The Fantasy Housing Hearing of 2006

The question is not to "question" speculation as speculation is what investors do every time they purchase asset that they hope to increase in value, it is a inherent component of investing. However, that is not what we have seen in the past few years. If folks invested in stocks and they tanked the tax code provides a generous deduction fo $3000 per year against ordinary income. If the loss on speculating cost the investor $30,000 they would deduct $3000 per year for 10 years, or all or part against future capital gains. No government intervention, no bail-out for "get-rich-quick" investing, just the meager deduction per year. Today the boutique investors who could not stay on the sidelines while their friends and neighbors make a killing in the housing market jumped in with both feet and the mortgage brokers were there to "make their wildest dreams come true" - at any cost. Now the speculation has subsided and the prices are going back (not there yet) to real values, and the banks that saw the great opportunity to make a handsome homerun are asking "why did we do such a dumb thing?" The answers the stockholders would give is, "because if you did not jump on the proverbial bandwagon of lending to the Jones so they could up with their neighbors the bank would have had losses prior to this". The upper management couldn't agree more. The new House bill (HR 3221) is ambitious and after reading is quite strategic, yet will Band-Aid a cancer rather than cure a overspending, undersaving, debt increasing, and financial stressed-out America. I can foresee the tax provisions being misinterpreted, and the opportunist will see the tax credits (that must be repaid back to the Gov), and mortgage debt forgiveness (that is forgiven ONLY until the home is sold but can be decreased for longer holding periods). The greed of this bubble is similar (yet further reaching) than the dot com bust of 2000/01, but fortunately for those folks who could have lost their shirts they were able to matriculate into the housing (dot com) and now wondering what happened which is what happens when we violate basic investing and financial truths. i plan on sharing this at the annual Florida conference for CPA's this coming year. Between now and then, we will see the next waive of folks coming to their senses and living below their means and realizing financing more and more to attain the American Dream is a deception and riddled with great pain and heartache.

Another question I have. Isn't ultimately investing all about speculation? We buy stock thinking it will go higher. Almost no one (except those about to retire) buy stocks solely for the dividend. Should we just close Wall Street altogether?

This is a great point. If speculation is per se evil, why don't we take it on in other industries? And if speculation is per se evil, why don't we let those who did the speculating suffer when the bubble bursts? If oil crashed and tons of speculators lost billions, would we bail them out?