Looking back at all the recession, depression and other economic catastrophes and as much as people like to believe in economic cycles, I personally believe that the current severe economic downturn started just like all other bubbles – as a result of speculation. It has nothing to do with economic cycles.

Can we avoid cycles like these? Not likely. Can we eliminate greed? Not likely. No Fed has the power to do that no matter who’s at the helm.

A few hundred years ago it was tulips; then came the stock market crash of 1929 and the not-so-distant stock market crash of 1987; in 2001 it was the internet bubble and today, it s the collapse of Bear Stern s due to speculation in mortgage backed securities. Yes, it was and is pure speculation. In today s scenario, the players are very much the same as in the past. It was the speculation that someone earning $40K in annual income could by some miracle – carry a $500k mortgage Bear Sterns called it High Grade Structured Credit Strategies Enhanced Leveraged Fund . I have to say, that when I read how they named the fund Enhanced.. , I had to laugh at how ingenious marketers can be. If it s Enhanced , it has to be better than the rest?

And the good part is that it was all legal. Executives who caused a complete and colossal economic catastrophe walked away with sick money while the Fed had to interfere to avert a potentially disastrous financial catastrophe with worldwide repercussions. Take for example, Angelo R. Mozilo who received nearly 57 million in compensation in 2007. http://www.forbes.com/static/pvp2005/LIR7G33.html

From Ben Stein s article from NYT on April 6: I am not sure where this has come from-Maybe from media that glamorizes wealth and high-end consumption, maybe from poor moral training. But one thing is clear: Current law does not give shareholders or regulators any tools to rein in executive greed. There is simply no cause of action for pay package that, however obscene, are approved by the board and disclosed to shareholders. Congress could. So could Securities and Exchange Commission

They will try to sell you on the fact that they had no clue, but they knew the risk all along. I know they fully aware of the situation because you and I and every 10^th grader saw the writing on the wall. I saw real estate prices go through the stratosphere (just like all the previous bubbles), I saw the speculation and met many speculators – and how people leveraged their home equity to purchase depreciating assets (like cars and curtains) and go on vacation with borrowed money. Did someone bother to tell these people that they were using money from unrealized gains?

Did any banker or mortgage broker ever look up the term Fiduciary Duty ? As defined by Wikipedia: they must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust, and the word itself originally comes from the Latin fides, meaning faith, and fiducia .

Can we avoid being dragged into the next speculative wave and eventual bubble? Of course we can. All we have to do is ask the question: is there any material value in this investment? Value could be not only from material worth, but rather from the perspectives of integrity.

For example, you could ask, is there a value (integrity) in all the small mortgage companies popping out everywhere and giving money to everyone? Is there a value (economical sense) in houses appreciating 30% to 50% in one year? How much more appreciation is left in this asset?

The real problem stems from the fact that our nation has come to rely on debt to generate profits. We no longer produce anything of real value. The largest industries like automakers (GM, Ford and Chrysler) and aircraft (Boeing) were leaders on the world s economic stage. Technology, innovation and quality were key to their growth. Today s leaders are no longer in the US. Our competitive edge has dwindled to make way for credit card companies and bankers continually offering us one more way to borrow more.

It takes nerves of steel and patience not to be dragged into the herd mentality. It means sitting there and doing nothing for years while your investment savvy neighbor tells you how he made 300% last year in the latest craze. The herd starts that way .avoid it like a plague. Let s not forget, value also means quality. If you associate with quality people, quality products, quality friends, your economical life could be great.