The paper also notes that the companies recently stopped taking charges on loans until they’re delinquent for two years, up from 120 days.

A representative of Freddie Mac said marking loans as permanently impaired at 120 days does not reflect that many of them avoid foreclosure. But the biggest risk, analysts say, is that both companies are betting that the housing market will rebound by 2010. If the housing malaise lasts longer, unexpected losses could overwhelm their reserves, starting a chain of events that could result in a federal bailout.

No cred

The Journal says on A1 that the “credit crunch is widening” as lenders make it harder for everybody to borrow money, according to a Federal Reserve survey of top bank officers. That’s not a good sign for the already struggling economy, which depends on credit as its lifeblood.

One-third of banks in the survey said they were tightening standards for credit cards. That’s more than three times the number four months ago. Seventy percent are stricter on home-equity lines of credit, which leads us to ask what are the other 30 percent thinking? And 55 percent are making it tougher for big and mid-sized businesses to borrow.

The survey, conducted in April, showed that demand for loans weakened in most categories, though not as much as in the previous three months.

The lending pullback comes as the economy slows to a crawl. The banks’ hesitancy to lend could restrain consumer spending as well as investment by businesses that depend on borrowing.

The WSJ and Bloomberg report that nearly all categories showed record high reports of loan tightening. But the FT notes that the survey was conducted early last month, which means it may not take into account changes in the mood about the crisis since then.

Forgive and forget

The Journal on A4 says the Treasury Department is meeting with about ten major home mortgage lenders to get them to speed up loan-term changes for troubled borrowers.

The new industry guidelines, if adopted, wouldn’t be binding and couldn’t be enforced by the government. But, if effective, they could help forestall aggressive action from congressional Democrats, who have lashed out at loan servicers for acting too slowly and threatened to push tougher oversight of the banking industry if results don’t improve.

Fed chief Bernanke urged banks to write off part of their mortgages and forgive part of the principle of some borrowers in order to stem the free-fall of the housing market. He essentially backed the Democrats plan to insure $300 billion in mortgages that have had their principal reduced by the banks, putting him at odds with the Bush administration, Bloomberg says.

Tropicana folds

The casino company Tropicana filed for bankruptcy protection, making it the “largest corporate filing of the year,” the WSJ says.

The Journal and the NYT on their respective C1’s say the news shows how the economic downturn is affecting Las Vegas, which is in the midst of an overbuilding spree that will hurt severely if there is a lengthy recession. The Times:

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown arrived.

As if to prove the woes, the Times quotes up high a twenty-seven-year-old from Los Angeles who only brings $5,000 of her parents’ money to gamble away on blackjack nowadays, down from $10,000 before: “My parents are in real estate, and we’re worried.”

UBS swings the axe

Swiss banking giant UBS AG said it will cut 5,500 jobs or about one in thirteen workers, Bloomberg reports. The move came as the company reported a huge $11 billion loss in the first quarter. Bloomberg and the FT note that BlackRock will buy $15 billion in distressed subprime mortgages from UBS.

Bloomberg quotes a former UBS official as saying the investment-bank industry may have to cut 35 percent of its jobs.

So do Morgan Stanley and Merck

In more layoff news, Reuters reports Morgan Stanley will fire 5 percent of its staff or about 2,000 employees.

The Journal says Merck will slash 1,200 salespeople, about 15 percent of its sales force.

FAA-ilure to function

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.