As the government’s $700 billion bailout plan failed to pass in the House, fear tore through Wall Street and exchange traded funds (ETFs).

As the vote was shown on TV, stocks plunged as investors worried that the financial system would continue to collapse on failed mortgage debt, reports Tim Paradis for the Associated Press. Investors had worried that the vote would be close, but most believed it would pass.

Treasury debt prices rocketed higher in one of their biggest rallies of the year, as fears about the bank failures and the government’s rescue plan spread, reports John Parry for Reuters.  The 10-year Treasury note’s price, which moves inversely to its yield, gained a full 2 points, putting it on track for its biggest gain since Sept. 15.

Bond investors were beginning to look closely at the bailout plan and questions about details contributed to the safe-haven appeal of government debt. Ultra-short-dated Treasury bonds benefited the most, as one-month rates dropped briefly to 0.05%, giving low returns in exchange for safety.

The financial crisis on our turf isn’t just our problem, either. The consequences of this mess will hit businesses and everyday people from Tokyo to Buenos Aires, reports the Associated Press.

Asia relies heavily on the United States to drive its export business, and it’s drying up. Retailers in both Europe and the United States are facing a slow holiday retail season. And lenders the world over spooked by what’s going on may stop sending capital to companies and consumers, further hurting economies.

The World Economic Forum on Friday put it bluntly: the world faces a “heightened risk of contagion” and “massive consumer credit defaults.”

Still, the overriding message was “don’t panic.” We’ll agree to that wholeheartedly. We know that when investors see the Dow drop 600 points or more in a single day, fear settles in. But if you have your sell strategy in place, you’ve likely implemented it by now and are protecting yourself on the downside.

Investors who put their plan to action are watching today’s developments from the sidelines, and feeling a measure of relief that they’re not in the thick of it.

Tags: Asia, Bond ETFs, DGL, Dow Jones Industrial Average, Gold, INY, Municipal Bonds, Precious Metals