Dow Plunges!

Yes stocks were hit bad as approximately $1.2 trillion in market value is gone after the House rejects the $700 billion bank bailout plan.

CBS Marketwatch reported the following. House rejects financial-rescue package

• The House on Monday voted down the Bush administration's historic $700 billion financial rescue plan, triggering one of the worst days for stocks and dealing a sharp blow to bipartisan efforts, despite repeated warnings about the U.S. teetering on the brink of an economic precipice.
  
  A clearly disappointed Treasury Secretary Henry Paulson blasted another dire warning Monday afternoon about stressed world markets reducing credit availability -- a threat to American jobs and livelihood.
  
  "This is much too important to simply let fail," Paulson said.
  
  Officials are trying to figure out what the next step will be for rescue-related legislation, and an aide in the House speaker's office said lawmakers are ready to work in a bipartisan way. U.S. stocks plunged when the vote results became clear, and the Dow Jones Industrial Average ended down 777 points, or 7%, to 10,365.
  
  Finger pointing followed soon after the vote. Republican leaders accused House Speaker Nancy Pelosi of driving away some GOP votes with a partisan floor speech. Rep. Barney Frank, chairman of the financial services committee, said Republicans may be "covering up the embarrassment" of not having the votes.
  
  "And because somebody hurt their feelings they decide to punish the country," Frank said. "I mean, I would not have imputed that degree of pettiness and hypersensitivity."
  
  Pelosi said bipartisan needs to move legislation forward: "The crisis has not gone away."
  
  Some House members balked at giving the Treasury immense power -- the ability to buy up hundreds of billions of bad debt. And there were ongoing complaints over insufficient accountability, transparency and large-scale government intervention. But Paulson, along with Federal Reserve Chairman Ben Bernanke, has been intent over the past week on broadcasting warnings about dire consequences if the plan was even delayed.
  
  With elections approaching, lawmakers, both Democrats and Republicans, are under intense scrutiny, and nervous about voting for a plan that risks so much taxpayer money without any definitive promise of success. In the end, there were 205 in favor of the legislation and 228 against. Among Democrats, 140 voted in favor and 95 against. Among Republicans, 65 voted in favor and 133 against.
  
  Critics also say the plan inadequately addressed job losses and a distressed housing market --problems that underlie current economic weakness. Meanwhile, those in favor of the plan were looking to treat a manageable symptom -- the frozen credit market -- if not the actual disease.
  
  A vote in the Senate was expected Wednesday, and the president would have followed with a speedy signature.

Many thanks to Trader Mike for putting the plunge into perspective. The Worst One-Day Percentage Losses for the Dow, S&P 500 and Nasdaq »

• Today was the third worst one-day decline for the Nasdaq. Here are the 10 worst percentage losses for the Nasdaq:
  
  October 19, 1987: -11.35%
  April 14, 2000: -9.67%
  September 29, 2008: -9.14%
  October 26, 1987: -9.01%
  October 20, 1987: -9.00%
  August 31, 1998: -8.56%
  April 3, 2000: -7.64%
  January 2, 2001: -7.23%
  October 27, 1997: -7.16%
  December 20, 2000: -7.12%
  
  The S&P 500 had its second worst day since 1950. (The data’s from Yahoo Finance and only goes back to 1950. The S&P 500 index was created in 1957, but it has been extrapolated back in time.) Here are the 10 worst one-day percentage losses for the S&P 500::
  
  October 19, 1987: -20.47%
  September 29, 2008: -8.79%
  October 26, 1987: -8.28%
  October 27, 1997: -6.87%
  August 31, 1998: -6.80%
  January 8, 1988: -6.77%
  May 28, 1962: -6.68%
  September 26, 1955: -6.62%
  October 13, 1989: -6.12%
  April 14, 2000: -5.83%
  
  There are a lot of October & September dates in that list!
  And finally the Dow. I’m not sure where today’s drop ranks but it’s not in the top 5 (via Dave Manuel).
  
  October 19, 1987: -22.61%
  October 28, 1929: -12.82%
  October 29, 1929: -11.73%
  November 6, 1929: -9.92%
  December 18, 1899: -8.72%
  
  From the data I pulled from Yahoo Finance, which only goes back to 1928, today was the 17th worst day since 1928.. It was the fourth worst in modern times — which is probably a better measure given how different the world is now. Given all the circuit breakers put in post the 1987 and 1989 “market breaks” it would be real difficult (if not impossible) to get another 22% down day. Here’s the modern top five worst Dow days:
  
  October 19, 1987: -22.61%
  October 26, 1987: -8.04%
  October 27, 1997: -7.18%
  September 17, 2001: -7.13%
  September 29, 2008: -6.98%

And on the NY Times, warnings are out that this financial crisis could spread worldwide! Financial Chill May Hit Developing Countries

• September 26, 2008
  Financial Chill May Hit Developing Countries
  By MARK LANDLER
  
  WASHINGTON — As Europe and Asia play down the need for an American-style bailout for their banks, the crisis may threaten a different class of countries: those in Eastern Europe, Latin America and Africa that depend on foreign capital and shoulder American-style trade deficits.
  
  Alarmed by the threat, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, is calling for a multilateral consultation — involving the United States, Europe, China and other financial powers — to develop a coordinated response to the crisis.
  
  “We’re facing a systemic crisis, and it needs a systemic response,” Mr. Strauss-Kahn said in an interview on Wednesday. “The I.M.F. is the right place to organize a global response to weaknesses in the global financial system.”
  
  His initiative is an attempt to thrust the fund back into the thick of world events — a role it played in previous financial crises in Asia, Russia and Latin America, but has not played in the current turmoil.
  
  Whether or not he succeeds, economists agree that Mr. Strauss-Kahn, a former French finance minister, has identified a risk. The crisis, by squeezing the flow of capital, threatens countries from the Baltic to Africa that depend on foreign money to finance their deficits.
  
  “There are a number of countries where you can get quite worried if capital flows stop,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “When you look at their high current-account deficits, Central and Eastern Europe seem particularly vulnerable.”
  
  A second category of countries are those who export oil or other commodities, and are vulnerable to a decline in prices — something that economists said would happen if the crisis hobbled growth. Oil plunged last week as Wall Street teetered, but it bounced back as hope rose for a bailout.
  
  “If the world economy does experience something like a global recession next year, those countries will be at risk,” said Michael Mussa, a senior fellow at the Peterson Institute for International Economics.
  
  There are more than 20 countries with current-account deficits that exceed 5 percent of their economic output, Mr. Strauss-Kahn said, putting them in what the fund considers the endangered category.
  
  Mr. Strauss-Kahn declined to name names, but outside economists listed Bulgaria, Estonia, Romania and Turkey as among the red flags in Europe. In Africa, they said, South Africa and Nigeria were worrisome; and in Latin America, Venezuela and Ecuador.
  
  The list, Mr. Strauss-Kahn said, does not include the four largest emerging-market countries — China, Russia, Brazil and India — which are running healthy trade surpluses or have hundreds of billions in foreign exchange reserves, though Russia is vulnerable to a drop in oil prices.
  
  Western Europe, economists say, is unlikely to be seriously affected, despite having banks that hold mortgage-related assets. This has made European officials reluctant to heed the Treasury Department’s call for them to undertake their own efforts to bolster the financial system.
  
  Treasury Secretary Henry M. Paulson Jr. has resisted efforts by Congress to make foreign banks ineligible for the plan. But administration officials said they planned to set priorities on which ones to help, based on whether their governments were willing to help with the cleanup process.
  
  Two of the most threatened countries lie on Europe’s eastern frontier: Bulgaria and Romania, which have racked up high current account deficits and are running overheated economies.
  
  “These countries have been growing too fast or borrowing too much,” said Peter Akos Bod, a former president of the Hungarian central bank. “Should there be a sudden stop in capital, they would be in deep trouble.”
  
  Latin America is a perennial source of worry, given its history of troubled fiscal policy. For the moment, several countries, notably Venezuela, are benefiting from the soaring price of oil.
  
  But if oil and other commodities were to decline, said John Williamson, a senior fellow at the Peterson Institute who specializes in the region, “South America would be less comfortably placed.”
  
  Mr. Strauss-Kahn said he recognized that the monetary fund would be largely a bystander in this crisis, given that the problems began in the United States and remain largely a domestic banking issue.
  
  But he said the fund could play a role in giving advice. Among its suggestions: rather than buy distressed mortgage-related securities from banks, the Treasury should swap them for bonds, which Mr. Strauss-Kahn said would be cheaper and leave some of the risk with the banks.
  
  Mr. Strauss-Kahn said he also planned to confront one of the most politically charged issues at the fund: strengthening its pressure on China to allow its currency, the renminbi, to rise.
  
  Critics in the Bush administration and Congress say the fund has not pushed China hard enough on its currency. Mr. Strauss-Kahn acknowledged the difficulty of being tougher, given the politics of the fund.
  
  The fund’s last multilateral consultation, to discuss global imbalances, was held in 2006. It included China, Japan, the European Union, Saudi Arabia, and the United States. Mr. Strauss-Kahn did not say which countries would be invited to take part this time, though other officials said it would probably include those countries and emerging markets like Brazil and Russia.