This crisis of liquidity and capitalization of the government-sponsored enterprises is an unfortunate and potentially dangerous turn of events in the current U.S. business cycle, he added.

"It must be defused swiftly and effectively, because failure to do so would risk a further meltdown of the housing and mortgage markets of proportions not seen since the Depression era," warned Bethune.

The Bush administration has urged Congress to temporarily increase lines of credit to Fannie and Freddie and to let the government buy their stock.

Meanwhile, the Federal Reserve has offered to let the companies draw emergency loans.

But if investor jitters prevent them from being able to sell bonds to finance new mortgages, it could have far-reaching economic consequences, warns the U.S. media.

Some investors are beginning to think the U.S. leaders are running out of the ammunition they have used to support the stock markets in past months.

"Despite repeated intervention by the Fed and central banks and regulators world-wide, no one seems to be able to prevent further damage to banks and other financial institutions," said a Wall Street Journal report.

Though new government efforts to help Fannie and Freddie could temporarily give markets a boost, investors are coming to grips with the fact that the big rate cuts have been made, the market and the economy remain in trouble, and they may now have to tough it out, said the report.

"I don't think the Fed can shake its magic wand and right everything in the capital markets," said Ethan Harris, chief U.S. economist at investment bankers Lehman Brothers.