If the American taxpayer is now to become the defacto insurer of market risk-taking, then any tax on capital gains should be considered little more than an insurance premium.

The driving force of the American economy is risk, but we are in danger of eliminating risk if failure has no price. The very concept becomes meaningless if we put the safety net inches below the tightrope. And we have most assuredly done just that - for our own safety.

But without a broader plan, we have signaled an invitation to speculation masquerading as risk. We have signaled that we are willing to play any shell game as long as the stakes are high enough. We are willing to bet our future - and I wonder if that is because we don't place a lot of value in it.

At this moment, we have not actually received the bill for the transgressions of unchallenged greed, but I'm pretty sure we're getting close to trying to write a check we can't cash. In all fairness, to the extent that we rescued the risk-takers, we should in the longer term expect compensation from the rewards.

The challenge over the next decade is for America to make a clear distinction between investment and speculation. It sounds so simple. It is so not. Even as we are rescuing the financial institutions from their suicidal binges, we should look up and take notice of the automakers and airlines who are approaching the steps of Congress with pistols pointed at their own heads.

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Now that, is risky business hoping to come to town in DC at the White House.

... if there's any risk involved, that risk falls to the tax payer.

If there's any profit to be made, by default, that profit goes to the private sector.

If your taxes are withheld from a paycheck issued by an employer, then at some point you will be billed by the IRS for any costs to our economy due to risk.

If you pay your taxes, if any, with the help of lawyers and CPAs in the employ of your limited liability partnerships, then you are part of the private sector, and as such probably will see little of the cost associated with risk.

These bailouts are said to be in the hundreds of billions. That is not pocket change, so where is this money coming from? My guess is that it will all be off-book but this lack of transparency is what led to the problem in the first place. The first thing that must happen is we must bring to an end all off-book accounting because no determination can be made on risk when the risk is carried off-book. The mechanics of these changes means we are building another problem while we again kick the can down the road. I will admit that I don't know what the alternative is but from what I have heard I am less than assured that this bailout is anything more than an emergency patch.

One thing you might see—in exchange for the RTC type rescue that compartmentalizes the bad debt is all of these institutions forced to offer re-financing to homeowners at a lower amount on the principle. If the banks have to eat 10-20% principle amounts on their loans it’s pain but it’s cheap compared to having to hang onto the debt and securities that are impenetrable.

It also stabilizes housing, stabilizes the firms and makes it a lot less likely that such measures would be financed again (if they had to write down principle that’s a wager not worth taking in the future).

It also gives the tax payer something in return for their obligation gets a ‘reset’ and the government has the leverage over the firms to get such concessions now.

Think of the mortgage backed securities as a poison smoothie. Rather than making specific people drink it everybody will drink a teaspoon on the assumption we’ll all hate food poisoning but live. The payback for that is the people who made it will have to take a major laxative and get a colonoscopy and start a much healthier diet and health program.

are exactly the same activity taking place in two different contexts. "Investment" implies a stable context and a long-term perspective, "speculation" implies an unstable context and a short-term perspective. Needless to say, the definitions of "stable," "long-term," etc., are themselves fluid and context-dependent.

Which of these--'investment" or "speculation"--anybody is doing is driven by the context, not the risk-taker's intention. Obviously, the contexts shade imperceptibly into one another. Also obviously, the government bailouts (and more permanent-sounding schemes to keep up the bailouts) are not "investments," because they are totally crisis-driven, i.e., provoked by extreme instability and the fear of the customary financial players of short-term exposures. "Investment" does not exist in a climate like this.

Governments are trying to create stable, long-term perspectives by fiat. These are not considered fiscal policy choices; they are involuntary reactions to market evaluations of the global investment prospects (i.e., there aren't any). How anybody could call this scenario anything other than a charade is beyond me. Merely manufacturing liquidity (i.e., "printing" money) does not restore the stable, long-term context that investment valuation depends upon. That context depends on thousands of variables beyond the control of any single government, or even all governments.

The essential problem is the emergence of a global political-economic "order" that nobody understands because it is, and will be for a long time, in the process of self-definition. This global uncertainty is so great, and financial reaction times have grown so short, that extremely financial instability is inevitable. All governments can do is keep smiling and pedaling the illusion that nothing has changed, whenever everything has changed and nobody knows where we're headed.

out the speculation vs. investment thing to him.....

Is already a hit in a few states (California in particular) that protects a foreclosed former homeowner from financial liability when a mortgage-holder resells the property for less than the original sale price.

Mortgages typically require some money down (10% I think), so a short sell of 20% means both buyer and lender eat some of the loss.

Refinancing at a lower principle is essentially selling the property back to yourself at a lower price - with a lot less work in the middle. That has got to be preferable to putting the house back on the market where there is no market.

In a depressed market, the borrower and the lender are in the same boat. In good times, we typically expect the borrower to do the rowing, but against a strong current a lot of borrowers simply jump ship or were pushed overboard. Only now do the financial institutions realized the waterfall into which they have been drifting and only now do they finally realize that they can't paddle it by themselves.

Bundling debt into exotic securities makes it all even harder to navigate because nobody knows who's got a paddle and who's really up shit creek.

I chose those words carefully. Here's context:

You buy a house and you and your family live in it - that's an investment. You buy a house to flip it - that's speculation. Homeowners should have some protection. Flippers are fucked. That's just my opinion, but that's my context.

Numbers are hard to come by, but it looks like almost 30% of walk-aways and foreclosures in the states most affected (California, Arizona, Nevada, and Florida) were not the actual homeowners. These states had the most overvalued property and it was overvalued because there were so many speculating in real estate.

Financial institutions went along because their quants never anticipated a pricing bubble. And zero-principle ARMs were the icing on the cake. Speculator candy.

if I buy a house, renovate it (making it nicer) and rent it out as an investment, it's not an investment - it's speculation. Right?

Do you really think the issue here is in any sense a result of "speculation"?

but in my book, yes exactly so.

but Communism is profit for others

people who buy homes to rent out as "speculators" exactly what have we accomplished?

Are you saying people shouldn't rent homes? If it's okay to rent homes, precisely whom should they be renting from if not the owners?

I'm surely missing something from you here. What do we get out of calling people who buy homes to rent to others "speculators"?

(more to the point - what has this to do with the current crisis?)