A Record Fall on Wall St.

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Raw Video: House Defeats Financial Bailout

The United States House of Representatives voted against the $700 billion emergency rescue package for beleaguered financial companies.

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Hours before the House rejected the bailout plan, by a vote of 228-205, the Federal Reserve more than doubled, to $620 billion, the funds available to nine other central banks -- in Europe, Australia, Canada and Japan -- to make short-term loans to banks and other financial institutions. It also tripled, to $225 billion, the amount available for short-term loans to U.S. financial firms.

Lawmakers may take up the bailout bill again, but probably not until later in the week. Uncertainty about the fate of the proposal comes at a crucial time, the end of the third quarter, when firms will be seeking to refinance short-term debt.

Without a bailout plan, it may become more difficult for many companies to roll over their financing to meet immediate debt requirements and payroll obligations, said Joseph Brusuelas, chief U.S. economist at Merk Investments.

"If Congress does not get its act together, we could see an increasingly sharp sell-off across all global markets," he said. Bank stocks were among the biggest decliners after the takeover of Wachovia by Citigroup. Shares of National City fell 63 percent, or $2.35, to close at $1.36. Sovereign Bancorp fell 72 percent, or $6.04, to close at $2.33.

Asian and European markets were down across the board Monday, with indexes in London, Paris and Germany all experiencing losses close to or in excess of 4.5 percent. In early trading Tuesday, Asian stocks continued their slide, with Japan's benchmark Nikkei 225 index down as much as 5 percent.

Investors sought safety in gold, pushing the price for October contracts up $36 an ounce at one point on the New York Mercantile Exchange. Oil retreated to $96.37 a barrel. "There were three reasons for the price decline" in oil, said Adam Sieminski, chief energy economist at Deutsche Bank Securities. "The economy, the economy and the economy." Sieminski said that the oil markets were stricken by fear that the problems of big financial institutions would start to spread and hurt other industries.

"Wall Street doesn't use any oil," he said. "It's the rest of economy."

A drumbeat of negative news helped raise investors' concerns. Consumer spending stalled in August, according to government figures released Monday, and at least two banks in Europe required government rescues over the weekend.

Billionaire financier and corporate turnaround veteran Wilbur Ross, who backed the bailout plan, said the $700 billion proposal would have helped to grease the wheels of the credit markets. But he doubted that it would have been a cure-all for an ailing economy.

"We still are faced with the situation that the average citizen is having a tough time making mortgage payments and car-loan payments. We still have the problem of unemployment rising, we still have the problem of a housing market in free-fall, and we still have the problem of the auto industry's bad volume," said Ross, chairman of Invesco's WL Ross investment subsidiary.

As lawmakers prepare to revisit the bailout debate, tectonic shifts in the financial industry continue.

Wachovia joined a growing list of financial institutions set to disappear in the restructuring of Wall Street, following the demise of Bear Stearns, the bankruptcy filing of Lehman Brothers, the purchase of Washington Mutual by J.P. Morgan Chase and Bank of America's agreement to buy Merrill Lynch. Citigroup is buying Wachovia's banking operations, which hold billions in risky mortgage debts.

"The morgue of financial institutions continues to get fuller," said Art Hogan, chief market analyst at Jefferies & Co. "The longer we wait for that rescue package, the fuller it gets. The market is pricing in the realization that there are more problems that are not going to be fixed by this rescue plan."

Merle reported from Washington. Staff writer Steven Mufson contributed to this report.