The U.S. House of Representatives shortly after 2 p.m. rejected the $700 billion bailout package hammered out in negotiations among House and Senate leaders and the Bush Administration over the weekend. The bill fell 12 votes short of passage as Republicans voted more than two to one against the measure after debate took on a decidedly partisan tone (one vote later switched to 'nay,' the final tally was 228 to 205).

Wall Street, which had expected the measure to pass, was stunned. Financial markets swung wildly as the vote was taking place, with the Dow Jones Industrial Average down as much as 705 points during the vote.

Once it became clear that the vote had failed, the Dow lost 575 points, quickly recovered to a loss of 513, and by 3:30 had sunk nearly 720 points before closing down 777.68, or 6.98%, its greatest one-day point drop in history. Treasury yields fell to record lows as cash headed for safety. Commodities, including oil, plunged; however, gold was up 3.35%. Builder stocks were swept up in the swoon, with losses of 14.3% on Pulte (NYSE:PHM); 12.4% on D.R. Horton (NYSE:DHI); 11.3% on Hovnanian (NYSE:HOV); 10.8% on Centex (NYSE:CTX); 9.62% on Lennar (NYSE:LEN); 7% on Meritage (NYSE:MTH); and 7% on Toll (NYSE:TOL).

It was unclear at midafternoon whether the House planned further action on a financial bailout package. House Financial Services Chairman Barney Frank (D-Mass.) put out a statement saying that the House leadership would be monitoring the economic reaction to the vote before deciding how to proceed.

Republican House leadership said after the vote that it had lined up enough votes for the package to pass, but members of the caucus fell out of the coaltion after House Speaker Nancy Pelosi delivered a highly partisan speech just before the voting began. Democrats responded in kind, saying that the Republicans failed to marshall enough votes to get the measure through.

"The legislation has failed, the crisis has not gone away, and we must work in a bipartisan fashion," said Pelosi in a post-vote news conference. "We delivered on our side of the bargain," she said, noting that 60% of the Democratic caucus backed the bill. She held out hope that Congressional leaders will continue to seek compromise on the issue of a financial rescue plan. "We extend a hand of cooperation to the White House, to the Republicans," she said. "The lines of communication remain open."

"There is a wing of the Republican party who believe very deeply in this free-market ideology," said Frank during the press conference, explaining why he thought the bill failed to pass. "I'm ready to work. We're ready. I still believe it is important to the country to come up with a piece of legislation" that will help the country solve the financial crisis. Referring to the Republicans who changed their votes based on Pelosi's speech, Frank said, "Give me those 12 names and I will go talk uncharacteristically nicley to them."