Stocks tumbled at the open as the market was weighed down by the Senate's rejection of the $14 billion auto bailout and news of a $50 billion fraud scheme on Wall Street.
The Dow Jones Industrial Average plunged more than 200 points in the first few minutes of trading, adding to the nearly 200 points it lost in the prior session.
The dismal tone for today's trading was set last night, when the Senate rejected the $14 billion auto bailout.
Traders were anticipating calamity for the Big Three Detroit auto makers, with General Motors shares plunging more than 15 percent and Ford off nearly 10 percent.
GM hired some of the biggest names in restructuring as it mulls a possible bankruptcy filing.
At 10 a.m., the United Auto Workers union was expected to speak out on the collapse of the bailout.
Asian stocks plummeted, with the Nikkei closing down more than 5.5 percent, while European markets were deep in the red in morning trading.
Throwing the market a bone, President Bush said he would consider using TARP funds to help bail out auto makers. And the Treasury said it's ready to step in to prevent the failure of auto makersuntil Congress reconvenes.
As if the auto drama wasn't enough, news that a top Wall Street broker has been accused of a $50 billion fraud schemesent a ripple of shock through the market.
Bernard Madoff, a former chairman of the Nasdaq Stock Market and a fixture in Wall Street trading for 50 years, was arrested and charged with running the fraudulent investment program, which he confessed to his sons, before they turned him in, was a "giant Ponzi scheme."
At $50 billion, some analysts point out that this is a bigger scandal than either Enron or Tyco and threatens the long-term confidence of investors.
In economic news, the University of Michigan and Reuters reported their gauge of consumer sentiemtn jumped to 59.1 in a mid-December reading from 59.1 in November, helped by the drop in gasoline prices and the aggressive discounts by retailers for the holidays. Economists had expected the gauge to fall further.
Reflecting recent declines in sales, businesses cut their inventories by the biggest amount in five years in October.
Earlier, reports showed that producer prices fell 2.2 percentin November, the fourth straight month of decline amid a sharp drop in energy costs, and retail sales fell 1.8 percent to a seasonally adjusted $355.66 billion last month. Gasoline-station sales fell by a record 14.7 percent. Both PPI and retail sales came in roughly in-line with estimates and had little impact on the market.
More bad news about the banking sector also hit the market from both sides of the Atlantic.
The negative headlines started Thursday when JPMorgan Chase CEO Jamie Dimon told CNBC that the banking giant has had a "terrible" November and December, sending its stock down 10 percent and prompting a selloff in financial shares.
Also on Thursday, Bank of America said it plans to cut 35,000 jobsover three years after it completes its purchase of Merrill Lynch.
Bank of America and JPMorgan both dropped about 4 percent and Merrilly fell more than 3 percent premarket.
In Europe, UK bank HBOS, which is being taken over by Lloyds TSB, said bad debts and other charges jumped to 8 billion pounds ($11.9 billion) this year as corporate and home loans soured.
Italian bank UniCredit, the country's second-largest, moved to bolster a key capital ratio by selling shares and amending a put/call accord on unit Bank Pekao shares.
And as officials wrangle about what needs to be done, the survival of the U.S. economy depends on helping homeowners, John Bogle, The Vanguard Group founder and former CEO, told CNBC.
Rewriting the terms, the maturities, the interest rates and payments on mortgages should be part of any homeowner bailout, Bogle said.
And Bernard Madoff, the former chairman of the Nasdaq Stock Market, was arrested and charged Thursday with running a $50 billion Ponzi scheme.