I've thought about it more and I've come to a conclusion: Let the bailout fail. Let FNMA fail. Let the investors take the hit. And let the government put its (rather, our) checkbook away.
Here's the way I see it:
1) Fannie Mae and Freddie Mac have ASSETS in the form of mortgage loans (remember, loans are liabilities to consumers but they're assets to the lenders). If they go under, there are other institutions who will buy these assets.
2) If these assest are leveraged, the companies/investors who loaned them the money took the same chances that every lender takes. If Fannie/Freddie go under, they can sell the assests securing their loans and collect some of their money. But my bet is that Fannie/Freddie won't go under. The vast majority of people will pay back their mortgages and when they do, Fannie/Freddie will get paid and those who loaned to them will get paid. They might just have to wait a while.
3) The individual investors who bought mortgage backed securities are going to have to take their lumps. Remember, it's "risk versus reward." They wanted the reward without risk; Too bad. My own 401K is down 14% - I'm not holding my breath for the government to write me a check for the difference.
4) The institutional investors (those holding the pensions of their employees) are going to have ride it out. Just like #2 above, most people are going to pay back their mortgages eventually. When they do, these investors will get most, if not all, of their money back.
There are 2 real dangers we face. The first is panic in the market. We all need to just buck up and push forward. Don't hide your money under the mattress, don't sell all your investments, and don't dig bomb shelters in your basement because you fear food riots in the streets. Just go about your business and try not to worry.
The other more real and more frightening danger is that of the US government becoming the largest investor, employer, and bank in the country. In other countries (like China and Cuba) we call government ownership of businesses, socialism. In the US. we call it... er... well, I guess its socialism here too!