Wall Street is dead. Whether it was murder or suicide is beside the point; Wall Street as it has operated for the past 75 years has been obliterated in a matter of weeks. And witnessing this violent death in broad daylight has traumatized investors everywhere. The Wall Street domino has toppled everything in sight: U.S. stocks large and small, within the financial industry and outside of it; foreign stocks; oil and other commodities; real estate investment trusts; formerly booming emerging markets like India and China. Even gold, although it has inched up lately, has lost 10% from its highs earlier this year. Not even cash seemed entirely safe, as money-market funds barely averted a “run on the bank.” — Wall Street Journal

A miserable day. In one stomach-churning second last night, the United States and the world were brought to a moment of truth on the deepening credit crisis: it’s winning, we’re not. No sooner had the news broken that Congress had voted down the $700 billion bail-out plan than the Dow Jones index plunged 777.68 points – the biggest intraday points drop ever. In Canada, shares slumped 6 per cent. In Brazil, 10 per cent. Like an unfolding scene from a financial disaster movie, investors dumped bank shares and mutual funds and charged into short-dated Treasury bills. — Bill Jamieson, The Scotsman

Asian stocks plummet after bailout fails. Asian stocks plunged in early trading on Tuesday, following the rejection in Washington of a $700 billion financial bailout package and the biggest one-day decline ever on Wall Street. In Japan, the largest market in Asia, the Nikkei 225 dropped almost 4 percent in the first half hour to 11,274.96 points. Benchmark indexes in South Korea, Australia and New Zealand all fell more than 4 percent. Uncertainty appeared to sweep the region’s financial markets in the wake of the U.S. House of Representatives’ surprise rejection of the bipartisan bailout plan. Investors appeared to be fleeing into what they perceived to be safer assets, like government bonds, gold and currencies of countries relatively unaffected by the mortgage debacle, like Japan. – International Herald Tribune

House to Wall Street: Drop Dead. Many Republicans in the House were never persuaded that the credit crunch in the financial system is an impending disaster deserving of taxpayer aid. Politicians who had cut their teeth on free-market principles couldn’t accept the idea that the federal government should back up the banks who had foolishly bet everything on the housing bubble. Or they didn’t want to face the voters in six weeks and explain why a Republican would vote for the biggest government bailout ever. — Market Watch

Dysfunction in Washington extracts a high price. The country has learned in recent weeks the price of financial failure. Now it will learn the price of political failure. The collapse of the financial-rescue package in the House on Monday may well be reversed, at some point. Discouraged House leaders yesterday sounded as if they hoped the Senate could lead Congress back out of the wilderness in the next few days, giving the plan a second crack at passage. But even if senators manage to revive the bailout plan, a great deal of damage already has been done. – Wall Street Journal

Dollar goes down along with bailout plan. The rejection of the $700B bailout plan by the House of Representatives came completely out of the left field, driving a knife through both US equities and the US dollar. For the Bush Administration, it certainly feels like they are moving one step forward and taking two steps back, but the severity of the financial crisis makes it absolutely necessary for Washington to put economics ahead of politics. – Seeking Alpha

Killed by malice or incompetence? Well, maybe we don’t need much of a private-sector financial system after all. That’s the conclusion that most House Republicans, and a minority of House Democrats, seem to have reached in voting down the $700 billion bailout bill on Monday. Maybe it’s best that, in a few weeks, there will be essentially two large banks left in the country, JPMorgan Chase and Citigroup. After all it has done, perhaps that’s what the financial sector deserves. Was the bailout bill killed by malice or by incompetence? — Slate

What’s worse than a flawed bailout? After nearly eight years of voting in virtual lock step with President Bush on everything from tax cuts to torture, House Republicans decided on Monday to break ranks on the survival of the nation’s financial system. The rejected bailout bill that was on the floor after a weekend of hard negotiating was objectionable in many ways, but it was a Republican-generated bill and was improved from the administration’s original version. Sixty percent of House Democrats voted for the bill, enough to easily pass the measure if the Republicans had not decided to put on their display of pique and disarray. – Editorial, New York Times

Peter Fray

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