Bailout vote stuns Washington, markets

Overseas markets plunge
Reaction was just as swift from foreign markets. Brazil’s Ibovespa stock index dived by 13.8 percent in afternoon trading, Argentina’s Merval index dropped 8.8 percent, Mexico’s Bolsa index slipped 6.2 percent and Chile’s Ipsa index fell 4.6 percent.

The slide was already well under way in Europe and Asia as nervous traders bet against a U.S. bailout. Japan’s Nikkei 225 Index fell 149.55 points and Hong Kong’s blue-chip Hang Seng Index fell 801.41 points, to close at 17,880.70. European shares suffered their biggest losses in eight months, with London’s FTSE down 5.3 percent, Germany’s DAX by 4.2 percent and France’s CAC by 5 percent.

Frank Geilfuss, head analyst at Bankhaus Loebbecke, said investors were “fearful, frenetic, especially when it comes to banking shares. They want to get out now and see the after effects from afar.”

The swings began after Wachovia Corp. agreed to sell most of its assets to Citigroup Inc. in a deal brokered by regulators. Monday, governments in eight European capitals took similar action, signaling that “the contagion is spreading to mainland Europe” said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton in London.

French President Nicolas Sarkozy called for coordinated action by the European Union to step into the vacuum after the British government mortgage lending giant Bradford & Bingley Plc and Belgium, the Netherlands and Luxembourg partly nationalized Belgian-Dutch group Fortis NV.

Germany, meanwhile, led a consortium of banks to rescue mortgage lender Hypo Real Estate Holding AG secured a credit line from the German government, and bank rescue deals also emerged in Iceland, Russia and Denmark.

‘Can’t see what the upside is’
The legislation would have allowed the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books would bolster those companies’ balance sheets, making them more inclined to lend and easing one of the biggest chokepoints in the credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the sputtering national economy.

“I can’t believe they weren’t able to come together and come up with a solution,” said Stephen Berte, a senior equity trader at Standard Life in Boston. “I can’t see what the upside is right now.”

Sen. Barack Obama of Illinois, the Democratic nominee for president, said the “inaction in Congress” illustrated why “the American people are disgusted with Washington.”

“Now is the time for Democrats and Republicans to join together and act in a way that prevents an economic catastrophe,” Obama said in a statement.

The campaign of the Republican nominee, Sen. John McCain of Arizona, used the occasion as an opportunity to blame Obama for the failure of the measure.

“Barack Obama failed to lead, phoned it in, attacked John McCain, and refused to even say if he supported the final bill,” McCain’s senior policy adviser, Doug Holtz-Eakin, said in a statement. “This bill failed because Barack Obama and the Democrats put politics ahead of country.”

McCain ignored reporters’ shouted questions Monday as he boarded his plane for a campaign stop in Des Moines, Iowa.

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