The Dow suffered its worst one-day point loss ever on Monday after the House of Representatives failed to pass a $700 billion financial bailout plan aimed at rescuing Wall Street from the most serious credit crisis since the Great Depression.

The dramatic day on Wall Street also saw Citigroup take over Wachovia's banking operations in a government-assisted deal, and the second-largest percentage drop in crude oil since April 2003.  

Today's Market

The Dow Jones Industrial Average fell 777.68 points, or 6.98%, to 10365.45. The broader S&P 500 Index dropped 106.85 points, or 8.81%, to 1106.42, while the Nasdaq Composite Index slid 199.61 points, or 9.14%, to 1983.73. The consumer-friendly Fox 50 Index lost 69.82 points, or 7.87%, to 816.81.

The markets plummeted as traders, glued to television screens showing the vote tally in Washington, saw their bailout hopes go down the drain. Wall Street feared politicians won't be able to put their differences aside to help unclog the credit markets. 

“There is no way to sugar coat this. This was a complete debacle as far as Wall Street is concerned,” said Michael James, senior equity trader at Wedbush Morgan Securities. “There is a significant lack of confidence in not only the U.S. political system but the U.S. financial system right now. Something needs to happen…and within a day or two.”

The losses on Wall Street were striking, placing all three indexes into triple-digit declines. The Dow suffered its largest one-day point drop ever, topping the losses following the Sept. 11 terrorist attacks. When the dust cleared, the blue chips landed at their lowest level since October 2005, down 27% from record highs set a year ago. 

However, on a percentage basis the losses weren't even close to the 20% the benchmark index lost on Black Monday of October 1987. It was the 17th biggest percentage drop in the Dow's history. 

The S&P 500, the broad index that traders closely follow, suffered its steepest percentage losses since Black Monday and its worst point decline ever. The S&P ended at its worst level since October 2004. 

Wall Street dumped tech stocks as the Nasdaq Composite ended with its sharpest point and percentage losses since the bursting of the tech bubble in 2000.

Meanwhile, the VIX, a gauge of market fear, soared 34% to an all-time record of 46.72. 

“It's history in the making here. It's very dangerous to be playing out a political front in this environment," said Frank Davis, director of sales and trading at Lek Securities. 

The markets paid little attention to a $10 dive in crude oil prices and largely ignored a new report showing weaker-than-expected consumer spending in August.

“It's just unfortunate that politics is basically distracting from what isn’t a perfect solution but is in the best interest of our financial markets," NYSE trader Ted Weisberg of Seaport Securities told FOX Business. 

Failed Rescue Vote Slams Markets

The House voted 228 to 205 to defeat the bailout bill, rejecting urgent appeals from Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and President Bush. 

Over the weekend, Congress agreed on key points of a bill the Bush administration has said is necessary to prevent a financial meltdown. The bill would have given the Treasury authorization to buy $700 billion of mortgage-backed securities from banks in an effort to unlock the credit markets. 

Paulson met with President Bush, Bernanke and Congressional leaders after the vote to decide on the next step. In a press conference after the close of markets, Paulson said he was "very disappointed" in the vote and said he would continue to try and forge an agreement.

A senior house aide told Reuters the U.S. House could abandon its pre-election recess plans to deal with the financial crisis.

“The market was weak going into this so it didn’t need much tipping over," said Peter Boockvar, equity strategist at Miller Tabak. "I know a lot of people think this government bailout is the right thing to do but I don't think it targets the exact problem, which is falling house prices.”

All 30 stocks on the Dow ended with losses of more than 2% each. Bank of America (BAC) and American Express (AXP) plummeted 17% a piece, the two biggest percentage losers on the Dow. JPMorgan Chase (JPM) and General Motors (GM) suffered double-digit percentage declines as well. 

The Nasdaq Composite saw massive losses with tech giant Apple (AAPL) suffering its worst one-day percentage loss since June 2002. BlackBerry maker Research in Motion (RIMM) continued its steep decent and Amazon.com (AMZN) was also down sharply. 

Citi Swallows Wachovia

In the mean time, Wall Street was spooked after Wachovia (WB) nearly failed and European banks came under fire. 

Minutes before Monday's opening bell, the Federal Deposit Insurance Corp. said Citigroup (C) acquired the bulk of Wachovia's assets and liabilities in a government-assisted deal worth $2.1 billion of Citi stock. The FDIC said Wachovia “did not fail" and depositors will be fully protected.

The FDIC said its assistance in this deal was needed to prevent serious adverse effects on economic conditions. The regulator consulted with President Bush and Paulson.

The demise of Wachovia comes near the end of an historic month on Wall Street during which the nation’s financial landscape has been dramatically altered.

Over the past four weeks, the government nationalized mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), allowed investment bank Lehman Brothers (LEH) to file for bankruptcy protection, gave insurance giant American International Group (AIG) an emergency $85 billion loan and seized Washington Mutual (WM).

Also, banking giant Merrill Lynch (MER) sold itself to Bank of America (BAC) and Goldman Sachs (GS) and Morgan Stanley (MS) converted into commercial banks.

Fed Acts to Boost Liquidity

The Federal Reserve and other central banks took further actions Monday aimed at unlocking the credit markets. In addition to expanding its 84-day cash loan program by $50 billion, the Fed also boosted a temporary currency swap by $330 billion. 

"In response to continued strains in short-term funding markets, central banks today are announcing further coordinated actions to expand significantly the capacity to provide U.S. dollar liquidity," the Fed said in a press release. 

Other Market-Moving News

U.S. banks are not alone in this credit crisis as three major European banks received government help over the weekend.

Three governments invested $16.3 billion into the Netherlands' Fortis, the British government nationalized mortgage lender Bradford & Bringley and the Icelandic government seized Glitner bank. 

Also, crude oil futures plunged below $100 a barrel, suffering their largest one-day percentage decline since April 23, 2003. Crude closed down $10.09 to $96.09 a barrel. The losses were second only to last Tuesday's plunge of 11.8%. 

Crude prices have come under pressure as the energy market has bet the turmoil in the credit markets will weigh on the economy and hurt demand for oil. Crude prices have also fluctuated with the latest headlines out of Washington over the $700 billion rescue plan. 

There was a clear flight to quality on Monday as the 30-year Treasury bond soared 3%.

Corporate Movers

National City (NCC) lost more than half of its market cap on Monday as Wall Street worries the regional bank will follow in the footsteps of Washington Mutual and Wachovia. Shares of National City have lost nearly 80% of their value in 2008. 

Apple (AAPL) plunged double-digit percentages to 52-week lows after Morgan Stanley and RBC downgraded the tech titan.

 Lehman Brothers (LEH) reached an agreement to sell its Neuberger-Berman asset management unit and other businesses to private-equity firms Bain Capital and Hellman & Friedman for $2.15 billion. 

Fannie Mae (FNM) and Freddie Mac (FRE) disclosed on Monday they were subpoenaed earlier this month by a federal grand jury investigating their accounting. The mortgage giants that were seized by the government also said they are subject to an SEC investigation

InBev shareholders gave a green light to the Belgian-Brazilian brewer’s $52 billion takeover of Anheuser-Busch (BUD), a deal which will create the world’s largest brewer. 

Global Markets

European markets fell sharply on Monday. The FTSE 100 Index, London's benchmark index, was down 267.70 points, or 5.30%, to a reading of 4818.77. The Dow Jones Euro Stoxx 50 slid 148.27 points, or 4.70%, to 3008.19. 

Asian markets closed lower overnight. The Nikkei 225 lost 149.55 points, or 1.26%, to 11743.61. Hong Kong's Hang Seng Index plunged 801.41 points, or 4.29%, to 17880.68. 

Data Dump

The government said consumer spending was flat in August, the worst monthly performance in six months. At the same time, personal incomes rose 0.5% last month, reversing  0.6% decline from July. Economists had expected incomes to rise 0.2%.