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Even before the latest bleak news from Wall Street, Mike Murphy was concerned enough about the economy that he cut back on driving, his leisure activities, his text messaging on his cell phone, even his cigarettes, and went from drinking two cups of Starbucks coffee a day to one.

"It's still my luxury item," laughed Murphy, 42, of Montgomery Village, as he sat outside a Starbucks in Gaithersburg.

While he jokes about his coffee habit, the economy has not been as amusing to him.

"The future's not looking very bright at all," Murphy said. "The investments are going down the toilet. Everything is going out the roof in price and the stuff you buy doesn't last. It's very depressing."

Wall Street was rocked this week by major investment bank Lehman Brothers filing for bankruptcy, investment company Merrill Lynch & Co. agreeing to be bought by Bank of America, and insurance giant AIG searching for a potential $75 billion bailout Tuesday.

While Lehman does not have offices in Maryland, Merrill Lynch has 14 offices statewide. Merrill Lynch and Bank of America officials did not return calls by deadline.

Across the globe, stock markets were down on Wall Street's bad news, which began on Friday and continued through Monday. The markets see-sawed on Tuesday.

"I was expecting the usual Friday closure of a bank and instead we got the closure of a major investment bank," said Elinda Kiss, a professor of finance at the Robert H. Smith School of Business at the University of Maryland.

The federal government did the right thing in not bailing out Lehman Brothers, she said.

"Lehman placed their bets and they got riskier and riskier. They're the poster child on what not to do. It doesn't matter that they're 158 years old," she said.

Peter Morici, also a professor at the Robert H. Smith School of Business, agreed.

"An investment bank really only has three things — working capital, smart finance guys and client trust," Morici said in an e-mail. "Capital can be raised and American business schools educate lots of sharp minds. Trust is harder to find."

But recently retired Roger Braham, 60, of Clarksburg said the government should prop up the investment companies.

"No one else can and if the government doesn't shore up these financial institutions then they're just going to fall like dominoes," he said.

Braham has not made any changes in his spending habits despite his concerns of the economy. His wife continues to work, he said.

But even though he said he believes the current problems are part of the usual market cycle, "the investments we have weigh heavily on us," Braham said.

Morici said investors shouldn't worry.

"It's not as bad as you'd think," he said. "It's not going to affect conditions in our communities. These banks stopped lending in communities a long time ago. They still do credit cards and some auto financing, but we're not going to feel a shortage of mortgage money. My feeling is this is a necessary slowdown."

By allowing the investment companies to fail, banks will be forced to make necessary management changes and to clear out their bad debt, Morici said.

"The stock market will have a couple of bad days and rebound," he said. "The stock market was having a couple of bad days anyway."

The overall economic picture is worse because of it, though, Morici said. As consumers become worried, they spend less, and 70 percent of the total economy is based off consumer spending.

College savings plans, or "529s," and 401K retirement plans will be hurt in the short term, he said.

"The failure of the New York banks makes those plans worth less today, but 10 years from now we won't notice the difference," he said.

Nevertheless, Murphy, who works as a federal contractor in information technology, said it is hard to look at his 401K and his individual retirement accounts and not be concerned.

"My IRAs are suffering and suffering bad," he said.

Murphy said he has put off making many purchases.

"I've lost a lot of weight and my clothes hang off me … but I don't want to spend the money on new shirts," Murphy said. "Every time you think you are making ends meet someone moves the ends."