E*Trade (ETFC) continues to slide, a day after it announced a big bailout deal with vulture-oriented hedge fund Citadel. Much was made of E*Trade’s success in getting out from under a deteriorating $3 billion mortgage portfolio, albeit at the deeply distressed price of 27 cents on the dollar. But E*Trade stock fell Thursday and it continues to give up ground Friday as investors worry about assorted other issues, including the company’s still substantial home equity loan exposure. As Phil van Doorn writes on TheStreet.com Friday, E*Trade has $2.4 billion worth of home equity loans in which the loan-to-value ratio is above 90%. With house prices falling sharply, it’s all too likely that many of these loans will end up defaulting — and the potential for recovery appears low.

Meanwhile, E*Trade still hasn’t filed its current report on form 8-K with the Securities and Exchange Commission, which is unusual given that yesterday the company reported three separate events that would seem to call for that sort of disclosure: the departure of its CEO, a transaction that gives one shareholder 20% of the stock, and more than $2 billion in writedowns. E*Trade didn’t immediately return a call seeking comment.

Update: A Citadel spokeswoman says an E*Trade investor relations rep tells her he expects the filing to be made in the next day or so.

Investors like Thursday’s bailout of E*Trade (ETFC) by hedge fund Citadel and asset manager BlackRock. Shares of E*Trade rose 4% on news of the $2.5 billion deal, which will give Citadel a 20% stake in the struggling online broker and relieve E*Trade of billions of dollars in toxic mortgage holdings.Supporters of the deal point out that Citadel’s Ken Griffin has an enviable record of buying distressed assets at the right time, and that E*Trade now has enough cash on hand that its continued existence is no longer in question. But  venture capitalist Paul Kedrosky, while acknowledging those positives, makes a crucial point: With the dilution from Thursday’s deal, and the flight of many lucrative customers as E*Trade appeared to be staring into the abyss, E*Trade’s earnings power is sharply diminished.The magnitude of the housing meltdown seems to have obscured that issue somewhat. With well-known outfits like E*Trade, Countrywide (CFC) and Citi (C) nearly running aground, the tendency has been to gape at the billions of dollars in writedowns coming down the pike. How much worse can it get, one repeatedly wonders.

Financial stocks are in free fall again. Round up the usual suspects: Fannie Mae (FNM) and Freddie Mac (FRE) were off around 8% amid the latest worries over their capital strength. E*Trade (ETFC) slid 10% as Wall Street decided a buyout of the mortgage-burdened online trader might not fly after all. Citi (C) shares fell 5% after CNBC reported Citi could cut as many as 45,000 jobs. Citi denies having decided on a layoff target but says it seeks to be “more efficient and cost effective to position our businesses in line with economic realities.” Economic realities are hammering other parts of the market as well. Banks continue to shy away from lending to one another, sending interbank interest rates such as Libor higher. The Fed, in turn, resorts to what David Merkel calls “half measures” such as a push to provide extra liquidity through year end. Merkel points out that the Fed doesn’t want to cut rates, because it would like to avoid further declines in the dollar and resulting inflation pressure, but the near panic in the market seems to suggest it won’t have much choice.