Blame is a popular concept in the United States. It's understandable too, since our laws are built around the concept of finding a party at fault. We are always interested in trying to find the reasons for why something happened, and if possible, if changes can be made that prevent the problems in the future. In economics though, fault is not as important of an idea. Economists are about cause and effect. Less about who started the fire, and more about who will be burned before it's put out. Politicians love to mix the two ideas though.I've been wanting to talk about this for a while, now. I think there is a large percentage of the population who more or less believe everything that happens in the stock market is corrupt, that it's just a big casino, and that speculation is at the root of every economic injustice that we have today. And it's not just a liberal or conservative view. I am seeing this misinformation applied across both parties, as well as the libertarians and other groups. There's just this nonstop argument about who is to blame, and what they intend to do to "fix" it. Here's my specific problem with that. Going back to this cause and effect thing I mentioned a moment ago, when you have a big recession, or an economic bubble burst, it's usually not just one group at fault, and not everyone involved was in there attempting to be greedy or risky. There is this belief that the things you're seeing traded on "Wall street" are just slips of paper, and it's like a big game of musical chairs where you trade in a frenzy until the music stops and you're out. A belief that "financial assets" are not real things, and so if we build an economy around speculating, that it will inevitably collapse. Except that's not what's happening on Wall Street.Let's talk about the housing market for a moment. I have some slides I prepared, and I'll explain what it is you're looking at here:1) The first slide represents an early settler in some area. Maybe he's there because he's operating a farm, or just wanted to move somewhere quiet. The red circle represents the money supply in that area. The homeowner probably has enough for themselves, and a little wiggle room to spend in the local economy.2) Represents some other new residents who noticed that the area is nice to live in, so they come to live there too. The amount of money being moved around increases. The people living there start to need a greater variety of goods and services. 3) This is where we start to see more businesses open up in the area. Shops, small banks, schools, basically a healthy but modest economy. These 3 stages of "normal" economic activity could represent any town in the country. You've got a nice area, resources like useable land and water, and the population just slowly grows over time. Prices are stable and for the most part affordable.Now let's get that fire started.4) This is where we start to see businesses from outside the area start to take an interest in the region. Maybe there's a popular new technology, or some need to open new factories. Two factors start to work together here: You have new money coming in from outside the economy which brings in new population of skilled workers, and you have incentive for the people who were already there to borrow money to accommodate them with new kinds of businesses, shopping. The money in the area keeps on growing, outpacing the needs of the citizens there, and as a result, prices increase. Up to this point, nobody would have called this "speculation", or an "asset bubble". And Wall Street has been involved during every stage of growth up to this point. They aren't dealing in imaginary goods on Wall Street. The stock and bond markets are there to make it possible for corporations to have access to new sources of financing. They get the money needed to expand in this way, to create new franchises for people to run, to develop and transport goods and services that even the smallest economy uses. Corporations are just groups of people pooling their money together to create business opportunities. The bond market also helps get the financing in place for those new homes to be built. Banks market the loans they make to people in the form of mortgage-backed bonds. Most homeowners get financed because people are willing to buy those bonds,and expect a suitable rate of return for the risk they are taking by helping out. That's an important concept to keep in mind while we talk about the next slide. 5) This is the part where demand tapers off in the economy. Increased competition from other businesses has made it so that this older economy can't bring in the profits that they once did. The flow of money starts to rapidly contract as business close down and leave. Prices collapse.This is a recession. It might be just a single town or state experiencing these problems, or it could be the entire country, or even the world. But take a closer look here. Notice that the houses and the factories, and the buildings are still there. The real things that were financed and created by the "financial assets" industry are still there. As long as new uses for those homes and offices can be found, they are useful, real assets. And they can still be put to work for someone who has the motivation to refresh them.This is where the government starts to get involved, and why financial markets continue to remain important.Wall Street, once again is at work. They're making sure that homeowners continue to find sources for financing, and they match up opportunistic buyers with depressed markets. That activity brings new money and financial stabilization to prices. It brings new people with new ideas and new goals, and they have the additional boost of being able to get started at a lower price than the people who were there before them. 6) This is monetary policy combined with investment. The economy is stable enough to support itself, and the government can start to withdraw. We recover and grow from here. A new recession is virtually assured to come at some future point, but the overall picture here is we have more tools as a society to create even more.So is speculation really that bad?Sure, there are lots of people who trade stocks exclusively to try to capitalize on quick gains. Few of them succeed. The overwhelming majority of people who are involved in the markets are just every day people. If you have a 401k for example, you're in the stock market. And you're probably not day trading on that account. It's a buy and hold resource, with the expectation that if you give it time, compounding returns will grow your piece of the pie. That creates a problem though, because in order for growth to happen, more risks have to be taken. The 2008 recession wasn't just caused by "big banks" running trading scams. Investors asked for ways to earn more on the money that they were investing. CDOs were a way to increase the interest earned on mortgage backed bonds by leveraging them with borrowed money. It had the side effect of creating excessive demand for new housing, attracting homeowners and lenders alike who wanted to try to grow. Not everyone could though, and the industry that was created from that rapid expansion, as you know, eventually was broken.The stock market is not intrinsically a house of cards. It's just a place for people to meet and trade. And Wall Street is not just a single street of financial masterminds in a nice area of New York. Wall Street is the entire world, and we could never have become as strong of a country without it. The stock market multiplies what we are capable of financially. It's a powerful tool,but fluctuations are a natural part of that growth.Education is the answer, not blame. It's understandable that a lot of people don't understand Wall Street, the stock market, and investing. Schools don't really teach economic concepts until college level, and for the most part the only exposure that non-investors ever have to these things are what they see in the news. The news doesn't report on how things work, they bring you headlines that are meant to excite you in some way. So stock market headlines tend to be sensational sounding or scary. We should work towards changing this environment, bringing education about financial concepts to earlier ages. Kids can grasp mathematics when they are remarkably young. Why not concepts related to saving money? The great irony with the wealthy in this country, is that odds are they became that way because they were able to build their asset base at the lowest cost. Those skills can be taught.