It's hardly surprising that Congress rejected the hastily-thrown together bailout package. All the polls were showing that people wanted them to pass something different. One suspects the Republicans would be feeling particularly vulnerable at this point, having been turfed out in the House and Senate. The question now is what the hell are they going to do. The only way this is going to work is to make the guilty pay. And who cares if shareholders take a bath? The entire system is built around the premise that investors take the risk.

The latest developments show that the lawmakers underestimated the public animosity towards Wall Street and the power elites. Still, the politicians can't just sit back and let the system collapse.

So what happens now?

First, with the prospect of more banks going under, the Bush administration needs to focus on the Federal Deposit Insurance Corporation. I have already done a blog entry looking at how the FDIC might run out of money soon.

London-based investment consultancy Independent Strategy says the world cannot escape a recession but there will have to be a new plan, one that's better than a strategy of buying toxic assets with taxpayers' money. Read about it in its report US - rejection!. The House reconvenes later this week, so we'll see what's on the table.

For any package to pass, there will have to be more days of crashing share prices and bad economic data. As Los Angeles Times blogger Tom Petruno implies, that's probably the only way the penny will drop.

"People who oppose the bailout plan, and who want financial companies to pay for their sins in the housing debacle, will see today as a victory. The question is, will it still be a victory a week from now if the stock market is 25% lower, the economy is skidding into a deep recession, and Main Street, like Wall Street, finds credit nowhere to be had?"