Failed bailout vote hits Wall Street like a hurricane

NEW YORK -- The "nay" vote heard around the world wiped out $1.2 trillion in stock market wealth Monday, the first one-day trillion-dollar loss in Wall Street history.

Warnings of a stock meltdown turned into a scary self-fulfilling prophecy after a divided House voted down a financial rescue plan that was specifically created to avoid the kind of panic selling that engulfed markets around the globe.

The financial fallout was of the Armageddon proportions that some predicted if the $700 billion bill — which was promoted by the Bush administration as the best way to boost investor confidence and unclog frozen credit markets that have created a daily bank death watch on Main Street — failed to pass.

"It was the equivalent of a Category 5 hurricane," says Scott Black, president at Delphi Management.

The broad U.S. stock market, as measured by the Standard & Poor's 500-stock index, suffered an 8.8% free fall — its biggest percentage decline since the 1987 stock market crash. Only one stock in the index — Campbell Soup — finished higher.

The 30 stocks in the Dow Jones industrial average suffered their worst one-day point drop ever, plunging 777.68 points, or 7%, to 10,365.45.

The massive losses "made the hair on the back of your neck stand up," says hedge fund manager Patrick Adams of Choice Investment Management.

On the New York Stock Exchange, more than 3,000 stocks finished down, and fewer than 200 stocks closed higher.

Many Wall Street pros blamed lawmakers for the historic downdraft.

"Congress snatched defeat from the jaws of victory," says Michael Farr, president of money management firm Farr Miller & Washington. "And stockholders voted with their feet."

Gary Kaltbaum, president of Kaltbaum & Associates, blames the sell-off on "the scare tactics" used by lawmakers. "They set this drop up by scaring us. They said if the vote was not yes, the market would get crushed." And it was.

Investors scurried to the sidelines and to the safety of cash and U.S. government bonds because they fear that the banking system is at greater risk of seizing up and causing untold damage to an economy already struggling under the weight of the worst housing bust and credit crisis since the Great Depression, says Jack Ablin, chief investment officer at Harris Private Bank.