Fear swept across the financial markets Monday, sending the Dow Jones industrials down as much as 705 points, after the government's financial bailout package failed the House, AP reported.
As the vote was shown on TV, stocks plunged and investors fled to the safety of the credit markets, worrying that the financial system would keep sinking under the weight of failed mortgage debt.
"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson president of Johnson Research Group. "This isn't a market for the timid."
While investors had some worries that the vote would be close, many investors appeared to believe it would ultimately pass.
The markets were highly volatile, with the Dow regaining ground then falling backing again, trading down 557.30, or 5.00 percent, to 10,585.83. At its low, it was down 705.06, not far from its previous record for an intraday drop, 721.56, set during the first trading day after the Sept. 11, 2001, terror attacks.
Broader stock indicators also tumbled. The Standard & Poor's 500 index declined 77.16, or 6.36 percent, to 1,136.11, and the Nasdaq composite index fell 146.66, or 6.72 percent, to 2,036.68.
The Federal Reserve declined to comment on the market's decline.
With Wall Street in turmoil, the yield on the 3-month Treasury bill fell to 0.32 percent from 0.87 percent on Friday. That showed that investors were prepared to get meager returns on an investment as long as it was secure.
Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.
"Things are dying and breaking apart while they sit there and vote on this thing," he said.
The dollar fell against other major currencies, while gold prices rose.
Light, sweet crude fell $11.39 to $95.50 on the New York Mercantile Exchange as investors feared that a worsening economy would slice into energy demand. If the decline held, it would be oil's largest ever one-day drop.
Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.
"Things are dying and breaking apart while they sit there and vote on this thing," he said.
Lawmakers' voted down a plan that was different than what the Bush administration had originally proposed. There were restrictions allowing Congress to limit how much of the money goes out the door at once. It also included caps on pay packages of top executives as well as assurances that the government also would ultimately be reimbursed by the companies for any losses. The Treasury would have been permitted to spend $250 billion to buy banks' risky assets, giving them a much-needed necessary cash infusion. There also would be another $100 billion for use at president's discretion and a final $350 billion if Congress signs off on it.
Wall Street found further reason for worry overseas. Three European governments agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium's largest retail bank.
The British government, meanwhile, said it is nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S.