Wall Street is angry and afraid.

Leaders of New York's financial community are increasingly disturbed about official Washington's failure to come to grips with the next fiscal year's federal budget. They fear that interest rates will stay high, that financial markets will become more and more unstable and that American business will fall deeper into debt and, therefore, deeper into trouble.

To them, the gap between government--the business of Washington, and finance--the business of Wall Street, is larger than ever.

"You are going to have more casualties, and you wonder when they are going to see the chaos they are causing," says Robert H.B. Baldwin, who as president of Morgan Stanley Inc. is a major figure on Wall Street. Like many financial leaders, Baldwin is angry about the budget mess.

"The thing that is really disturbing people is that we are building into the system more and more fragility," Baldwin said, citing the uneasiness generated here recently by the shakiness of two government securities firms, Drysdale Government Securities and Comark.

George L. Ball, president of The E.F. Hutton Group Inc., agrees. "Not only has the interaction between the administration and the houses of Congress been slipshod but, bluntly, the motives of most parties is more selfish than selfless," Ball said.

"This is one of the rare occasions when the investing public and the investment community share a real sense of disappointment in the lack of alacrity, clarity or conviction being shown by the body politic," he added.

Earlier this spring, market and economic analysts here were widely predicting that a budget compromise, based on reductions in both domestic and defense spending, would create a favorable stock market environment, helping spur a broad economic recovery.

Instead, the stock market is slumping, no broad recovery is in sight, and some Wall Street experts are suggesting that the outcome of the budget debate ultimately may be irrelevant to the recovery of the stock market and the economy. "The hoopla about the budget is basically hoopla," Ball said. "Right now, the budget and the interparty squabbling is being used as the magnet for the markets' problems. In the absence of that, people would blame the tides."

"It will be very difficult to engineer any sustained economic recovery without budget compromise," noted Steven G. Einhorn, vice chairman of Goldman, Sachs & Co.'s investment policy committee. "But people who were looking for a tonic from the compromise were pollyannaish."

In a recent paper, Einhorn used a series of Shakespearean play titles, beginning with a "Comedy of Errors," to describe the budget talks and to toy with his own frustration with political theater. "We are confident 'The Tempest' lies ahead--continued hard and prolonged budget negotiations," he wrote late last month.

"To the average person out there grappling with unemployment, cuts in wages and layoffs, this process looks silly," Einhorn said this week.

Moaning about Washington is nothing new in corporate board rooms, but even one-time Washington appointees like Baldwin, who served as Navy undersecretary in the Johnson administration, express disgust for the political tug of war between the White House and Capitol Hill.

"You just want to throw up your hands and wonder if they are just going to play politics with this," said Baldwin, who has visited Washington regularly to urge top administration and congressional leaders to clean up the mess.

"If they had worked this out, I could have become very bullish about interest rates and the future of the economy," Baldwin said. Instead, "Markets are thinner, people are much more careful about where they extend credit, volatility is up and more companies are suffering.

"Three or four months ago, people on both sides of the aisle felt a compromise was possible and that entitlements must be brought under control. Since then, everything has been downhill. Now it's been politicized.

"If you don't have a budget, just assume that interest rates are going to stay higher longer and there will be more casualties in the business and financial markets," Baldwin said. "But if they come up with a budget nobody believes, it's not that much better than no budget at all. Credible investors worldwide and on Wall Street will see through that very quickly, and things will get even more fragile."

But even though Wall Street executives like Baldwin are unhappy with Washington, they direct their anger not at the often perplexing congressional budget process, but at the Democratic and Republican leaders who run the show.

It is difficult, however, to predict the political impact of the chorus of dissatisfation. Like the public at large, Wall Street executives are reluctant to directly blame President Reagan for the deficit-spending policies.

"The series of reviews and mandates required by the budget act is probably wise and has worked quite well in the past," Ball observed. "Unfortunately, now it appears that 'political reality' is being used as a rationale for things that might not be in the interests of the national economy."