Paulson plan euphoria fades: Dow down 373

How to explain Monday's anxiety attack on Wall Street, with the Dow Industrials closing down 373 points?

Let us count the ways:

• Oil futures jumped $25 dollars a barrel midway through trading Monday, closing up $16 dollars at $130 -- the biggest jump ever recorded. So much for the relaxation of economic pressures that sub $100-a-barrel oil promised.

• Goldman Sachs and Morgan Stanley asked permission to change their regulatory status to "bank holding companies." The good news: they will now be constitutionally unable to take on as much risk as before. The bad news: the resounding end to the era of the independent investment bank only underlines how historic current events are. Investors don't seem to appreciate living in interesting times.

• Wrangling over the the form of the Humongo-Bailout could portend delays in government cavalry coming to the rescue of Wall Street.

• Nouriel Roubini, who has been right in almost every dire prognostication that the champion doom-and-gloomer has made for the last three years, wrote today in a Financial Times column that hedge funds may be the next link in the chain to go.

The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.

How the World Works isn't sure how many Wall Street traders read Roubini's column Monday morning, but his point about hedge funds is provocative. Some of the brave souls still making last ditch attempts to defend the front lines of deregulatory ideology have been claiming in recent weeks that unregulated hedge funds have withstood the credit crunch better than regulated entities. (For examples see David Brooks and Tyler Cowen.)

But hedge funds, in aggregate, have been losing money for two years, so they hardly offer a glowing bill of health for deregulation. They're just doing less badly, for now, than anyone else. And at this juncture in the crisis, one would be unwise to bet against Nouriel Roubini.

UPDATE: I originally reported that oil jumped $25 dollars a barrel before closing at $130. That was an intra-day high.