The market screamed as the House vote on the Wall Street bailout bill teetered on the edge of a cliff — and then fell off.
The bill initially failed to get enough votes, sending the market into a tailspin, as congressmen and women huddled to try to shore up the votes to save it. To no avail: The bill was ultimately rejected, leaving the future of the bailout in question.
The Dow Jones Industrial Average fell 701.93 at one point — the second-largest intraday move on record — before paring that back to about 500 as investors were left scratching their heads. The S&P 500 shed more than 5.5 percent and theNasdaq lost more than 6 percent. The CBOE Volatility Index, widely viewed as the best gauge of fear in the market, surged to a nearly six-year high, topping 40.
"I think they're anticipating that there'll be another vote," Pimco fund manager Bill Gross told CNBC about why the market shaved 200 points off of its decline.
(Click on the video at left to watch the CNBC interview with Bill Gross.)
But lawmakers said there wouldn't be another vote today.
“I honestly don’t even know where we go from here,” said Dave Rovelli, managing director of equity trading at Canaccord Adams. “It’s impossible to quantify.”
“We were all in shock,” Rovelli said of the mood on the trading floor. “The problem is, out in the boondocks, people don’t realize what this means. When they can’t get a loan at the bank, then they’ll figure it out.”
"If there is no package, there will be a tremendous hole in credit markets. This must be passed," Gross said.
"We don't have a backup plan," Rovelli added.
Among the top drags on the Dow: Financials — Bank of America , JPMorgan and American Express — took a hit amid worries about the financial system; IBM fell as investors sold off techs amid worried that the global slowdown will drag down tech spending; and, energy stocks like Chevron skidded as oil fell below $100 a barrel.
Veteran trader Art Cashin, director of floor operations at UBS, told CNBC this morning that he learned early on in his career never to bet on the end of the world — it only happens once.
Still, he said, "It might not be a bad idea to find a bomb shelter somewhere."
Investors took some encouragement from news that there was a resolution that wasn't a federal bailout on another troubled bank: Wachovia.
Citigroup is buying Wachovia's banking operationsin a deal facilitated by the FDIC,after engaging in a brief bidding war with Wells Fargo.
Wachovia shares plunged more than 80 percent to below $2 when they opened this afternoon. Citigroup shares rose 4 percent.
Investors hammered shares of other banks, wondering which one might be next to fall. Among the biggest decliners was National City , the most actively-traded stock on the NYSE, which fell by 50 percent. Fifth Third , Sovereign Bancorp and First Federal (of California) all shed more than 30 percent.
"There are a number of regional banks which may need help, either because of the weakening mortgage market or simply because of the weakening economy," Michael Sheldon, chief market strategist at RDM Financial Group, told Reuters.
Morgan Stanley shares fell nearly 8 percent following news that Japan's biggest bank, Mitsubishi UFJ Financial Group, will take a 21 percent stakein the Wall Street firm.
Meanwhile, Lehman Brothers sold its prized money-management unit, Neuberger Berman, to private-equity firms Bain Capital and Hellman & Friedman for $2.15 billion — a lot less than original estimates.
The Federal Reserve and other central banks announced an extraordinary move Monday morning — a massive liquidity injection— to try to revive paralyzed credit markets.
The Fed said it would inject another $330 billion of liquidity into the market. When combined with efforts of other central banks, that means an additional $630 billion of liquidity will be flowing through the market over the next several months.
As the U.S. government worked overtime to shore up its financial system, cracks started to show in the world financial sector as two European banks were nationalized over the weekend.
In the biggest European bank bailout since the credit crisis began, three governments jumped in to rescue Belgian-Dutch bank Fortis. The Belgian, Dutch and Luxembourg governments took a 49 percent stake in Fortis with an 11.2 billion euro ($16.4 billion) injection.
Meanwhile, the U.K. nationalized troubled mortgage lender Bradford & Bingley. After weekend talks failed to yield a buyer, the U.K. Treasury said it would take over B&B's 50-billion pound ($90.12 billion) mortgage portfolio and sell its deposits and branches to Spanish bank Santander.
Shares in French bank Dexia tumbled more than 20 percent on a newspaper report that it might launch an emergency capital increase.
Outside of the financial sector, technology stocks were the hardest hit as investors worried that a severe downturn in the global economy would drag down tech spending.
Apple, the most actively traded stock on the Nasdaq, had its worst day since 2002 after a slew of downgrades. Analysts said it wasn't so much that Apple was doing anything wrong as it was a worry about demand. There has also been criticism that Apple doesn't have an under-$1,000 computer in its lineup, something that would help soften the blow as consumers cut back spending.
The latest evidence of that came today, when the Commerce Department reported that consumer spending was unchanged in August, even as income rose 0.5 percent.
Shares of Apple rival Research In Motion fell more than 8 percent.
Circuit City shares tumbled 8 percent after the electronics retailer reported a wider quarterly loss and withdrew its financial outlook. The company, which last week announced the immediate departure of its chairman and CEO, also said it would suspend new store openings beginning in fiscal 2010 in order to focus on turning around the business. Circuit City has reported losses for five of the past six quarters.
Shares of rival Best Buy fell about 3 percent.
Shares of Pilgrim's Pride slipped another 2 percent after plunging 72 percent last week. The stock fell on warnings that earnings would take a hit because of restricted access to credit, a forecast seen as indicative of problems in the industry itself.
Pilgrim's Pride said it received a temporary waiver on a credit covenant and retained advisers to review its operations and refinancing strategy. The waiver will help provide liquidity.
TUESDAY: Case-Shiller home-price index; Chicago PMI; consumer confidence; Fed's Lockhart speaks; Rosh Hashanah (Jewish new year) holiday
WEDNESDAY: Auto sales; weekly mortgage applications; ADP employment report; ISM manufacturing index; construction spending; weekly crude inventories; Senate expected to vote on bailout bill; Eid (Muslim) holiday
THURSDAY: Short-selling ban expires at 11:59 pm ET; ECB announcement; jobless claims; factory orders; natural-gas inventories; Fed's Bullard speaks; earnings from Constellation Brands
FRIDAY: August jobs report; ISM services index; earnings from Family Dollar
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