Opening Bell: Small Government Anyone?

On mortgage/school loans, private sector helpless; IndyMac collapse a bad omen; Anheuser-Busch capitulates; etc.

The Wall Street Journal, New York Times, and Financial Times lead their front pages with the Treasury Department’s “rescue plan” for mortgage giants Fannie Mae and Freddie Mac after a week in which their stocks were crushed.

The plan asks Congress to allow Treasury to “invest” billions of dollars in Fannie and Freddie stock and extend hundreds of billions of dollars in loans to them, the NYT reports. The Federal Reserve will extend its emergency lending to the two, as it did to Wall Street during the Bear Stearns crisis, until Congress enables the Treasury plan, expected as soon as late this week.

The NYT notes it’s the second time in four months the government has had to bail out a major financial company, these two have a hand in more than $5 trillion worth of mortgage debt. It says the “failure of just one of the companies could be catastrophic for economies around the world.”

The Journal doesn’t go as far, saying the Bush administration put a confidence-bolstering measure in place “without intervening directly” and hopes it don’t have to.

Sunday’s moves, by promising government funds to keep Fannie and Freddie operational, reinforce the notion that investors can count on the government to bail them out in a crisis. Until recently, that was an idea the Bush administration had tried hard to quash.

The NYT and Journal say that government officials were worried Freddie would have trouble raising debt in a previously scheduled auction Monday, something that would further rattle financial markets.

The Times in a C1 analysis writes that the government is the last lender standing in mortgages and student loans.

In short, in a nation that holds itself up as a citadel of free enterprise, the government has transformed from a reliable guarantor into effectively the only lender for millions of Americans engaged in the largest transactions of their lives.

Before, its more modest mission was to make more loans available at lower rates. Now it is to make sure loans are made at all. The government is setting the terms and the standards of Americans’ biggest loans.

Bad moon rising

The Journal on A1 and the Times on C1 write that more banks are likely to fail in the wake of the collapse of IndyMac, the mortgage lender/thrift seized by regulators Friday in the biggest bank failure in nearly a quarter century.

The Journal reports that some 37 percent of bank deposits are uninsured, having exceeded the limits insured by the Federal Deposit Insurance Corporation. It says some are moving funds to banks they think are safer, raising worries about a “walk on the bank.” It says IndyMac customers could lose up to a billion dollars in uninsured deposits.

The FDIC says IndyMac’s failure, brought on by its overinvestment in “liar loans”—mortgages without income documentation—will probably be the most expensive in history, costing it up to $8 billion.

The Times says, as it and the Journal have been reporting for months, that this banking crisis won’t result in as many failures as the last one in the late 1980s, but that it could result in 150 failures.

Subhed, Subhed

The Securities and Exchange Commission said it will start cracking down on rumor-spreading on Wall Street, the Times and Journal report on C1. It will do so by looking at firms’ compliance programs, which sounds like a lot of bark and little bite.

Of course, those nasty short sellers are the ones in the crosshairs, not those who spread false positive rumors about a company’s health. The NYT:

Since the almost overnight collapse of Bear Stearns earlier this year, top-level Wall Street executives have been pleading with regulators to investigate what they see as efforts by short sellers to plant false information and profit from it.

Lehman Brothers, for example, faced rumors last week that two major clients had stopped doing business with the firm. Lehman’s stock dived almost 20 percent before recovering somewhat as both clients denied the rumors.

The Journal says Lehman is working several options, including an asset sale, to shore up confidence in it after its stock plunged 17 percent on Friday. It says the SEC is about to subpoena Lehman trading records from several hedge funds.

Mall rat

Fast-growing mall anchor Steve & Barry’s declared bankruptcy, and the Journal on A1 looks at how that will hurt the mall industry as a whole. Rather than make money from, you know, selling clothes, the chain profited from mall landlords paying them millions of dollars to come to their properties.

When the payments slowed, Steve & Barry’s collapsed.

The likely liquidation of the company will result in the closure of 276 stores, leaving gaping holes in malls who depend on the big stores to draw to their smaller, profitable stores.

The King has abdicated

The iconic American brewer Anheuser-Busch agreed to sell itself to the Belgian company InBev for $52 billion, the FT says on page one and the Journal on B1. The new global beer behemoth will have 300 brands. The Journal:

The agreement is evidence that even though the global mergers-and-acquisitions market has slowed as a result of the credit crisis, the appetite of many corporations for takeovers is still strong. It also shows that banks, despite the losses they have suffered on risky debt they took on in recent years, are willing to open their checkbooks to help fund combinations of strong companies.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.