The Wall Street Journal and New York Times lead their front pages with worsening news on mortgages giants Fannie Mae and Freddie Mac.

The papers report that the Bush administration is considering taking over the companies and putting them into conservatorship if they falter further, though the Times puts more emphasis on that possibility. That would put taxpayers officially on the hook for their losses (which the Times says could be “staggering”) while making their shares basically valueless. Freddie’s stock plunged another 22 percent yesterday, while Fannie dropped 14 percent.

The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation. But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans.

The Times says Freddie is “technically insolvent” under an accounting standard that would make it price its assets on what they can sell for today. Its cost of borrowing rose to the highest level since the Bear Stearns turmoil in March, something that will hurt the housing market further. The two buy or back the vast majority of all the mortgages issued in the U.S.

The Journal points to other possibilities besides an outright government takeover, including having the Federal Reserve buy Fannie and Freddie debt or give them big long-term loans.

The Times on C1 says a “trickle of worries about the companies… has suddenly become a torrent” with rumors of their impending demise washing over Wall Street since Monday. Quote of the Day:

“This is the last thing we need right now,” said Brett Barry, an agent at Realty Executives in Phoenix. “The market is like an elevator with the cable cut lose. It is accelerating downward.”

The paper says a bailout of the two would probably make it more expensive for the U.S. government to borrow, as its debt obligations would increase by more than half.

We’re on it…but there’s nothing to worry about

The Journal says on A3 that the likelihood of increased regulation of the financial industry is increasing, reporting on the testimony in Congress of Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke yesterday. They both tried to downplay the problems of Fannie and Freddie.

Officials are trying to walk the line between being prepared for the downfall of a major financial institution that would threaten the overall economy and signaling that the government would step forward with funds to bail out a collapsing firm.

Cheap stuff now au courant

The Journal says on A1 that economic troubles are causing consumers to “trade down” and buy cheaper stuff.

Wal-Mart reported its strongest results in four years, with sales rising 6 percent in June. Dollar General said same-store sales rose nearly 6 percent earlier this year. This is interesting:

For instance, in Texas, grocer HEB Inc. has begun stocking up on inexpensive fare—beans, rice and flats of eggs—toward the end of the month, as customers run out of money.

Wal-Mart says it is putting more multipack items on its shelves at the start of the month when many customers are flush from being paid, then switching to individual items that require smaller outlays later in the month.

The Times on C4 offers a typically Timesian summary:

Stores that fared the best in June did not necessarily offer the most au courant apparel. But they did offer the latest American retail trend: low prices.

Mag ads weak

The Times reports inside its Business Day section that magazine ad-pages dropped 8 percent in the second quarter.

But news magazines and some business magazines were battered by the ad slump. Ad pages dropped 21.1 percent at Time magazine over the first half of the year, 22.4 percent at Newsweek, 14.8 percent at BusinessWeek, 12.6 percent at Forbes and 12.2 percent at The Week, according to the bureau’s report.

But Fortune and The Economist gained ad pages slightly.

Brother, can you spare a job?

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.