* U.S. lawmakers reject $700 billion bailout plan
* Stocks plunge, investors rush to gold and govt bonds
* Citigroup to acquire Wachovia operations
* Fortis, Britain's Bradford & Bingley partly nationalized
(Updates to show White House crisis meeting took place,
adds detail on global loss for equity markets)
By Kevin Drawbaugh and Eddie Evans
WASHINGTON/NEW YORK U.S. lawmakers rejected a
$700 billion bailout plan for the financial industry in a shock
vote that sent global markets sliding as European authorities
scrambled to prop up a slew of banks.
The Dow Jones industrial average .DJI posted its largest
point decline ever while the benchmark S&P 500 .SPX had its
worst day since the 1987 crisis with an 8.8 percent drop. Latin
American stocks tumbled 13 percent, their biggest decline in
more than a decade. [nN29388741]
Even before the vote, Asian and European markets had
plummeted on fears the crisis was spreading, while U.S.
regional lender Wachovia WB.N became the latest big bank to
succumb to the crisis. [n29384481]
And global money markets were frozen even as central banks
poured hundreds of billions of dollars into the financial
system to persuade financial firms to stop hoarding
"There's a monster amount of fear out there. This is global
contagion. It's no longer just the United States," said Joe
Saluzzi, co-manager of trading at Themis Trading in Chatham,
The House of Representatives voted 228-to-205 against a
compromise bailout plan that would have allowed the Treasury
Department to buy up toxic assets from struggling banks. House
Republicans, in particular, balked at spending so much taxpayer
money just before the Nov. 4 U.S. elections.
"I can't believe they weren't able to come together and
come up with a solution. Complete disaster was predicted if it
didn't pass," said Stephen Berte, senior equity trader at
Standard Life in Boston. "I can't see what the upside is right
U.S. President George W. Bush huddled with economic
advisers, including Federal Reserve Chairman Ben Bernanke, to
consider the administration's next move.
"We need a plan that works," said U.S. Treasury Secretary
Henry Paulson, the Bush administration's point man on the
bailout since the first plan was announced over a week ago. "We
need it as soon as possible, and we're just committed to
working with congressional leaders to get it done."
Investors rushed to assets considered a safe haven.
Government bond prices and gold jumped, and oil fell below $99
per barrel on the view that world demand will contract as the
financial crisis puts the brakes on economic activity.
"What should have been a day of hope turned into a day of
desperation," said Marco Annunziato, chief economist for
UniCredit in London. "We are facing a systemic crisis of
confidence in the global financial system that is pushing us
increasingly close to a complete meltdown."
World stocks, as measured by the MSCI's world index, lost
about $1.7 trillion for the day.
BAILOUT PROSPECTS UNCERTAIN
In Washington, the failure of the bailout bill -- after
more than a week of intensive closed-door negotiation intended
to hammer out a compromise plan -- brought new uncertainty
about the response of the U.S. government to the worst
financial crisis since the Great Depression.
Republican House members voted against the rescue package
by a more than 2-to-1 margin. A majority of Democrats voted in
Both parties blamed each other for the failure of the
closely watched bill after hours of closed-door negotiations
intended to add provisions to protect taxpayers and head off
criticism that Washington was riding to the rescue of bankers
many Americans blame for triggering the housing crisis.
"What happened today cannot stand. We must move forward,"
House Speaker Nancy Pelosi told reporters. "We are here to
protect the taxpayer as we work to stabilize the markets."
U.S. presidential candidates Barack Obama and John McCain
had both offered qualified support for the bailout proposal,
which now dominates the election with just over a month before
Obama, a Democrat, said he believed lawmakers would regroup
to pass a financial rescue plan. "I'm confident we're going to
get there," Obama said as he campaigned in Colorado. "It's
going to be a little rocky." [nN29397924]
McCain, a Republican who suspended his campaign last week
in a failed attempt to broker a bailout deal, called on
lawmakers to go back to work. "Now is the time for all members
of Congress to go back to the drawing board," he said.
The Senate returns on Wednesday and the House on Thursday
after a break for the Jewish New Year holiday of Rosh Hashanah.
No laws can be passed in their absence but their staffs could
work on a revised plan.
The high-stakes political showdown on the bailout proposal
came after Wachovia Corp WB.N agreed to sell most of its
assets to Citigroup Inc (C.N) in a deal brokered by regulators.
It was one of three U.S. financial deals struck as the crisis
Investors said there were ample signs that a financial
crisis that started with risky lending to the overheated U.S.
property market had gone rapidly global.
"The crisis is going to affect everybody. It's a very
difficult situation and it's going to affect economies
everywhere," Mexican billionaire Carlos Slim said.
Earlier, the governments of Belgium, the Netherlands and
Luxembourg moved to partly nationalize Belgian-Dutch group
Fortis NV FOR.BR, and German lender Hypo Real Estate Holding
AG HRXG.DE secured a credit line from the German government.
British mortgage lender Bradford & Bingley Plc BB.L was
brought under the government's wing [nLT461913], shares of
French bank Dexia DEXI.PA tumbled on a report that it might
need emergency capital, and bank rescue deals also emerged in
Iceland, Russia and Denmark.
Earlier, European shares had dropped to a 3-1/2-year
closing low, with bank shares weighing heavily. [nLT631530]
The world's central banks, led by the U.S. Federal Reserve,
announced a $330 billion expansion of currency swap
arrangements, which allows them to increase the amount of money
they can provide in their home markets, effectively throwing
more money at the crisis. [nSP371928]
The Wachovia deal was the latest in a series of events that
has transformed the American financial landscape and wiped out
hundreds of billions of dollars of shareholder wealth.
The changes include the government takeover of mortgage
finance companies Fannie Mae FNM.P and Freddie Mac FRE.P,
the bankruptcy of Lehman Brothers Holdings Inc LEHMQ.PK, the
failure of giant savings and loan Washington Mutual, and Bank
of America Corp's (BAC.N) purchase of Merrill Lynch & Co Inc
(For related stories, double click [nN22402709])
(Additional reporting by Patrick Rucker in Washington,
Philip Blenkinsop in Brussels, Reed Stephenson in Amsterdam,
Jan Dahinten in Singapore, Andrew Callus in London, Krista
Hughes in Frankfurt and Chris Aspin in Mexico City; writing by
Kevin Krolicki; editing by Jeffrey Benkoe, John Wallace, Gary
Hill and Carol Bishopric)