I think it's pretty much a given that the US govt will bail out these two institutions. If they bail out Bear Stearns, they can hardly let the country's 2 quasi-governmental mortgage underwriters go bust. The total assets of the two companies amounts to about $5 trillion, if the figures are to be believed. So if the US govt bails them out, that is potentially $5 trillion on the national debt - at least in a strict accounting sense. That amounts to over 1/3 of US GDP, and would take the already skyrocketing US debt up to pretty much 100% of GDP. Bear in mind that when Bush took office the debt to GDP ratio was in the 30s. Now people assume most of this will not have to be written off, but we don't really know that. With a bad enough real estate slump, you could easily see hundreds of billions of even 1 trillion+ of losses to the government. This could have pretty severe consequences for the US Treasury market and the dollar. Rating agencies may well downgrade the sovereign debt, like they did with Japan a few years back during its slump. This could easily trigger mass selling by other countries' central banks, foreign pension funds and investors, as well as domestic US institutions. Since the US current account deficit is so large, this would pretty much screw the dollar. It is not beyond the realm of possibilities to see the 30 year bond going to say 8-10% yield and the dollar falling 20-30% in this scenario. It's not something I would put as certain or even probably, but it is an outlier scenario worth considering. If it starts to look like it's happening, then Euro and Yen calls, and T-bond and T-note puts would like very attractive. Another play is to go long some foreign government debt and short the US 10 or 30 year. I think UK gilts are a good candidate for this trade, as the Uk economy looks in dire shape for the next 12-18 months or so, yet they yield more than Bunds. With this long gilt short T-note spread, you are mostly hedged against global yield curve shifts, earn a small carry, and effectively have a free put on a US debt downgrade and/or dollar panic. Any other suggestions for potentially playing this?