The House narrowly defeated a bill to “rescue” Wall Street today. The question is, what does this mean to the average American?

First of all, congress rejected the concept that the government will be responsible for renegotiating homeowner mortgages that were made by banks which thought they could sell off those loans and take no risk. Investors in such financial instruments that are backed by mortgage payments and other revenue streams, such as credit card receivables, will be wary of taking on such risk in the future. Insurers who promised restitution to these investors will no longer be so certain that these financial instruments are somewhat recession-proof.

Risk of mortgage default will revert back to the banks which grant the mortgages. Underwriting standards will become more stringent and the loan-to-value required of borrowers should decline, thus protecting these lenders from future declines in the real estate market. This is exactly the way it should be! Had such prudence been practiced prior to this recession, the banks which are now seeking protection by a government bailout would never have had a problem. It was lax lending practices, not lack of securities regulation, which created this crisis.

The stock market is taking a dive as I write this report. However, the Treasury market is rallying. This makes perfect sense, and it is good for America. The debt markets are approximately ten times the size of the stock market, and a rally in the debt markets will more than overshadow any declines in the stock market. Those investors who put their retirement funds in individual stocks or stock funds, hoping to take advantage of a booming economy, have learned a valuable lesson; let the buyer beware! If an investor does not understand the financial instruments in which his retirement funds are invested, he has no business taking on such risks. He should keep his money in safe instruments like FDIC insured savings accounts. The market is no place to be if one does not understand what he is doing. Most securities brokers are nothing more than salesmen.

Bond traders are attempting to bid bonds low in order to take advantage of prices that declined precipitously over the past few days. Municipal bonds have “disconnected” from the Treasury as a result. Don’t worry; they’ll catch up as investors realize that they have nowhere else to go with their money. They are certainly not going to take the risk of investing in corporate bonds in the face of a recession.

As for ma and pa in Skokie, they have been facing a recession for a long time. Main Street has been hurting as Wall Street has been soaring. It will get a lot worse before it gets better. But this is to be expected if a country is to embrace capitalism. Those who take the risk have to know when to get out. If the coming depression means that retailers will take a hit, they had better close up now before they lose everything. They cannot expect the government to save them by keeping highly paid banking and brokerage employees in chips at the expense of the value of the dollar.

We are in for some hard times as things shake out. This is nothing new; it is just going to hurt a little more because, as a result of lax lending standards, the American people have been living on borrowed money instead of real wages. Without a Wall Street bailout, there will be no conduit for banks to sell off loans and thus have the liquidity to make loans without deposits. Without “safe” investments in instruments backed by assets that decline in a recession, ma and pa will have to consider putting their money in the bank instead of stock funds. We may actually experience a return to fiscal sanity!

Mr. Howard Kupferman is an adjunct professor at Polytechnic Institute of NYU.