WASHINGTON, Aug. 23 (UPI) -- U.S. Treasury officials are watching Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE)'s preferred shareholders -- which include many banks -- for signs of panic, sources say.

Citing sources close to the department, The Washington Post said Saturday that Treasury Secretary Henry Paulson is looking to avoid wider financial turmoil by making moves that would prompt the preferred shareholders of the troubled mortgage finance companies to sell their shares.

Paulson is said to be keeping a close watch for any sign of panic among those institutional shareholders as he decides whether to inject government money into the two companies, the Post said.

The value of the shares, estimated to be worth $36 billion, has fallen recently, with Fannie's dropping 26 percent and Freddie's falling 36 percent in the last week.

Analysts say the situation may reach a moment of truth in early September when the two Macs will seek to refinance about $225 billion in mostly short-term loans that are coming due. Any sign of a sell-off by the preferred shareholders will likely persuade Paulson to act to inject the government funds, the newspaper reported.

Bank CD rates are finally rising

LOS ANGELES, Aug. 23 (UPI) -- Certificate of deposit rates are going up at most U.S. banks after more than a year of decline, a survey of major banks indicates.

Some banks are now offering more than 4 percent on a one-year CD, reversing a trend that saw average annual yields fall to 1.92 percent from 3.75 percent in August, 2007. The nationwide credit crunch, last month's failure of IndyMac Bank and Bank of America's aggressive marketing are causing the rise, the Los Angeles Times reported Saturday.

Countrywide, now a mortgage lending division of Bank of America Corp., is pushing a seven-month CD that pays a 4.10 percent annual rate. Online lender E-Loan is marketing 4.17 percent interest for one-year deposits while First Federal Bank offers a nine-month CD at 4.23 percent.

"For banks that want to get their hands on cash, it's a lot easier to pay up on consumer deposits than to tap the credit markets," Greg McBride at Bankrate.com said.

Airline passenger bumping could increase

NEW YORK, Aug. 23 (UPI) -- As overbooking on crowded U.S. airlines grows, so may demands for compensations from bumped passengers, an analyst said.

Around 343,000 passengers, mostly volunteers in return for vouchers or other compensation, were bumped from their seats on planes in the first half of 2008, the Department of Transportation reported. That was a relatively small number out of 282 million passengers, The New York Times noted.

The Times warned the figure will likely grow this fall as strapped airlines cut the number of flights.

Tim Winship, an editor with SmarterTravel.com, said overbooking is "bad for them, it's bad for morale, and you end up with a potential riot on your hands among people who have to be compensated."

Airlines such as Delta and Continental are already implementing new check-in procedures aimed at reducing the number of bumped passengers. But bumped passengers may soon be able to demand more in return including vouchers for meals, hotels, transportation and plane tickets, The Times said.

Lehman rally fizzles on Korean news

NEW YORK, Aug. 23 (UPI) -- A Korean bank has clarified it is not ready to purchase any of troubled Lehman Brothers Holdings Inc. (NYSE:LEH-PJ), fizzling a short rally in the Wall Street firm's stock.

Shares had jumped as much as 16 percent but fell back Friday as the Korean Development Bank, KDB, clarified it was just window shopping for now, The Wall Street Journal reported Saturday.

At Friday's end Lehman was up about 5 percent, or 69 cents, to $14.41. But in total it has fallen 78 percent in 2008 and its management remains under intense pressure with net losses of $2 billion and write-downs of more than $3 billion expected in the current quarter.

Lehman has looked at options including selling struggling commercial real-estate assets or its healthy investment-management unit. Similar approaches appear to have aided Merrill Lynch & Co., whose stock has now risen 4 percent since July, The Journal noted.

For now, however, the Korean purchase of Lehman appears to be on hold.

"We are just at an early stage of privatization, and we are weak at investment banking by international standards," bank spokesman Sung Joo-yung told The Journal. "In the long term, we should strengthen that weakness."