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The Dow closed the day down 777.68 points, or 6.89 percent, beating its previous record set on the first trading day after the Sept. 11, 2001, terror attacks. Still, in percentage terms, the decline remained well below the more than 20 percent drops seen on Black Monday of October 1987 and at the beginning of the Depression.

?This is panic, and fear is running amok,? one trader told CNBC. ?We are in a classic financial meltdown, and it?s panic-based. We?re seeing panic selling.?

Chris Johnson, president of Johnson Research Group, said Monday?s market was not for the timid.

?Clearly something needs to be done,? he said. ?And the market dropping 400 points in 10 minutes is telling you that.?

While investors had some worries that the vote would be close, many on Wall Street appeared to believe it would ultimately pass. The proposal wasn?t been seen on the Street as a panacea for the deepening problems in the financial sector that have led to the failure of Lehman Bros. and Washington Mutual and the forced sale of Merrill Lynch & Co. and Wachovia Corp. ? and that still pose a threat to many other banks.

The markets turned highly volatile as it became clear the measure wouldn?t find the necessary support. The broad Standard & Poor?s 500-stock index closed down 106.59 points, or 8.79 percent, while the Nasdaq composite index tumbled 199.61 points, or 9.14 percent ? its third-worst point decline ever.

Wall Street is contending with all these issues against the backdrop of a credit market ? where bonds and loans are bought and sold ? that is barely functioning because of fears that anyone lending money will never be paid back. The evidence of the credit markets? ills could again be found Monday in the Treasury?s 3-month bill ? investors were stashing money there, willing to take the tiniest of returns simply to be sure that their principal would survive in what?s considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.

Investors also faced other worries about the banking system. Wachovia became the latest big bank to be rescued from its overwhelming bad mortgage debt, agreeing to a federally brokered buyout of its banking operations by Citigroup Inc.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

?Things are dying and breaking apart while they sit there and vote on this thing,? he said.

The dollar fell against other major currencies, while gold prices rose.

Crude oil fell $11.39 to $95.50 on the New York Mercantile Exchange as investors feared that a worsening economy would slice into energy demand. If the decline held, it would be oil?s largest ever one-day drop.

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.

?Things are dying and breaking apart while they sit there and vote on this thing,? he said.

Lawmakers voted down a plan that was different than what the Bush administration had originally proposed. There were restrictions allowing Congress to limit how much of the money goes out the door at once. It also included caps on pay packages of top executives as well as assurances that the government also would ultimately be reimbursed by the companies for any losses.

The Treasury would have been permitted to spend $250 billion to buy banks? risky assets, giving them a much-needed necessary cash infusion. There also would be another $100 billion for use at president?s discretion and a final $350 billion if Congress signs off on it.

Wall Street found further reason for worry overseas. Three European governments agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium?s largest retail bank.

The British government, meanwhile, said it is nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S. Video

Tight credit market to get tighter
Sept. 29: CNBC's Michelle Caruso-Cabrera tells NBC's Brian Williams that unless a remedy is found soon, businesses may need to take drastic actions as credit dries up.
MSNBC



Japan?s Nikkei stock average fell 1.26 percent. Britain?s FTSE 100 fell 5.30 percent, Germany?s DAX index fell 4.23 percent, and France?s CAC-40 fell 5.04 percent.

Meanwhile, consumer spending fell in August to its lowest level in six months. The Commerce Department said spending remained unchanged rather than increasing 0.2 percent as economists had expected. It was the worst showing since February.

Personal incomes rose a better-than-expected 0.5 percent after falling 0.6 percent drop in July. But after-tax incomes fell by 0.9 percent. Incomes benefited in past months from the government?s stimulus checks.

Wall Street is also worried about overall sluggishness in the world?s economy. In the U.S., for example, unemployment now sits at a five-year high of 6.1 percent. That rate is expected to increase, perhaps putting further pressure on consumer spending, which accounts for more than two-thirds of the nation?s economic activity.

The Associated Press and Reuters contributed to this report.

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Brit_in_NJ

.What it means...we can't retire!

530ISPORT

THIS is a real issue, for my kids future,mine every one in the states and across from us...

Iceman

It means another sleepless night for the bankers.

I see light in ALL the bank skyscrapers here in Frankfurt.
The brokers are probably sweating allready, thinking about tomorrow mornings stock exchange opening...

White5

US is coming close to a Great Depression era soon.

530ISPORT

yes i know.. its very scary!!!!!!!!!

ModBargains

So much for the bailout.

At this point its just a matter of voting for the finanacially sound decesion.

530ISPORT

at this point im going to have to start robbing banks and stickin up people to pay for my house and car......

Iceman

Robbin' banks?

I don't think there's much left to rob.

530ISPORT

I THINK YOUR RIGHT...