Wow.

Everyone OK?

Yesterday will undoubtedly go down as one of the most flabbergasting days in our market's history. The Dow Jones' 777-point decline marked the largest one-day drop ever (in points, not percentage), after the House of Representatives voted down the proposed financial-system bailout.

First, a few notes:

  • The Nasdaq fell nearly 10% -- its third-largest one-day percentage decline ever.
  • The Volatility Index -- known as the VIX, or "panic" index -- jumped 34.5% to close at its highest level ever.
  • Citigroup (NYSE:C) bought Wachovia (NYSE:WB) for around $1 per share ... incredible news that was largely ignored amid the market mayhem.
  • The Dow closed just 100 points above where it stood exactly nine years ago. Compound growth ... whoo-hoo!

And the granddaddy of all the eye-catching figures of the day:

  • Yesterday's stock market swoon zapped $1.2 trillion from equity markets.
  • The bailout plan proposed extending $700 billion in credit, the majority of which would likely be recovered.

If there's a statistic that better conveys that this is more of a Main Street problem than a Wall Street problem, I don't know what it is. But, heck, there's no point belaboring that topic much longer. Fingers can be pointed and mud can be flung for years to come. What people want to know is, where do we go from here?

Hang in there, Hank
A few notable points: One, the Treasury isn't necessarily out of options. It can still handle financial bailouts on a case-by-case basis, as it's done for AIG (NYSE:AIG), Freddie Mac (NYSE:FRE), and Fannie Mae (NYSE:FNM) in the past several weeks. While that'll hardly solve the problem long term, Hank Paulson and Co. still have some ammunition left should remaining heavyweights like Goldman Sachs (NYSE:GS) or Morgan Stanley (NYSE:MS) teeter on the brink of collapse, as they had before the mother of all bailouts was announced a week and a half ago.

Besides, just because a wide-reaching bill stalled yesterday doesn't mean it's killed for good. As the days and weeks unfold, our pals in Washington will (hopefully) assess how markets react to the thought of having to make it through this mess cold turkey.

Keep in mind that markets price in the odds that certain events will happen, and yesterday's incredible crash, believe it or not, is still undoubtedly pricing in the expectation that some sort of bailout plan will eventually take shape. If it becomes clear that there truly won't be a wide-reaching bailout, yesterday is all but sure to be just the beginning of a flock of very angry chickens coming home to roost. And, again, we're not just talking about a stock market correction or a Wall Street bailout -- we're talking about a collapse of the financial system that every inch of the economy relies on in one way or another.

The long, uncertain road ahead
Still, what keeps me up at night aren't bank failures, market plunges, or stalled votes on Capitol Hill. It's the value of the dollar, particularly the fate of the dollar in light of the fact that foreign investors who hold trillions of dollars worth of U.S. securities are watching our financial meltdown as it happens.

Keep in mind that the value of the dollar isn't backed by gold, silver, beads, or sea shells. It's backed by the assumption that the U.S. is the world's alpha economy. Sure, it still is, and will be for some time to come, but having foreign investors own 25% of our Treasury bonds while watching our financial system slowly wither away should make you squirm. Remember Bear Stearns? Lehman Brothers? WaMu? They were all "financially strong" until investors saw the writing on the wall and gave up on them, staging a run on the banks in one way or another. 

Could the American economy as a whole be setting itself up for a similar situation? If the financial system is allowed to completely crater, the answer should be a resounding yes, which is part of the reason why so many have expressed such a sense of urgency over this situation.

The suspense is just killing me.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.