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Feds try jawboning to ease crisis over Fannie and Freddie; SEC warns Wall Street against rumor-mongering on stocks

July 13, 2008 | 12:24 pm

The federal government is doing a lot of jawboning this weekend to try to keep the crisis surrounding mortgage giants Fannie Mae and Freddie Mac from worsening. Still unclear is whether the feds will take specific action to bolster the companies’ finances.

The clock is ticking: Asian financial markets will open later this afternoon, U.S. time, and a massive sell-off in Asian stocks, or in the dollar, could set the scene for another harrowing day in Europe on Monday and then on Wall Street.

Here’s what’s going on so far:

--U.S. cash infusion for Fannie and Freddie? The Times of London reported that the Treasury is working on a plan to inject up to $15 billion of capital into Fannie Mae and Freddie Mac. The government would make the infusion in return for a new class of shares in the companies, the newspaper said.

But the Times is alone on this report, at least among major news organizations. The Wall Street Journal, in a short dispatch on its website, says the Treasury today is expected to make a statement "supportive" of the companies, but that it is merely expected to be "a statement of facts designed to reassure markets."

The problem is that "facts" about the companies, including their regulators’ assertion that they are adequately capitalized, did nothing to halt the collapse of their stocks last week.

--Please buy this debt: Treasury officials on Saturday were calling major financial institutions to try to assure there would be plenty of buyers for Freddie Mac’s offering of $3 billion of short-term debt Monday, the Washington Post reported.

The debt sale is a routine offering by Freddie Mac, but given the heightened fears about the company’s solvency the sale looms as a crucial test of the markets' faith in the company.

Sen. Jon Kyl (R-Ariz.) told CNN today that the government had "a  lot of different options" to ensure that the companies could meet their obligations. Many on Wall Street expect the Federal Reserve to invoke emergency powers to allow Fannie and Freddie to borrow directly from the central bank if investors balk at providing the short-term funding the companies need in their day-to-day operations.

--Rumor-mongers put on notice: The Securities and Exchange Commission today signaled a fresh crackdown on the spreading of "false information" aimed at driving down stock prices. The clear target: "short" sellers, traders who borrow stock and sell it, hoping the price plunges.

Shares of financial firms, including Fannie and Freddie, have become favorite targets of short sellers this year.

The SEC, in a rare weekend announcement, said it and other regulators would "immediately conduct examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices."

The timing of the SEC’s announcement also seemed to be aimed at bolstering confidence in U.S. markets ahead of Asian markets’ opening today.