Treasury Secretary Henry Paulson announced the government will not buy bank’s toxic mortgage assets after all, sending dismay to investors and Wall Street, which negatively affected exchange traded funds (ETFs).

Much of Wall Street was excited about the prospect of having the bad debt wiped off companies’ books. 

The rejection of this proposal as of Wednesday sank the Dow Jones Industrial Average another 250 points midday, with major indexes retracting more than 2%, reports Sara Lepro for Associated Press.

The $700 billion bailout plan is proving to be time-consuming and instead the focus will be on buying stakes in banks and encouraging them to resume normal lending.

In response to the financial turmoil, consumers have cut their spending back, with retailers stuck in the toughest environment yet. Best Buy Co. (BBY) cut their fiscal 2009 earnings outlook lower than analysts’ estimates, while Circuit City (CC) filed for bankruptcy protection because of a lack of vendor confidence and low liquidity amidst the economic panic, reports Betsy Vereckey for Associated Press.

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