Small caps crumble on bailout bill concerns and financial turmoil

Small caps plunged out of the gate on concerns over the $700 billion bailout bill’s effectiveness, global financial distress and as investors digested the Federal Deposit Insurance Corp.’s brokered deal for Citigroup (NYSE:C) to purchase Wachovia’s (NYSE:WB) banking operations.

At 10:15 a.m. ET the Russell 2000 (NYSE:IWM) had tumbled over 3%, or 22.38, to 682.51. 

Regulators came to an agreement on the closely watched $700 billion bailout plan this weekend and will begin voting on the bill today. The bill would essentially nationalize toxic mortgages in an effort to free banks’ balance sheets of these opaque instruments that have frozen lending. However, the market remains skeptical of the bill’s ability to isolate and thwart this reeling financial crisis.

In the latest chapter of the credit crisis, Citigroup will act as Wachovia’s white knight under the direction of the FDIC and acquire its banking operations. Under the terms of the deal, Citigroup will assume $42 billion in losses and provide the FDIC with $12 billion in preferred stock and warrants, while the FDIC will absorb the remaining losses. The sale follows the Charlotte, N.C.-based bank’s negotiations over the weekend with Wells Fargo and Spain’s Banco Santander. 

Overseas, world markets are swooning. Britain’s FTSE index is down almost 3% on Monday’s session, as the United Kingdom experiences the wrath of the credit crisis. Mortgage lender Bradford & Bingley became the second bank to be bailed . . .

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