Panic continues to be the word for the day in the financial markets. The big news is the cratering of the shares yesterday of the two big mortgage giants, Fannie Mae and Freddie Mac. Both The Wall Street Journal and The New York Times lead with the stories. Here’s the Journal:

Investors dumped shares and bonds of Fannie Mae and Freddie Mac, signaling a dramatic loss of confidence in two government-sponsored mortgage companies considered crucial to restoring the health of the housing market.

Shares of the two companies dropped Monday to their lowest levels in more than 14 years, and at one point, Freddie Mac had lost nearly 30% of its value.

Home buyers are having a tougher time getting mortgages as lenders feel the squeeze from defaults. IndyMac Bancorp Inc., a big mortgage lender during the housing boom, said Monday it will stop making most types of home loans.

   Ouch. And the Times’ story predicts this is just the beginning…or the middle…:

Fannie Mae and Freddie Mac are the nation’s largest buyers of home mortgages, and traditionally the government’s backstop for the housing economy. But with Monday’s plunge, each of these giants has now lost more than 60 percent of its market value this year. The declines, along with a falling stock market and growing unease about the possibility of more red ink at big banks, reflect a growing conviction consensus among investors that the current housing slump will last longer, and prove more severe, than initially feared.

As a result, investors are signaling that they are far from convinced that any enterprise — even ones with the strongest backing — can successfully navigate these choppy waters, and that those who do survive will pay dearly.

“Everything points to a lot more bad news to come,” said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. “If Fannie and Freddie are vulnerable, it means no one is absolutely safe.”

   And…

Worldwide, banks and brokerages have written down the value of the assets they hold, notably those linked to mortgages, by more than $400 billion since the beginning of last year. In April, the International Monetary Fund said total losses for banks, insurance companies and investment funds may reach $945 billion, and some forecasters say the bill could be even higher.

“The economic story has gotten worse and worse and worse, and every financial institution seems like it’s in freefall,” said Steven D. Persky, chief executive at Dalton Investments in Los Angeles, which manages about $1 billion. “It’s not clear at all when this ends.”

   If we are only into less than half the story–meaning, we only know of losses totaling less than half of the debacle–the pain will get even more pronounced. Of course, those who caused the pain are still raking in large salaries–while regular people suffer. It will get worse.