Steve Schaefer, 09.17.08, 5:00 PM ET

Forbes

Wall Street was in disarray Wednesday, with investors seeking any port in a storm during a slide in U.S. stocks that came after the Tuesday night's $85.0 billion bailout of American International Group by the Federal Reserve.

Traders were so desperate to move money into safer investments that at one point the frenzied buying of U.S. government debt sent the yield on the one-month Treasury bill below zero. By the time the closing bell rang on Wall Street the bill's yield was back up to 0.75%. Yields on longer maturities fell sharply with investors bidding prices higher. The 10-year note was offering 3.38%, down from 3.49% Tuesday, while the two-year note yield fell to 1.63%, from 1.91%.

In addition to the central bank's rescue of American International Group, concerns about higher costs of borrowing between banks rattled the Street, as the London interbank offered rate jumped to 3.06%, from 2.88%. That rate is also tied to the Fed's 24-month loan to AIG, which carries an interest rate of LIBOR plus 850 basis points, or 11.6% at Wednesday's levels. (See "Fed Rescues AIG.")

The Fed also receives the rights to a 79.9% equity interest in AIG, and the power to veto dividend payments to common and preferred shareholders. AIG slid 44.8% after the bailout.

While AIG was the biggest story of the day, the impact of Monday's Chapter 11 filing by Lehman Brothers Holdings was still rippling throughout the market, claiming victims in the energy sector. Companies with exposure to Lehman's commodities operation were being hammered, including Dynegy and Constellation Energy Group. Shares of Dynegy dropped 17.8%, while Constellation lost 20.6%. (See "Constellation Stung By Lehman Link.")

The unwinding of Lehman got a kickstart Wednesday, as the firm agreed to sell its U.S. investment banking and capital markets operations and its buildings in New York and New Jersey to Barclays, for $1.8 billion. The British bank is also said to be interested in some of Lehman's overseas assets. American depositary receipts of Barclays fell 2.2%, while shares of Lehman, virtually worthless and not even trading on the floor of the NYSE after the bankruptcy filing, were off 53.3%. (See "Heart Of Lehman Beats In Barclays.")

Stocks in general were a disaster, as the major averages plunged. The Dow lost 449 points, or 4.1%, to 10,610; the S&P 500 fell 57 points, or 4.7%, to 1,156; and the Nasdaq dropped 109 points, or 4.9%, to 2,099.

Gold was another hot safety play for traders, who sent prices up $85.10, to $865.60 an ounce. The gains came in the midst of a cheaper dollar, as the euro climbed to $1.4349 from $1.4143 Tuesday.

Oil crept back toward $100.00, as crude jumped $6.01, to $97.16 a barrel.