There is a new element being added to the witch’s brew that is becoming the U.S. economy: public panic. Forget about wholesale inflation that rose the fastest in 27 years in June. People and businesses now are worried about their banks going bust and for good reason.

The trigger point may have been the dramatic decline in the share prices of Fannie Mae and Freddie Mac, two federally chartered, publicly owned financial institutions that many people never thought much about, until now. Working in the secondary mortgage markets connecting investors and  lenders, they together own or guarantee nearly $5 trillion of mortgages in the U.S.—about half of the nation’s total. The wipeout of the firms’  share prices and fears that they and other lenders may fail have badly rattled financial markets and prompted the Federal Reserve Board and the U.S. Treasury Dept. to offer a lifeline to stabilize financial markets. But that may not be enough. “Too big to fail” has taken on new proportions.

At the same time, thousands of customers of IndyMac Bancorp, Pasadena, Calif., were experiencing their worst nightmare as they queued up for hours to withdraw deposits as the bank teetered and then collapsed. Federal regulators took over on July 11. It was like a sepia scene from the Great Depression.

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As the ripples spread from the greed that fueled poor sub-prime mortgage lending practices and the shaky financial instruments they spawned, the construction industry and other businesses will be affected. We have said that before, but the magnitude of the $1.6-trillion tsunami now is truly staggering, making the $500-billion savings-and-loan crisis of the 1980s look like a wading pool.

While many industry firms still have robust backlogs left over after a decade of U.S. economic expansion, some already are preparing for the worst. They are diversifying globally or trying to find recession-proof niches. For others without those options, the best thing is to reduce debt, become customer-driven organizations and hunker down. The worst is yet to come.