Updated from 2:09 p.m. EDT

The House of Representatives voted down the Treasury's $700 billion financial bailout package Monday afternoon, sending

stocks

into a record freefall.

As reports of the vote -- 205 in favor of the measure and 228 against it -- came trickling into Wall Street, the

Dow Jones Industrial Average

plunged more than 700 points. The index ended the day with its biggest one-day point loss ever and its heftiest single-day percentage loss since trading reopened after the terrorist attacks of Sept. 11, 2001.

The contentious legislation, which had been reworked by both sides over the weekend, was intended to allow the government to buy up toxic mortgage-related securities clogging up bank balance sheets. It would represent the biggest government intervention in the nation's financial markets since the Great Depression.

While top lawmakers and the Bush administration seemed confident that the proposal had been altered enough to gain approval, apparently not enough were swayed.

The measure was slated for a Senate vote on Wednesday. It is unclear whether it will need a complete renegotiation and overhaul, or whether House members who supported the bill would be able to convince enough of their counterparts to approve the measure.

Treasury Secretary Henry Paulson, the engineer of the proposed bailout, expressed his "great disappointment" after the votes were tallied, but he also cited today's collapse of

Wachovia

(WB) - Get Report

as part of the reason why such a plan is "much too important to simply let fail."

He vowed, "I will continue to work with Congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people by limiting the prospects of further deterioration in our economy."

This morning, ahead of the vote, President Bush pushed for the need for a bailout. "I fully understand that this will be a difficult vote," Bush said, according to a transcript of his remarks. "But with the improvements made to this bill, I'm confident that members of both parties will support it. Congress can send a strong signal to markets at home and abroad by passing this bill promptly. Every member of Congress and every American should keep in mind: A vote for this bill is a vote to prevent economic damage to you and your community."

The Treasury and the

Federal Reserve

had been pressing Congress for more than a week to grant Treasury the authority to relieve banks of soured assets. The plan is aimed at stabilizing the credit markets, which have essentially frozen in recent days, and preventing the financial crisis from claiming more banks and further damaging the broader economy.

Although Paulson and

Federal Reserve

Chairman Ben Bernanke had asked Congress to quickly approve their request, it became bogged down on Capitol Hill as lawmakers -- at times prodded by angry constituents -- insisted upon more control over the Treasury's spending authority and provisions to protect taxpayers and struggling homeowners.

Talks on the

bailout

plan broke down late Thursday, partly because of opposition from House Republicans, who had tried to craft an alternative plan that would let banks buy insurance on mortgage-related debt they hold.

The finalized bailout plan reflects lawmakers' insistence on some control over Treasury's spending. The administration would get $250 billion immediately, followed by another $100 billion if the president certified it was required, according to the

AP

report. The final $350 billion would require a separate certification and be subject to a congressional resolution of disapproval, the report added. The president could veto this resolution, however.

Negotiations made a breakthrough when Democrats agreed to incorporate a Republican demand to have the government insure some debt instead of buying it, the report said.

The plan would prevent participating companies from giving "golden parachutes" to their executives and aims to limit pay packages, the

AP

report said. Firms that get $300 million or more of help from the program would have to pay heavy taxes on executive compensation of more than $500,000 a year, the report added.

Taxpayers would also get the opportunity to share in the future profits of companies that participate, because the government would receive stock warrants in return for the help, according to the report.

In an effort to help homeowners facing foreclosure, the plan also would require the government to try to rework bad mortgages it acquires so as to lower borrowers' monthly payments, the report added.

The current crisis, which has its roots in the risky mortgages that were liberally issued earlier this decade and the housing boom that they fueled, has shaken the financial system to its foundations. It has claimed storied investment banks

Bear Stearns

and

Lehman Brothers

. This week it forced the government to shut down

Washington Mutual

(WM) - Get Report

and sell its deposits and assets to

JPMorgan Chase

(JPM) - Get Report

. Also this week, former investment banks

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

asked to be made into traditional bank holding companies in order to stave off a market attack on their shares.

The success of the rescue of the U.S. financial system probably depends as much on the central banks of China and the Middle East as on Congress and the Federal Reserve,

The Wall Street Journal

reports.

The U.S. is turning to foreign governments and other overseas investors to buy a good chunk of the $700 billion in Treasury debt expected to finance the bailout. Foreign investors also are needed to shore up the depleted capital of the nation's financial institutions, the

Journal

reports.

This article was written by a staff member of TheStreet.com.