Evan Newmark, writing on one of the Wall St. Journal’s blogs on Friday, three days before Monday's vote on the $700 billlion bailout plan:

The public still doesn’t connect their lives to the crisis. But it should.

Because no bailout bill means that:

By the close of the stock market on Monday, the value of Main Street’s IRAs, 401Ks and pension plans will be worth a lot less than on Friday. How much? Hard to say, but a loss of 20% isn’t crazy.

By week’s end, there is a good chance that a raft of large banks will be taken over by federal regulators.

Within two weeks, as the banks hoard cash, the credit lines on most of Main Street’s credit cards will be reduced, foreclosure proceedings accelerated and car-leasing programs suspended.

Within a month, Main Street won’t be able to buy a home, a car or a tractor unless paid for in cash. As the credit markets shutdown, the mortgage, auto and small-business loan markets will nearly disappear. And the economy will grind to a near halt.

Far fetched? Not at all. It is the absence of credit–not too much of it–that causes great economic depressions.

The Dow-Jones average actually lost just under 7% on Monday, falling to 10365.45. It turns out that expecting a 20% decline was a bit crazy. At this moment on Tuesday it has recovered almost half of that, up 3.3% to 10710.56.

We’ll keep watching to see whether the other dire predictions fare any better.

One can oppose the bailout, by the way, and still favor the Fed using open-market operations to prevent a decline in the money stock and thereby to support the volume of bank credit. It was the steep decline in M2 [in a banking system made artificially fragile by government intervention] in 1929-33 that, as Friedman and Schwartz explained, helped turn the recession of 1929 into the opening phase of the Great Depression. It was not the decline in the number of banks. Socializing and losses and perpetuating bad investments by propping up insolvent institutions – the foolish mission of the Hoover-FDR Reconstruction Finance Corporation – did not help recovery. Almost certainly it hindered it.

By the way, too much credit in the 1920s was a chief cause of the intitial downturn: it sowed the seeds for it by distorting interest rates and thereby fostering the malinvestments that came to grief.