The Wall Street Journal leads its front page with news that the government has done contingency planning for the possibility of mortgage giants Fannie Mae and Freddie Mac proving unable afford to keep their businesses going.

The consequences of the government-sponsored enterprises going down are almost unimaginable. Between them they have $5 trillion in mortgage debt that they guarantee or own, and they are buying up most of the mortgages being made right now. If they were to slow down, the housing market would tumble further.

The Journal says the Bush administration doesn’t think it’s likely that the two will fail, but “talks have become more serious recently” because of their increasing problems. Investors aren’t sanguine about their prospects. Freddie shares took a 24 percent dive yesterday, while Fannie plunged 13 percent. That helped drag the broader Standard & Poor’s 500 stock index past the 20 percent loss threshold of a bear market.

The shares of the two companies have plummeted for several reasons. Investors are worried they will suffer bigger losses as housing prices continue to fall and mortgage defaults rise. Stock-market investors are also worried they will need to raise significant amounts of capital to cover those losses. For stock investors, that means the value of their ownership stakes in the company will be cut. Bond investors continue to lend to both companies, though they are also demanding slightly higher interest rates.

The Journal says it’s likely the two will raise private capital to shore up their finances, but if they don’t, the government would have to step in with one of several options, including a line of credit from the Federal Reserve or a guarantee of the companies’ massive debt.

Bloomberg quotes an ex-member of the Fed board as saying Fannie and Freddie are already insolvent. Here comes the massive taxpayer-financed bailout.

The lash works

In economic news, high gas prices are causing Americans to drive far less and use far less oil.

Gas consumption, which normally steadily increases in the U.S., fell to the lowest level in five years during the first week of July, the Journal reports on A3. That’s increasing gas supplies, which could lower prices. (Which would mean, of course, that most people would resume their old driving habits.)

Foreclosures in the U.S. soared 53 percent last month from a year ago, Bloomberg reports.

It quotes an analyst’s report saying that 63 percent of subprime mortgages will be under water by next year, a sign of more pain to come.

“The foreclosure problem is getting worse and will stay with us well into the next decade,” Mark Zandi, chief economist for Moody’s Economy.com in West Chester, Pennsylvania, said in an interview. “The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you’ve got negative equity, and you’re more likely to give up your house if you’re deeply underwater.”

The Journal also on A3 says the housing bust is hampering the mobility of Americans as housing woes force them “to stay put.”

Northwest Airlines said it will slash 2,500 jobs to battle high fuel prices.

Out with a whimper

The Senate passed a bill expanding government spying powers and gave telecom companies legal immunity for cooperating with government wiretaps after 9/11, The New York Times plays on A1 and the Journal reports on A4.

The Journal calls it “conditional immunity,” though, saying:

The compromise essentially came down to Democrats agreeing to back a version of the immunity provision, which the White House sought, in exchange for more judicial and congressional oversight than Republicans wanted.

Democrats and privacy advocates have said the phone companies broke the law by aiding what they say was Bush’s illegal wiretapping program.

The great American yard sale

The Times on C1 reports that foreign investors are on the “hunt for the great American trophy asset.”

The story is sparked by Abu Dhabi’s purchase of the landmark Chrysler Building in New York for $800 million. The skyscraper was already owned by the Germans, but the Times is focusing on new money and its “flashy acquisitions by Russian and Ukrainian oligarchs, Qatari sheiks and large government-sponsored funds in the Middle East.” In another deal, a Russian fertilizer billionaire bought a Donald Trump beach house in Florida for $100 million.

The paper notes that a similar wave of trophy snatching in the late 1980’s didn’t end up so well. Many of the investors—then primarily the Japanese—lost money.

The cortisone cure

Even the hedge funds lost money in the first half of 2008, the Financial Times says. The average decline was 0.75 percent, though, far better than the 13 percent fall in the S&P 500. We’d imagine that hedge fund number is before fees, though.

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 rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.