Wall Street Clobbered(down 300) on Lehman, AIG

NEW YORK (CNNMoney.com) -- Stocks plummeted Monday morning as investors contended with the biggest financial crisis in years that saw Lehman Brothers file for the biggest bankruptcy in history and Bank of America buy Merrill Lynch in a $50 billion deal.

The Dow Jones industrial average (INDU) lost 290 points.

The Standard & Poor's 500 (SPX) index lost 1.3% and the Nasdaq composite (COMP) lost 2.5%.

Art Hogan, chief market strategist for Jefferies & Co., said the magnitude of the financial industry fallout is unprecedented, and could only be compared to the Great Depression of the 1930s or the railroad bankruptcies of the 1800s.

"We've never witnessed this before," said Hogan. "There's no road map for this."

He said that over the course of the week, investors will be closely watching AIG, Washington Mutual and other banks to see who will be the next to get "embraced by a white knight."

Bof A-Merrill: Bank of America (BAC, Fortune 500) announced early Monday that it will acquire Merrill Lynch (MER, Fortune 500) for $50 billion in stock. The purchase price values the company at more than $29 a share, at least a 70% premium from Merrill's closing price on Friday of $17.05.

Merrill could use some help. Battered by bad bets in real estate, Merrill has posted net losses of more than $17 billion over the last four quarters. Last week, the stock plunged 27%.

In early trading, Merrill was up 24%, while BofA was down 16%.

Lehman bankruptcy: Lehman Brothers (LEH, Fortune 500), announced that it was filing for bankruptcy, ending a desperate three-day search for a buyer to save the investment bank. The filing came after Bank of America and Barclays pulled out of negotiations to acquire Lehman.

Lehman shares plunged 93%.

AIG sell-off: In a separate financial event, insurer AIG (AIG, Fortune 500), a Dow Jones industrial average component, was set to announce a restructuring plan that will include selling off part of its business to raise desperately needed cash and boost investors' confidence.

The subprime mortgage crisis has caused AIG to lose more than $18 billion in the past nine months, and it could face a credit downgrade unless the firm is able to raise money.

AIG stock fell 45%.

10-bank emergency fund: In a bid to calm the markets, the Federal Reserve announced plans Sunday to loosen its lending restrictions to the banking industry. A consortium of 10 leading domestic and foreign banks, including Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), Barclays (BCS) and Morgan Stanley (MS, Fortune 500), agreed to create a $70 billion fund to lend to troubled financial firms.

Oil: Oil prices plunged as early signs pointed to little damage to oil rigs and refineries in the Texas Gulf region from Hurricane Ike.

Oil prices were down $5.01 a barrel to $96.18. Oil dipped below $100 a barrel on Friday for the first time in five months.

Other markets: European and Asian stocks tumbled on the U.S. financial crisis; many major Asian markets, including Tokyo and Hong Kong, were closed for holidays.

Treasury prices soared in a flight to safety by investors; the 10-year note yield skidded to 3.51% from 3.72% late Friday. The dollar was up versus the euro and the British pound but down against the yen.