Are Fannie Mae and Freddie Mac Bonds Safe?

As the quasi-governmental agencies that dominate the mortgage market near collapse, bond holders are wondering if the bonds issued by Fannie Mae and Freddie Mac are safe.

Now it's easy for me to be calm about this. I don't own any debt from either agency. So you may want to take that into consideration when you hear my thoughts. But with that disclaimer in mind, here's what I think:

Yes. The bonds are safe. I wouldn't buy one today, but if you already own one, you're safe. It's likely you'll get your interest payments and the return of your principal if you hold the bond until maturity.

Certainly I'm not the only person to feel this way. Investment guru Porter Stansberry, writing today for the Seeking Alpha blog, says although there is "simply no doubt Fannie Mae's and Freddie Mac's shareholders will be wiped out," the government will guarantee the debt. And Stansberry is not an optimist. Rather, he thinks that the collapse of Fannie Mae and Freddie Mac is part of a series of crisis that is tied to a collapse of the monetary system!

I'm not quite as worried as he is.

Still, it's far more likely I'll be buying gold and silver in the next few days than that I'll buy any mortgage-backed debt.

For more on the crisis, read this explanation of Fannie Mae and Freddie Mac and their role in the economy, from About's Guide to the U.S. government. And check out this column from the Washington Post's David Ignatius as he reviews Treasury Secretary Hank Paulson's role.