"I'm not crazy! You're the one that's crazy!"
-- Suicidal Tendencies, Institutionalized

It's been a tough year since what I like to call The Autumn of the Massive Collective Pants-Soiling. Have we grown up, sobered up, or started building a healthier economy? I think not. Welcome to the world of institutionalized speculation.

Investors, policymakers, and the public in general seem just as ready as ever to dismiss the importance of business fundamentals, and no less voracious in their appetite for risk. Is this further fallout from the year of moral hazard? Garbage stockstriumph on Wall Street. Government bailouts reward businesses for failing. And as Uncle Sam doles out the cash, a confederacy of wussesstarts whining for its own share of the largesse.

If we're not careful, we may soon forget that real corporate performance and good economic sense are the way things ought to be done. If so, the systemic mess we've created could become business as usual.

The government as speculator
Companies like GM, AIG (NYSE: AIG), Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), Bank of America (NYSE: BAC), and Citigroup (NYSE: C) helped get us into our current mess. They took on way too much risk, manically participating in a speculative and debt-bloated bubble environment. Still, the government has poured ample cash into these zombie losersto keep them alive, even though they basically failed by the market's true standards.

Some observers have even praised the government for making a "profit" off its own "investments."True, Uncle Sam may have done well with short-term paybacks from the stronger recipients of its handouts, but the payments it made to weaker players could accrue far greater losses. Some economists and critics also point out that even with their newly acquired taxpayer cash, many financial companies' balance sheets are stillfull of toxic assets, even a year after the market crashed. In short, we can't be sure that the specter of financial insolvency's truly behind us.

The government's already amassed $7.4 trillion in debt. Over the next 10 years, that figure will swell to a total of $9 trillion. These daunting numbers should prompt people to confront the question of our nation's long-term fiscal security. Instead, folks seem distracted by emotional arguments over issues like health care, or the soothing assurances of our economy's supposed green shoots.

Follow the leader
Worse yet, individual investors still follow Uncle Sam's lead by bidding up even the most damaged stocks, gullibly convinced that last year's troubles are a distant memory. Many of the names I mentioned earlier have recently ranked among Wall Street's most actively traded stocks.

It's bad enough when people pile into stocks that are already saddled with debt and faced with major challenges. For example, Sirius XM (Nasdaq: SIRI) remains very actively traded, despite its longtime difficulties in actually turning a profit. So does Crocs (Nasdaq: CROX), whose auditors warned earlier this year that the shoemaker may not be able to continue as a going concern.

But investors' appetite for risk-riddled companies doesn't seem to stop there. Apparently, even long-failed Lehman Brothers' pink sheet shares have been recently trading. So have shares of bought-out Washington Mutual and doomed "old GM." And that's just plain nuts.

Caught up in bailout fever, some investors may be entirely forgetting that healthy fundaments are the key to a sound investment. Indeed, why should they worry about such things, if someone else will always come along to patch up even the most bloated, failure-prone beasts of the corporate world? I can't decide whether moral hazard's truly dead, or whether we're seeing its dire effects more clearly than ever.

We need to start saying no to goodies our nation can't afford, even if they feel good or might "help" in the near term. Cash for Clunkers, for example, definitely boosted new car sales for a few months. But in the long run, it only saddled a whole new crop of already cashed-strapped consumers with the additional burden of car payments -- and subsidized those dubious purchases at taxpayers' expense. Continued...