The Wall Street Journal raised investor hopes with a story that said Jonathan Miller, who stepped down as AOL’s top exec two years ago, is trying to secure financing to make a bid for Yahoo at $20 to $22 per share, or $28 billion to $30 billion.

The story posted on the Journal’s Web site cited unnamed people familiar with the matter.

Branding the report a “rumor,” Yahoo spokeswoman Tracy Schmaler declined to comment. Miller didn’t immediately respond to interview requests.

Yahoo shares rose 76 cents, or more than 7 percent, to close at $11.50, reflecting hopes that a new suitor may emerge for the Sunnyvale-based company. The surge left Yahoo with a market value of $17.4 billion.

Given his past experience running AOL, Miller has the connections and savvy needed to turn around Yahoo, said Standard & Poor’s Internet analyst Scott Kessler.

But Miller faces a huge hurdle: A credit crunch and the prospect of the deepest recession in a generation has spooked lenders and investment funds so badly that they have shown little interest in making big bets on risky propositions like this.

Miller “has a strong reputation and an expansive Rolodex, but ($30 billion) is a lot of money to raise in an environment when deals are falling apart and companies are going out of business just about every day,” Kessler said.

Speculation about Yahoo’s future has intensified since rival Google Inc. pulled out of a proposed advertising partnership a month ago. Yahoo had been counting on the alliance to boost its profits and placate shareholders incensed about the company’s rebuff of a $47.5 billion takeover bid from Microsoft Corp.

The guessing game took a new turn two weeks ago when Yahoo founder Jerry Yang revealed his plans to step down as CEO as soon as a replacement can be found.

Yang, who became CEO in June 2007, didn’t want to sell to Microsoft because he believed he had charted a strategy that would prove the company was worth more than the software maker was willing to pay.

Most industry analysts believe Microsoft eventually will return to the bargaining table and buy Yahoo’s search engine — a concept that has been embraced by Yahoo’s most outspoken board member, Carl Icahn. Microsoft CEO Steve Ballmer also has said he remains open to that idea.

The Times of London tantalized investors during Thanksgiving weekend with a report that Microsoft was preparing to buy Yahoo’s search operations for $20 billion in a complex deal involving Miller and his current partner, former News Corp. executive Ross Levinsohn. But representatives from both Yahoo and Microsoft have since denied any discussions along these lines are taking place.

Miller almost joined Yahoo’s board during the summer after the company agreed to add three new directors to quell a shareholder revolt led by Icahn. But AOL’s corporate parent, Time Warner Inc., cited a provision in Miller’s severance agreement that prevents him from working for a rival.

The noncompete agreement expires in March, prompting some analysts to predict Miller might be hired as Yahoo’s next CEO even if he doesn’t end up buying the company.

Yahoo also has been discussing a possible combination with AOL for months, but the two sides haven’t been able to agree on terms.

Although Yahoo’s Web site remains among the most popular on the Internet, the company’s profits have been dwindling during the past three years. The recession is expected to make a comeback even more difficult by depressing spending on the Internet ads that generate most of Yahoo’s revenue.

The challenges have devastated Yahoo’s stock price, leaving it at a fraction of Microsoft’s last buyout offer of $33 per share.

The downturn has become so severe that investors are placing little value on Yahoo’s U.S. operations. Kessler estimates that just the company’s cash and Asian assets are worth about $8 per share, making Yahoo an increasingly takeover target for opportunistic investors.

“If the economic mate were different, there would be a lot of private equity funds interested” in a Yahoo buyout, said Peter Falvey, managing director of technology dealmaker Revolution Partners. “But I find it pretty far-fetched in this kind of market.”

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First, the Times’ report:

SOFTWARE giant Microsoft is in talks to acquire Yahoo’s online search business for $20 billion (£13 billion).

The proposal forms the centrepiece of a complex transaction that would see Microsoft support a new management team to take control of Yahoo. But there is no intention of Microsoft tabling another takeover bid for the web giant, after its aborted $47.5 billion offer this summer.

It is thought that Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, have been lined up to lead the new management team. Senior directors at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed…

Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors.

This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo.

The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services.

It is expected that the operating agreement would boost Yahoo’s income by as much as $2 billion per annum.

And now Kara Swisher’s debunking:

A report in the Times of London in which Microsoft would buy Yahoo’s search business in a convoluted $20 billion deal that would include well-known Internet execs Jon Miller and Ross Levinsohn, is–in the words of one key player–”total fiction.”

Actually, that’s Levinsohn speaking, on the record. But that’s also the essential word from all key players regarding the Times’ report.

BoomTown has spoken to top sources at Yahoo (YHOO) and Microsoft (MSFT) too and all scoff at such a deal now taking place or that either side has been in any such discussions of late.

Who to believe? Let’s assume the truth is somewhere in the middle. Even if there are no actual talks taking place right this minute, there should be.

The $20 billion number is almost certainly fiction, given that, last summer, Microsoft offered to buy Yahoo’s search business for $1 billion. Microsoft also wants to own and run the search technology, so the idea of having a call option doesn’t really make sense. Microsoft and Yahoo need to merge their search businesses, however, and both companies have said publicly they are happy to discuss a deal, so the idea that they’re working on something is perfectly plausible. (And if they aren’t now, soon.)

Ross Levinsohn and Jon Miller, meanwhile, would make fine additions to Yahoo’s senior team, and they are almost certainly being considered for those roles.

Lastly, unlike everyone else in the economy, Microsoft has cash coming out of its ears. So the idea of Microsoft using some of that cash to facilitate a Yahoo deal (which it also tried to do last summer). also makes sense.

Bottom line: If Yahoo and Microsoft aren’t discussing a search deal right now, they should be and soon will be. And Yahoo’s short list of candidates for CEO probably includes Jon.

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Please note that each of the loan types above except for a straight adjustable rate mortgage can have a period of the loan for which a fixed rate may apply. A Balloon Payment mortgage, for example, can have a fixed rate for the term of the loan followed by the ending balloon payment. Terminology may differ from country to country: loans for which the rate is fixed for less than the life of the loan may be called hybrid adjustable rate mortgages (in the United States).

This payment amount is independent of the additional costs on a home sometimes handled in escrow, such as property taxes and property insurance. Consequently, payments made by the borrower may change over time with the changing escrow amount, but the payments handling the principal and interest on the loan will remain the same.

Fixed Rate Mortgages are characterized by their interest rate (including compounding frequency, amount of loan, and term of the mortgage). With these three values, the calculation of the monthly payment can then be done.

Fixed rate mortgages are usually more expensive than adjustable rate mortgages. Due to the inherent interest rate risk, long-term fixed rate loans will tend to be at a higher interest rate than short-term loans. The difference in interest rates between short and long-term loans is known as the yield curve, which generally slopes upward (longer terms are more expensive). The opposite circumstance is known as an inverted yield curve and is relatively infrequent.

The fact that a fixed rate mortgage has a higher starting interest rate does not indicate that this is a worse form of borrowing compared to the adjustable rate mortgages. If interest rates rise, the ARM cost will be higher while the FRM will remain the same. In effect, the lender has agreed to take the interest rate risk on a fixed rate loan.

Some studies have shown that the majority of borrowers with adjustable rate mortgages save money in the long term, but that some borrowers pay more. The price of potentially saving money, in other words, is balanced by the risk of potentially higher costs. In each case, a choice would need to be made based upon the loan term, the current interest rate, and the likelihood that the rate will increase or decrease during the life of the loan.

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