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Stocks on Wall Street took a blood bath Monday afternoon after the Treasury Department's proposed aid package for the financial sector failed to pass the House of Representatives.

The Dow Jones Industrial Average, which fell as much as 705 points, was lately down 448 points to 10,695, and the S&P 500 lost 66 points to 1147. The Nasdaq plummeted 134 points to 2050. The Dow was taking swings of more than 100 points in the minutes immediately following the vote.

The $700 billion proposal, formally presented last week by Treasury Secretary Henry Paulson, failed to garner sufficient votes to make it through the House of Representatives. The package, which would have set up a facility to use government money to buy troubled assets from financial firms, was voted down with an initial tally of 206 votes for the bill to 227 against. The controversial piece of legislation had earlier been expected to make it through. A total of 218 votes were required to pass the bill.

The sharp decline in the major indices is "strictly in response to Congress not passing the TARP," said Michael Strauss, chief economist and strategist at Commonfund. "The question is, are they going to get back together and try to get something through?" Strauss said the general expectation is that Congress will have to reconvene and try to pass some legislation to help the credit markets.

"This is a wholesale dumping of stocks," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "The Street is trying to indirectly send a message that if this thing doesn't get passed, you'll be faced with a wholesale market selloff, anything across the board."

Action in the private sector offered little solace. The FDIC announced early Monday that Citigroup was buying the senior and subordinated debt as well as banking operations of Wachovia, in a deal facilitated by the Federal Deposit Insurance Corp. The FDIC said that Wachovia did not fail. Shares of Wachovia fell from Friday's closing price of $10 to 94 cents.

"Boy oh boy has the landscape changed," said Hugh Johnson, chief investment officer at Johnson Illington Advisors. By his count, only five major players are left in the financial space: Goldman Sachs (GS) - Get Free Report , Morgan Stanley (MS) - Get Free Report , Bank of America (BAC) - Get Free Report , JPMorgan and Citigroup. "I never would have guessed that."

Johnson said that the spate of consolidation among financial firms is "going to usher in a whole mess of problems, concentration of power being among them. It's only five guys that have to sit down and figure they can rule the world." He said it would be interesting to see whom the Treasury's bailout package helps and what price it pays for troubled assets. "You can bet it's going to be watched carefully," he said.

Meanwhile, Morgan Stanley got a $9 billion investment from Japanese bank Mitsubishi UFJ.

A report in The Wall Street Journal said that private equity companies Bain Capital and Hellman & Friedman were in the hunt to buy the Neuberger Berman arm of bankrupt brokerage Lehman Brothers.

The Financial Times reported that insurance firm AIG (AIG) - Get Free Report was contemplating the sale of 15 of its businesses to repay an $85 billion bridge loan from the Federal Reserve and keep from being taken over by the government.

Shares of National City( NCC) were dropping precipitously, losing 59% of their value to trade near the $2 mark as investors feared it may be the next bank to fall.

The credit crisis was also causing turmoil overseas. European governments early Monday arranged rescues of Bradford & Bingley, Fortis and Hypo Real Estate.

Looking at the day's earnings, electronics retailer Circuit City (CC) - Get Free Report reported a wider second-quarter loss and withdrew its previous 2009 earnings forecast.

Pharmacy chain Walgreen (WAG) , meanwhile, reported profit that rose 13% year over year on strong revenue.

In the pharmaceutical sector, ImClone (IMCL) was still in talks to sell itself to a large drugmaker following a hostile takeout bid from Bristol-Myers Squibb (BMY) - Get Free Report .

As for economic data, the Department of Commerce said that in August, personal incomes rose 0.3%, up from a 0.7% decrease in July and above economists' estimates. Personal spending was flat in August, falling short of analyst predictions of 0.2% growth.

In the commodities space, the price of crude oil was declining $8.66 to $98.23 a barrel, and gold was gaining $11.20 to $905.60 an ounce.

Longer-dated U.S. Treasury securities were sharply rising in price as investors sought safety from the credit crisis. The 10-year note was up 1-24/32 to yield 3.64%, and the 30-year was gaining 3-12/32, yielding 4.17%. The dollar was rising sharply against the euro and pound but falling vs. the yen.

Overseas exchanges, including the FTSE in London and the Dax in Frankfurt, were taking losses. Asian indices such as the Nikkei in Japan and the Hang Seng in Hong Kong closed on the downside.