The House of Representatives dealt a blow to Wall Street's bailout hopes Monday, voting down the Treasury rescue package by 228 to 205. Assumptions that the bill would be passed were blown up, and a knee-jerk reaction sent the Dow Jones industrial average down more than 600 points moments after it became clear the measure lacked the necessary votes. House leaders failed to deliver the Republican votes required, as the bill was defeated. Wall Street was clearly disappointed by the failure of the proposal, which could have provided a $700.0 billion bank to U.S. financial firms. Those opposed to putting so much taxpayer money at risk were cheering the House vote, but the Street was still sharply lower. The Dow Jones industrial average lost 506 points, or 4.55, to 10,637; the S&P 500 dropped 75 points, or 6.2%, to 1,138; and the Nasdaq slid 142 points, or 2,042. Investors took flight for traditional safety plays like U.S. government debt and gold, sending prices higher and yields on U.S. Treasuries falling. The December gold contract jumped $22.60, to $911.10 an ounce, one of the few gains on a day when commodities were crushed. Traders sent oil prices plunging on expectations that demand will continue to soften, and crude fell $10.52, to settle at $96.37 a barrel. Yields on both short- and long-term Treasury securities slipped. The one-month T-bill yield fell to a risible 0.09% from 0.13% Friday, while the three-month T-bill was offering 0.58%, down from 0.86%. The 2-year note yield fell to 1.71%, from 2.07%, while the 10-year yield was at 3.62%, down from 3.83%. The frostiness of interbank lending was one of the primary arguments for the pro-bailout crowd, and the London interbank offered rate climbed again Monday on an overnight and three-month basis. Overnight Libor was up to 2.57%, from 2.31%, while three-month Libor was up to 3.88%, from 3.76%. The failure of the bailout bill comes during a day of financial follies. Things got off to a rocky start across the pond, as several European governments partially or fully nationalized faltering lenders, including British firm Bradford & Bingley and Belgium's Fortis. Meanwhile, the Federal Deposit Insurance Corp. brokered a Citigroup (nyse: C - news - people ) takeover of the banking assets of Wachovia (nyse: WB - news - people ) Monday morning. Citi will absorb the first $42.0 billion in losses on Wachovia's $312.0 billion loan portfolio, with the FDIC stepping in after that in return for $12.0 billion in preferred stock and warrants. With the deal, the FDIC executed its second arranged marriage in less than a week, both times avoiding significant exposure for taxpayers. Last week JPMorgan Chase (nyse: JPM - news - people ) got a sweetheart deal to take on the assets of Washington Mutual (nyse: WM - news - people ), after they were seized by the FDIC. In that case, subordinated debt holders were wiped out, but since Wachovia technically did not fail, Citi will assume some of its debt exposure. Shares of Citi were down 53 cents, or 2.6%, to $19.62. The opening of trading in Wachovia was delayed until the afternoon, and once it began shares dropped $8.09, or 80.9%, to $1.91. JPMorgan was off $3.49, or 7.2%, to $44.75. Even as the bailout failed to get through the House, the Federal Reserve was taking further actions to enhance global liquidity Monday, announcing expanded auction facilities and a $330.0 billion increase in its currency swap lines with global central banks. The Fed actions and the European banking bailouts helped the dollar firm up, as the euro fell to $1.4480 from $1.4626. Source : Forbes
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