RIVALING VAMPIRES AND

terrorists for this year's favorite boogeymen are hedge-fund managers, who along with other speculative investors have become politicians' and the public's favorite scapegoat for every economic ill.

They are a convenient whipping boy for critics ranging from Bill O'Reilly, who targets oil speculators, to Rep. Charlie Rangel, the New York Democrat who recently proposed tax hikes aimed at investment-fund managers. From high oil prices to falling home sales, we now blame hedge funds and other greedy, speculative interests for most of the world's problems.

Don't make me laugh.

Take the so-called housing crisis. Down-on-their-luck homeowners getting foreclosed on after missing payments have created their own misfortune. Those who can't pay their mortgages shouldn't expect to be able to keep their homes, just as speculators who can't meet margin calls aren't permitted to keep their positions. In the rare cases when mortgage terms and conditions were fraudulently presented by unscrupulous brokers, a legal case might be made. But there was no wholesale fraud or deceit perpetrated, and what caused the credit crunch in August wasn't hedge funds or speculators but rather deadbeat homeowners who didn't pay their bills.

As I've pointed out before, hedge funds are pools of money just like mutual funds. They run the gamut from the ultra-conservative to the highly volatile. Some employ complex spread trades while others simply buy and sell stocks. A hedge fund isn't an investment strategy; it's a legal structure.

Hedge funds are regulated like any other individual or business is by objective laws designed to protect individual rights. They engage in free trade by voluntarily buying and selling investments. That's all they do because that's all they can do.

It was many of those supposedly Machiavellian funds that suffered massive losses when the value of their investments fell this August. Billions of dollars of capital in funds like Sowood and some from Bear Stearns evaporated as the market for debt quickly changed. Of course, none of them has asked for a bailout, despite the fact that their involvement in the market has and continues to behoove us all.

In trading these risky debts, hedge funds and speculators provided liquidity, demonstrating once again how the public securities markets in their pure, unregulated form, are the finest mechanism for risk transfer in history. Yes, billions of dollars in subprime debt dropped in value, yet it only affected those who willingly chose to assume the risk. The borrowers, banks and investors affected were all voluntary participants, and only to the extent they consciously chose to be.

Even as many speculators are nursing immense losses, it will be that same constituency that'll be expected to buy the risky paper to be issued by the SIV rescue plan, the so-called Master Liquidity Enhancement Conduit or "Super-Conduit" that has been proposed by Citigroup and a few other large banks.

But professional investors are easy targets. The top hedge-fund managers are richly paid, just as the top corporate CEOs, lawyers, professional athletes and actors are. Unlike most other industries, however, the unspoken conviction is that professional investors, especially hedge-fund managers, succeed by exploiting others. We begrudgingly respect their ability only as we would a magician, pool player or card shark. They're seen as shysters.

That's precisely why professional investors and other successful wealth creators are now being targeted with redistributive taxes and even more regulatory constraints. On Thursday, congressional Democrats led by Rangel unveiled a tax plan that promised tax reductions for middle-class families funded by, in large part, a $48 billion tax increase on private equity and hedge-fund managers. The bill also would impose a surtax of 4% on single filers with incomes above $150,000 and $200,000 for married couples filing jointly.

In a statement on the Ways and Means web site, Rangel comments how, "For too long, hard-working families have struggled to keep pace with the rising cost of living in America. This legislation would put money back in their pockets to combat the growing economic insecurity gripping our nation."

The implication is that hedge-fund managers and the "rich" who earn more than $150,000 a year have taken money out of the pockets of "hard-working families." This bill aims, quite overtly, to redistribute money from those who've made it to those who have not. The mortgage crisis simply provides a convenient news peg to demonize wealthy speculators whose greed, in the eyes of the politicians and irresponsible journalists, created the economic hardship some citizens now face.

The reality is quite different. It was hedge funds' willingness to own and trade the securities that allowed millions of high-risk individuals to be able to afford a home in the first place. And those who were involved in the subprime-mortgage market, either as borrowers, lenders or investors, all did so voluntarily.

So it's a little mystifying why those who've earned great financial success, such as some wealthy investors or individuals making more than $150,000 a year, should see their incomes redistributed by populist politicians looking for votes. Investment is a legitimate form of wealth creation, just the same as teaching school or working on an assembly line. Those rich "hard-working families" also earn their money. Their achievement and wealth isn't Charlie Rangel's to give away.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.