FEW OF US actually hope for crises. I say few because there are exceptions. Some newscasters can barely contain their glee at the approach of a hurricane. Apart from journalists, many people

make their living from crisis management; without crises, they'd be out of work. And then there are financial speculators, especially those most reviled of investors, short sellers. Lately, Congress has been on the prowl for market manipulators, forcing some speculators into hiding.

Those who hope for crises have certainly gotten their wish over the past year, as we've lurched from collapsing real estate prices and mortgage lenders, to the bailout of Bear Stearns, to soaring oil and gas prices, to emergency government aid for mortgage giants Fannie Mae and Freddie Mac. In every case, there have been fortunes to be made (and lost). I personally find it distasteful to make an investment that causes me to root for bad things that will increase my net worth, but I try not to judge others. I don't sell short, but that's because I consider it to be too risky. I also have to admit there's something about a crisis that brings out the speculator in all of us.

For one thing, you don't have to be a bear or bet against anyone to benefit from trouble. You can take positions that embrace a more optimistic view. You could have bought Bear Stearns at $2, right after its government rescue was announced. When oil hit $145 a barrel this summer, you could have sold calls on oil stocks, or bought puts, and hoped for prices to fall. In July you could have bought shares in Freddie Mac or Fannie Mae for prices not seen in over 20 years, and then hoped they regained investor confidence without a government takeover. You could buy distressed real estate.

In other words, you can perform a civic duty and speculate. I do this myself from time to time. I describe these opportunities as "special situations," which avoids a pejorative connotation and is broader, since special situations don't have to be full-blown crises. However you describe them, such events often yield tempting buys. When should you grab them?

For more SmartMoney Magazine features, turn to the September issue.

This summer's crisis over Fannie Mae and Freddie Mac provides a vivid case study and has helped me refine my own standards for crisis investing. With both stocks in single digits and down 80 percent from their highs, my contrarian, highly risk-tolerant friends (and readers) jumped in and urged me to do the same. Their stocks certainly seemed oversold, with investor sentiment in near panic mode. Expert opinion seemed wildly divided. Immediately after the government announced an emergency rescue plan the weekend of July 13, I noted that Citigroup analysts issued a "buy" recommendation on Fannie, while Standard & Poor's posted a "strong sell."

Here are the questions I asked myself; they also provide a handy checklist for assessing all potential crises.

How complex is the crisis?

Complexity breeds uncertainty, which increases risk, which in turn magnifies potential gains and losses. The more complex the situation, the greater number of variables that need to be assessed, and the greater the probability that you'll be wrong about at least one of them. Fannie and Freddie are unusually complex because of their quasi-governmental status, the precise nature of which no one seems to understand. That means their futures are as much a question of politics as of market forces. While market forces are hard enough to evaluate, at least there are laws of economics that purport to make sense of them. Political decisions, by contrast, may be arbitrary and hence unpredictable.

It's a fair assumption, for example, that Fannie and Freddie must survive and that Congress will act to save them. But how will shareholders fare? They won't be competing on a level playing field, simply because their numbers are relatively small and their clout negligible. Politicians care about homeowners and borrowers first and debtholders, who include the world's major purchasers of Treasury notes, second. There is not going to be a financial catastrophe, nor is any politician going to be thrown out of office if the lenders' equity holders are wiped out. Presidential contender Barack Obama underscored that point after the rescue was announced, warning, "Any measures should protect taxpayers and not bail out the shareholders and management."

Do I understand the balance sheet?
Despite their huge size, there's nothing that complicated about Fannie's and Freddie's balance sheets: massive assets, mostly mortgages and other investments, and huge liabilities, mostly the borrowing needed to finance the purchase of those assets. If you look at end-of-year balance sheets, you wonder what all the fuss is about, since there's a nice cushion of capital. The problem is how to value the assets and whether the numbers provided by the companies are still valid, given the slumping housing market. Regulators didn't help things by expanding the kinds of debt the companies can buy to include riskier and larger loans, which was hardly reassuring to investors. But ultimately, I'm not in a position to evaluate the worth of their assets.

Is the crisis largely psychological?
Government officials have insisted that Fannie and Freddie are fundamentally sound and are victims of an irrational crisis of confidence. If this is indeed the case, it would tempt me to invest, since I assume reason will eventually prevail. The exception to this assumption, however, is for businesses that operate primarily on trust, and financial institutions top this list. It's a Wonderful Life excepted, few banks can survive a run by depositors, no matter how unfounded the panic. Fannie and Freddie are in a somewhat better position, since their customers are presumably sophisticated institutions that buy and sell mortgages and won't stop doing business with them as long as they continue to meet their financial obligations. A bigger problem is lenders, since Fannie and Freddie must have continuous access to the debt markets to stay in business. This is why July's rescue operation was focused on reassuring bondholders and lenders. But panicky shareholders are also a problem, since Fannie's and Freddie's slumping stock prices make it harder to raise capital without seriously diluting existing shareholders.

So for me, Fannie and Freddie fail on all these counts. That doesn't mean they'll have to be taken over or that their stocks won't revive. All it means is that I, as an investor, don't have the confidence to argue that the market has gotten this wrong. If I owned the shares (I don't, fortunately), I'd sell. I'm not going to be betting for them or against them but simply observing from the sidelines as a concerned citizen.

Given the length and severity of the current credit crisis, there's no shortage of candidates beyond Fannie and Freddie. Have you, like me, been tempted by Leh-man Brothers, which as I write is trading at about $19, down from $72 a year ago? Unlike Bear Stearns, it can borrow at the Fed discount window, so there shouldn't be any fears about the quality of its balance sheet. Various negative rumors have proven flatly wrong, and the Securities and Exchange Commission is investigating the rumormongers. But before making any decision, try applying my criteria for crisis investing. I'll do the same and share the results in a future column.