How Bad Will It Get on Wall Street?

As the credit crisis grinds on, the prospects for a quick recovery darken

It has been a year since the global credit markets first seized up, and four months since the dismantling of Bear Stearns. Yet bad things keep happening, from the failure of IndyMac and the stock routs of Lehman Brothers (LEH) and others to the market's collective yawn at the Treasury Dept.'s plan to bolster mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Once again, the optimists who thought the crisis was over have been proven wrong. "People underestimated how bad things were last summer," says Frank Partnoy, a former Wall Street derivatives trader turned professor at the University of San Diego Law School.

Did they ever. July's rat-a-tat-tat of dismal news suggests that the scope of the credit crunch is much broader than most people thought. Traders, investors, bankers, and economists are waking up to the possibility that Wall Street's recovery from the worst financial disaster since the Great Depression could grind on for years. And they're realizing that while the debacle was of Wall Street's making, its aftermath will weigh on banks, other companies, and consumers alike.

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