It looks like the lower tension spring is not working. It could be corroded sitting in a basement for years (I'm guessing the derailleur was left in this stretched out position), or broken or slipped out of it's retaining hole or a combination. You may just need to break away some corrosion by simply grabbing the cage and twisting it in a right side down direction. If that doesn't fix the problem, you'll have to remove the derailleur and remove the cage from the lower body to find the cause.
Last edited by onespeedbiker; 04-15-12 at 10:37 PM.