In a historic vote that undermined investor confidence and reinforced fears of harsh economic times ahead, the House of Representatives yesterday rejected the Bush administration's $700 billion financial rescue plan.
The stock market plummeted in response, with the Dow Jones industrial average suffering its largest one-day point loss ever, falling more than 777 points, or nearly 7 percent, to close just above 10,365.
Other market measurements, including the broader Standard & Poor's 500, did even worse, making this Wall Street's worst day since the Black Monday of October 1987. Overall, securities lost more than $1 trillion in value.
The losses on Wall Street spread to Asia today, the Associated Press reported, with all major stock markets in the region tumbling sharply, succumbing to heightened fears of a broader global credit crisis.
House leaders in Washington, after seeing the market's reaction to the stunning outcome, announced that the body would reconvene Thursday, after the Jewish holiday of Rosh Hashanah, to try to salvage the proposal, perhaps with some small adjustments.
There is believed to be enough support in the Senate to pass it, although no vote has been scheduled.
The vote on the package yesterday was 205 in favor, 228 against, with 62 percent of Democrats voting for it and 67 percent of Republicans voting against.
President Bush, whose own party rejected his leadership on this huge issue, said that he was "disappointed" in the result. In pressing for votes, Bush called nearly every member of Texas' Republican delegation, GOP aides told the Washington Post. He reached four of the 19.
Treasury Secretary Henry Paulson added, "We need to work as quickly as possible; we need to get something done."
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi (D., Calif.), who, according to House Republicans, deserved some of the blame for what happened.
Financial analysts warned that even with a rescue plan, the economy appeared headed for a recession, perhaps a prolonged one, with tightening credit, rising unemployment, and a decline in economic output.
Investors did not view the plan - devised by Paulson and Federal Reserve Chairman Ben Bernanke earlier this month and modified through negotiations with legislative leaders in both parties - as a cure-all for the woes of the financial system.
But by buying up securities tied to bad mortgages, the plan was intended to unclog the financial system and get credit flowing again.
Gus Sauter, chief investment officer of the Vanguard Group, said the market's performance was "a statement . . . that we need to resolve this."
"Right now," he said, "the market is locked, financing is locked, and it's because banks and brokers don't have enough capital to function fully. They need to recapitalize, and if they can't, we're just going to remain locked up here."
The plan's defeat came hours after the announcement that yet another major financial institution, Wachovia Corp., the largest bank in the Philadelphia area and one hit hard by mortgage foreclosures, was being rescued by Citigroup Inc.
Yesterday, stocks were down before the vote on Capitol Hill, down more as it became clear the measure would fail, and down even more near the end of the session.
In all, on a day that was the Dow's 17th worst in percentage terms, 162 stocks went up and 3,073 went down.
Another sign of the times was the huge drop in oil prices. Light, sweet crude fell $10.52, winding up at $96.36 on the New York Mercantile Exchange, reflecting concern of a worldwide economic slowdown.
In early trading today, Japan's benchmark Nikkei 225 index shed 4.6 percent after losing 1.3 percent yesterday. Key indices in Australia and New Zealand were both down about 4 percent, Seoul's Kospi lost 3.5 percent, and Hong Kong's Hang Seng index declined 5.5 percent.
"The circumstances of market bottoms tend to be different, but the pattern is the same," said Bob Turner, chairman and chief investment officer at Turner Investment Partners in Berwyn. "You do have capitulation. You have panic. Everybody sells stocks without buyers coming in."
Like the market, the major-party presidential candidates seemed surprised by the defeat of the rescue proposal, on which both of them said they had been working.
In Iowa, Republican John McCain said: "Sen. Obama and his allies in Congress infused unnecessary partisanship into the process. Now is not the time to affix the blame. It's time to fix the problem."
The Obama campaign said that statement and others amounted to an attempt to fix the blame, something they would not do. "Now is the time for Democrats and Republicans to join together and act in a way that prevents an economic catastrophe," Obama spokesman Bill Burton said.
Leaders of each party also had no hesitation about finding fault with the other, even as they pledged to work to try to resolve the matter by the end of the week.
In explaining what went wrong, Republicans said they thought they had just enough votes to pass the package at one point. But perhaps a dozen votes disappeared, they said, when Pelosi delivered a toughly worded speech on the House floor, blaming the administration's "anything-goes mentality" for the financial meltdown.
Rep. Eric Cantor (R., Va.) held up a copy of Pelosi's speech and declared: "Right here is the reason I believe this vote failed."
For their part, Democrats blamed GOP leaders for failing to produce enough votes for their own president's proposal and ridiculed those who pointed a finger at Pelosi.
What the Republicans were saying, in the view of Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, was that "because someone hurt their feelings, they decided to punish the country."
Rep. Paul Ryan (R., Wis.), who voted for the bill, seemed to be talking for legislators in both parties worried about facing angry, anti-bailout constituents at the polls five weeks from today.
"We're all worried about losing our jobs," Ryan said. "Most of us say, 'I want this thing to pass, but I want you to vote for it - not me.' "
Others saw no reason to support the plan. "This is the same politics of fear we are hearing from the fat-cat financial bullies from Wall Street," said Rep. Ted Poe (R., Texas).
Many members facing tough reelection fights voted no, including Democrats Jason Altmire of Western Pennsylvania and Christopher P. Carney of northeastern Pennsylvania.
Lawmakers from the Philadelphia region voted mostly along party lines, with every Democrat other than Tim Holden of Pennsylvania voting yes and every Republican other than James Saxton of New Jersey and Michael N. Castle of Delaware voting no.
In Philadelphia, Helen Jackson, 49, of Torresdale, voiced skepticism that any rescue package would help ordinary people.
"I think if anything, the middle class will be screwed again," she said. "I think the CEOs are going to walk away from this unharmed, and the American people are going to have to pay for it. . . .
"I have money invested, I'm saving for retirement, and I'm going to have to work until I'm dead."