As rescue plans and bailout debates continue, almost everyone distinguishes between homeowners and investment speculators. They point out that what's beneficial to one group will harm and threaten the other. But the two may have more in common than meets the eye.

A couple of months ago, $30 billion was used to bailout Bear Stearns, an investment bank specializing in high-risk subprime ventures. But today, the Bush Administration vehemently opposes a Democratic plan to earmark a mere $15 billion to buy back foreclosures and help homeowners throughout the U.S. The reason, says the President, is that such rescue efforts are a reckless investment of hard-earned tax dollars, and only favor and support professional speculators and mortgage lenders. The partisan political difference of opinion highlights the fact that this is not an easy foreclosure crisis to define, and the demographics do not conveniently line up as "us versus them," but are, instead, much more murky and convoluted.

Foreclosure victims as risk-taking investors

What many people-especially politicians and members of the news media-fail to acknowledge is that homeowners and professional speculators are often one and the same. Unlike foreclosure events in the past, this particular foreclosure crisis involves many well educated, well financed, experienced homeowners who were perfectly aware of the downside risk, but ignored it because it was easier to buy and then sell, or refinance to make extreme profits. Market observers mistakenly refer to speculators and homeowners as diametrically opposed groups of real estate buyers, but the uncomfortable fact of the matter is that many homeowners aren't innocent and uninformed victims-they're calculated speculators. They got caught in a trap of their own design, and now want their taxpaying neighbors to bail them out.

House hopping game players

Thousands of financially savvy consumers saw a chance to buy into a rising market with dirt cheap mortgages that they could sell off or refinance before the introductory "teaser" rates expired. Rather than put their money into a dull stock market and watch it languish, they got into the high-flying real estate game. The winning formula was to buy a house with as much financial leverage and as little cash as possible, live in it for at least two years to avoid capital gains tax, and sell or do a cash-out refinance for a big profit. The next step was to move to another house and repeat the process. Mortgage companies supported the speculative trend with high-risk, low cost mortgages and lax underwriting standards.

Overlooking the truly needy

The plan backfired on many homeowners, who wound up in a free fall when the bubble burst and the market crashed. That's unfortunate, for sure. But to call them innocent victims who are in a different category from professional investment speculators is a misnomer. To offer them a handout or bailout may be unfair to other taxpayers. It's totally unfair to the truly innocent victims of the foreclosure crisis who really need and truly deserve a concerted rescue effort that targets only them.