Dow Sinks 411 Points as Investor Nerves Fray

"If you haven't got a single operation that's working properly, and you're going to take away one more, then the pain is too great," said Pado. "Right now it would just add to the burden on the system."

Meanwhile, a report by Bloomberg indicated the Fed is attempting to become the main regulator for the credit-default swaps market. The Fed and other government agencies are working to develop a clearinghouse for the $33 trillion CDS market.

In a further sign of trouble in the financial sector, Reuters reported that Morgan Stanley's (MS Quote) chief financial officer said the company would lower its headcount by 9% after already cutting jobs 10% earlier this year. Morgan Stanley shares plummeted 15% to $11.94.

The government also was moving toward aid for the automakers. House Speaker Nancy Pelosi suggested financial assistance for the industry, which includes General Motors, Ford and Chrysler. Rep. Barney Frank said that his congressional panel would hold a meeting to discuss allocation of $25 billion in TARP funds to the automotive sector. GM and Ford last Friday announced troubling quarterly losses that led some to question the future viability of the U.S. auto sector.

GM gained 5.5% to $3.08, and Ford added 2.2% to $1.84.

In the energy sector, Exelon (EXC Quote) announced it would take its buyout bid for NRG Energy (NRG Quote) straight to shareholders after NRG on Monday rejected Exelon's offer. Exelon shares edged down 2.7% to $50.57, and NRG dropped 6.3% to $21.60.

Staying on the merger front, Anheuser-Busch (BUD Quote) shareholders approved sale of the beer developer to Belgian brewery InBev. Anheuser-Busch stock slipped 0.8% to $66.33.