Bailout Rejected

"Idiots, idiots, idiots. You just guaranteed a recession."

That's Jeff Saut, chief investment strategist at Raymond James, who, like many market watchers, is furious at Congress's latest failure to pass the proposed $700 billion bailout for the financial sector. The House of Representatives rejected the measure 228 to 205.

Credit markets seized up, and stocks plunged on the news of the worst possible outcome today for an already dysfunctional Wall Street.

The Dow sank more than 520 points, or 4.7 percent, in late trading as looming problems ranging from bank failures to frozen credit markets continue to spread throughout the global financial system. The Nasdaq lost 6.5 percent, and the S&P 500 lost 6.2 percent.

"It's amazing. The S&P fell like a stone. There are no sectors left unscathed," said Alan Gayle, senior investment strategist with RidgeWorth Capital Management.

So far, hopes for a deal have been raised and dashed twice—once last Thursday when rumors of a deal circulated and again today as policymakers continue to wrangle over details of the plan.

With pledges by backers of the bailout plan to return to the table, Congress will continue to debate just how to fix the housing problem.

In the meantime, the banking crisis will spread as it did over the weekend both in the United States and overseas. Citigroup's $2.2 billion bid for assets of ailing Wachovia led off the latest government-ushered deal to keep a large institution from failing.

Shares of National City and Fifth Third Bancorp slumped heavily during the day on worries the problems in credit markets that sent Wachovia scurrying for a buyer would require the same of even more banks.

"The credit markets seized up. There are no bids in the street. It looks like National City's going to be next and then Regions Financial," Saut said. "If you're on the ropes as a financial institution, all of a sudden your [credit has] dried up."

Similarly, investors are running for the hills. Gold prices rose above $900 an ounce Monday as buyers flocked to safe-haven assets.

Saut notes there's nothing outside of a bailout that supports a bottom in the markets. He also points out that lots of hedge funds close their books at the end of October, and many require 30 days notice for investors looking to pull funds.

"You can bet there are a lot of letters going out today," he said.