Fannie-Freddie lifeline puts taxpayers on the hook

There were encouraging signs Monday for the rescue plan, but also signs of concern--notably on Wall Street, where shares of the two companies slumped further--that the plan won't be enough.

Other banks are already teetering: National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual depositor or creditor activity. And Washington Mutual Inc.'s shares fell 35 percent, to a paltry $3.23 amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.

And worried customers lined up Monday to pull cash out of their accounts at IndyMac Bank, seized on Friday by the federal government.

Some critics said they fear the Fannie-Freddie rescue effort will make more bailouts inevitable by sending a message that some institutions are too big to fail and thus encouraging risky behavior.

"It sends the wrong message to the world," said Joshua Rosner, managing director of research firm Graham, Fisher & Co. in New York.

Sung Won Sohn, an economics professor at The Smith School of Business at Cal State Channel Islands, cited soaring oil costs, a weakening economy and an unstable housing market that he said will only get worse.

"I don't think these steps are enough to arrest the deterioration," he said.

As long as more homeowners default on mortgages, losses to financial institutions will mount. Those losses already exceed $400 billion, and some analysts believe they will top $1 trillion before the housing carnage is over.

By comparison, Congress has authorized $650 billion so far to fight the Iraq war.