Financial crisis deepens amid fear of continued stock dive

Investors awaited the opening of trading on Wall Street this morning with trepidation, fearing a repeat of the landslide of selling that sent the Dow Jones industrial average tumbling nearly 450 points to its lowest level in almost three years.

"It's a hurricane blowing through" is how strategist Peter Boockvar at New York brokerage Miller Tabak & Co. described the mood on Wall Street. "Close your windows and lock your doors, and don't stick your head out until the storm passes."

Markets around the world have been struggling to cope with the fallout from the collapse of the U.S. housing market, a slow-motion disaster that began almost two years ago and has claimed a growing roster of victims. The mountain of bad mortgages -- and securities derived from those soured loans -- has caused chaos in financial markets, affecting everything from the health of huge financial houses to the ability of consumers to get an auto loan.

Late Wednesday, word came that two more financial giants facing doubts about their ability to remain independent -- New York-based investment bank Morgan Stanley and Seattle-based savings and loan Washington Mutual Inc. -- might soon be acquired.

The latest plunge in stock prices was especially unnerving because many analysts had hoped that the unveiling Tuesday night of an eleventh-hour federal bailout plan for giant insurer American International Group Inc. would calm investors.

"All of us felt after the AIG rescue that we would have a very positive day today because a rescue is a lot better scenario than the alternative," said Alan Skrainka, chief market strategist at Edward Jones in St. Louis.

The bailout set off a flood of proposals in Congress to deal with the country's financial predicament. The White House said it was keeping an open mind about such ideas, including having the U.S. buy distressed mortgages and debt.

In another sign of how the credit crisis has made the federal government more willing to intervene in financial markets, the head of the Securities and Exchange Commission proposed an emergency rule that could limit "short selling" -- betting that the price of a stock will decline. The regulation would require public disclosure of such trading by hedge funds and other big investors.