people working for Bear Stearns. Everybody thinks of this as a corporation ... but it’s a person, it’s the employees of the entity.” Those people could find themselves out of a job or taking home substantially less pay.

And, Higgins said, Bear Stearns had a policy requiring employees to donate 4 percent of their earnings to charity. That is money the charities count on, but now may not receive.

Also, as mortgages are harder to come by, fewer people buy houses and house prices decline. This, Faucher said, leads to homeowners being less willing to spend money as their home becomes worth less, creating more drag on the economy. “Consumers are cutting back already.”

The long-term effects of the Bear Stearns collapse will be psychological, as well as financial, said Higgins. He said steps must also be taken — by the financial community or the government — to demonstrate either that Bear Stearns was a fluke or that steps have been taken to prevent the same thing from happening again.

“No one will have any confidence, and a lot of what happens with the stock market is based on confidence.”

While both agreed the economy is in recession, they offered slightly different forecasts for where it is headed. "I can’t foresee coming out of this before the fall,” said Higgins.

“If things continue along this path, it’s going to be a pretty severe recession,” Faucher said, but added that he expects the federal government will take steps to shore up the economy, such as buying mortgage-backed securities to limit potential private losses. If that is the case, he said, “we think the recession is going to be pretty shallow and only last through the first half of 2008.”

And they agreed on the key step consumers can take to ride out the recession. Said Higgins, “You want to stay out of debt.” Said Faucher, “People have got to watch what they’re doing.”