It's an 'extremely worrisome situation'

— -- The House vote Monday to reject a $700 billion financial rescue drew a swift and pointed reaction from Wall Street: the largest one-day point loss ever in the Dow Jones industrial average.

The Dow's historic 778-point cry for help followed the stunning 228-205 vote against passage. In percentage terms, Monday's 7% drop didn't even make the Dow's all-time top 10. (It was the 17th worst ever.) But the 8.8% battering absorbed by the broader Standard & Poor's 500 index was its worst since the "Crash Monday" carnage in 1987. The tech-heavy Nasdaq dropped 9.1%.

"This is an extremely worrisome situation," says Lyle Gramley, a former Fed governor now at Stanford Financial Group. "We are going to go through a significant recession even if the bill passes. Without it, we could have the worst recession" since World War II.

With markets in retreat and official Washington at a loss to craft an effective response, fears of a deeper financial crisis were multiplying. Credit markets indicated banks are reluctant to lend even to other banks, threatening an eventual credit drought for scores of businesses. "There is a generalized loss of confidence in financial markets and financial institutions that no policy action seem to be able to control," former White House economist Nouriel Roubini wrote on his influential blog.

Monday's damage wasn't limited to U.S. stocks. In Brazil, trading was suspended after stocks sank 13.8%. Germany, Iceland and the United Kingdom moved to save several threatened banks. And today in Tokyo, the Nikkei index was down 4.6% by afternoon trading.

The market bloodbath capped an extraordinary day in the USA's citadels of finance and politics. Earlier Monday, the Federal Reserve announced it had acted along with nine foreign central banks to address a "shortfall" of U.S. dollars in world markets, effectively making available a total of $620 billion.

In a deal midwived by the Federal Deposit Insurance Corp., Citigroup announced plans to acquire Wachovia's banking operations in a $2.1 billion all-stock transaction. It was the latest in a flurry of recent deals that have reshaped the U.S. banking industry.