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In a speech before the nation last night, President Obama's State of the Union Address spoke of a new American economy that is "built to last."
Of course, in the wake of the dot com bubble, the subprime mortgage fiasco and the funny money of the last decade, that's certainly an objective all of us can heartily agree with.
The American Dream is in need of repair.
The good news is that with one exception the President's State of the Union Address did outline some useful steps that could be taken to help boost the economic recovery.
Naturally though, I think the details could use a little tweaking!
The Worthy Goals in the State of the Union Address
To start off with, the President outlined his primary strategy to help bring manufacturing jobs back to the United States. That's an entirely worthy objective.
What's more, this goal actually has a decent chance of being met--- at least partially.
Here's why...
Chinese manufacturing costs have been rising rapidly over last few years, since its workforce is now demanding a larger share of the profits in the country's new found prosperity.
Also the President was correct when he claimed that there are several intrinsic advantages to manufacturing here in the states. As a result, the cost equation has been swinging pretty rapidly in favor of bringing manufacturing jobs back home.
His example of the Master Lock plant in Milwaukee running at full capacity for the first time in fifteen years is just part of a greater trend.
The President's proposal to lower corporate tax rates, while eliminating the loopholes that allow companies like General Electric to pay almost no U.S. taxes, will also undoubtedly help to bring even more manufacturing jobs back home.
After all, it's always pretty smart to call for something already starting to happen. That way your success is almost guaranteed!
Unfortunately, some of the President's other ideas were less satisfying...
As Always It's About the Details
We also learned the President wants even more government "investments" in technologies such as clean energy.
However, Solyndra and other fiascos have surely shown that the government is a lousy venture capitalist - and the dangers of money being thrown away through corruption and political back-scratching are just too great.
On the tax side, the president also proposed incorporating a "Buffett Rule" whereby everybody earning more than $1 million would pay a minimum of 30% of their income in tax.
That, of course, is a slap at his potential November opponent Mitt Romney, who pays about 14% of his income in taxes, thanks to the fact his income consists of dividends and capital gains.
This 30% figure is reasonable, although it should include ALL taxes, state, local, and Medicare as well as ordinary income. At present, marginal tax rates of more than 50% are common in many instances.
In this case, dividends can easily be brought into this framework by making them tax-deductible against corporate income tax - thus eliminating the incentives for corporate loopholes and excessive top management pay.
With that provision, dividends could then be taxed as ordinary income-taxing folks like Romney at a much higher rate.
The one problem is capital gains, where the past 40 years' of experience has shown that capital gains tax rates above 20% reduces revenue and damages the economy.
Fairness Front and Center
However the President's call for closing tax loopholes on the wealthy is well taken, and is a much better plan than raising the tax rate on their income, which discourages risk-taking and effort.
On the other hand, the mortgage interest tax deduction, the charitable gifts deduction and to a lesser extent the state and local tax deduction all tilt towards behavior that's not economically helpful.
Capping those three deductions, at least, would raise huge revenues, thus closing the budget deficit, as well as improving the economy.
Finally, the President called for Congress to enact legislation that would make a politician's investments subject to the same insider-trading restrictions and conflict of interest rules that the rest of us have to abide by.
Needless to say, this is one idea that should have been done a long time ago.
However, there is one big gap between the President's programs and his promise of an economy that is "built to last." It's monetary policy.
That's because when the Fed pushes interest rates below inflation, all kinds of leverage, speculation and dodgy deals are encouraged.
At the same time low rates discourage savings while capital investment overseas becomes cheaper than hiring workers at home. As long as these policies continue to exist, the harder it will be to change the overall equation.
So if the President is serious about creating an economy " built to last" he can start by firing Fed Chairman Ben Bernanke and reversing his ultra-low-rate policies.
Even still, the President's State of the Union Address is a step in the right direction.
After all, you have to start somewhere...
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No budget for three years,no slashing any goverment hiring or elimating whole departments,no pipe line bring oil from Canada,new hidden taxes,people in our goverment hired by Obama who our socilist and worst,czar's who don't believe in or follow the constitution or laws,a attorney general who is more prejudice than the clan.He has lied in the race for president he is lying now.I could go on and on but it is a waste of time and energy.The other party isn't any better in it's efforts to down size this blotted and out of control goverment.This country is doomed in so many ways that the only hope is the people take action and vote long time congressman and senators out of office and get laws past that punish office holder for wrong doing.
I agree with you completely. But as corrupt as the voting system in this country has become (voters being comprised of dead people, illegal aliens, Muslims, Disney cartoon characters, and people younger than 27 whose minds have not developed to the point at which they can fully understand and appreciate the relationship between their actions and the cosnsequences of those actions), I wonder if just voting will do any good. I have come to the inevitable conclusion that a 2nd American revelotion is really what is needed. What I'm afraid of is that the American public has become too secure in and comfortable with the freedoms that they enjoy (or used to enjoy) that they don't have the B@ll$ to take that obvious step before it's too late.
I concur,
Sir you are correct. Conflict is indeed inevitable. I hope we can overcome this Obama induced Marxist Socialist Communist Left leaning minority at the voting booth and eliminate bloodshed. We have to stop the Socialist democratic movement in it's tracks. That is going to take alot of effort and I hope we can stop it peacefully.
Unfortunately I forsee a very violent bloody racially motivated Civil War based on envy and hatred toward a diminishing Middle Class and the Ultra-Rich. I hope and pray that this does not take place as it will be the worst and bloodiest Civil WAR that this Nation or the World has ever seen. I predict that 95% of the world's population will be enilated as a result of this
stupid war.
I agree Robert. Our big problem with our congress is that while they have a very low favorability rating overall, if you ask how your representative is they always get high marks. In other words you need to vote yours out and I will keep mine because he does good things for his people. I believe the members of congress play off of that and therefore they continue to get reelected. Don't know how we overcome that problem.
Term Limits would be a start! I love your comment on how its the other representatives , not mine! People need to be reminded that our government representatives play a huge role in the running of our country, and its more important than who's president. Presidents come and go but many representatives remain. Their desire to remain stops them from making the difficult choices that need to be made !
"On the other hand, the mortgage interest tax deduction, the charitable gifts deduction and to a lesser extent the state and local tax deduction all tilt towards behavior that's not economically helpful. "
do not empty my rice bowl or i will surely perish. the mtg tax deduction is vital for almost evryone as are the other tax deductions that everyone uses.
Seems fair and balanced.
Thanks
A future we can invest in.
Lies are never fair, deception is never balanced and a socialist dictatorship is not anything that any true American can or should invest in.
Of corse Lies are fair, if they are done to brainwash Americans, and deception also serves the same purpose to keep U.S. citizen stupid and a socialist dictatorship is waiting just around the corner, because once the U.S. people realize they are in the doldrums economically speaking, because capitalism cannot survive without profit and then, the state will have to run the business for the incompetent businesses, as it did with some banks by proxy, after the American induced World Financial Crisis.
What did the U.S. Citizen gain from it ? A three trillion Dollar addition to their Deficit.
I concur with your comment that American activities are largely responsible for kicking off the world's financial crisis (based on the subprime mortgage debacle). But I do not see how American politics and finance caused the Greeks to spend too much or the Spanish to tilt at their windmills. In other words, USA may have primed the pump, but USA was not the only nation acting fiscally irresponsibly.
I was very disturbed to see that the author of this article is obviously pro-Obama.
"After all, it's always pretty smart to call for something already starting to happen. That way your success is almost guaranteed"
In other words, if Obama calls for something that is already happening, he can claim credit for it without deserving any of that credit. Of course, lying and deceit are nothing new for Obama and just what you would expect from him just before an election. Remember, Obama is a devotee of Saul Alinsky and a grade A student of Alinsky's infamous work, "Rulers for Radicals".
I am surprised at trying to attack Obama by using the works of Saul Alinsky. These are the exact same principles needed to take back our government. People need to organize to get the political results desired and get the politicians with their corporate back scratching and political favors owed out of office!!!
I can't watch "the State of the Union". Too much prevarication for me.
The only reason Masterlock is doing well is that property crime has quadrupled since Obama took office. Desperate under or unemployed people.
Maybe property crime is quadrupled where you live, but nationwide it is overall down significantly over the past several years, along with nearly all other forms of crime. — source: FBI uniform crime report.
Opuppet isn't going to listen to you Keith. He's after a cap gains tax hike. That's what the 30% proposal amounts to. He knows the American people are too ignorant, on the whole, to understand the difference between paying tax on cap gains and dividends and paying tax on "earned" income. That investment money is what's left after one round of taxing…on income…and now they not only want to tax it again, but tax it more.
Capital gains tax should be ELIMINATED. The tax is idiotic and, to use the taxpigs own word,. "unfair." You know that, so why are you giving this guy any slack? Why aren't you calling for the radical moves that need to made to build economy that's made to last? Radical reductions in spending. Elimination of the cap gains tax and death tax. A modest per head flat tax, not on income but on each person equally , that would fund the minimal, dare I say constitutionally mandated functions of the federal government.
I have never asked for anything from the Feds and have never received anything but the "general benefits" of infrastructure build, etc., and yet I have paid a fortune. My neighbor is a total deadbeat…got into a house he couldn't afford via Fannie's largesse…doesn't pay ANYTHING. He has no investments. So, I should pay a huge slug of income tax AND pay a huge slug on my whatever I happen to make on my investments, while he GETS money from the feds? And that's fair?
Opuppet is just Buffett's plaything. Uncle Warren owns Burlington Northern, Guess who benefits from the XL pipeline being scotched? BN. They're the ones that will haul the oil. Think that wasn't a deal struck beforehand? It's crony capitalism and nothing but crony capitalism all day long every day with the current Washington Democrat/Republican regime. It needs to end, and the only way it ends is if the government is forced to get a whole lot smaller and less powerful so that politicians can't dole out favors like this.
On the political front, The Dough Boy and Mr. Mittens are no better that Opuppet. And the media seems to have perfected its cloaking device that makes certain candidates invisible….Gary Johnson and Ron Paul. Electoral politics is totally rigged.
The Day of Reckoning approaches and you're writing about Obama's agenda. What about the people's agenda? What about freedom and sanity?
please tell all the eqts or etf in the nat gas world form end use to supply with the strongest on top of lists.
Sincerely
Alan Wampoe
Ditto, Martin and Joe: Fair, balanced and tweaked.
So, let me get this straight. You think I should use after tax dollars to pay my mortgage interest, and then not be able to deduct it? Half the population pays NO taxes. How about getting them in the game? Maybe you can explain to me why someone who pays 35% of their earned income in taxes, and then uses after tax money to INVEST and pays an ADDITIONAL 15% on dividends and capital gains from that speculation should pay more? Maybe Warren Buffet believes that, and if he does he's a bigger idiot than I thought, (personally I think his blathering on about paying more than his secretary was nothing more than political grandstanding). He's certainly free to send the IRS all the money he wants. The government will gladly piss it away on some nonsense they have no business doing in the first place.
There are a number of suggestions you raise which on the surface seem logical and reasonable. However, I have a far superior idea. Tax EVERYONE, (private and corporate), at 10% across the board, do away with the IRS and its Gestapo tactics, eliminate as many unconstitutional agencies as possible, (including the Fed, both NEA's, etc…), and watch the economy shoot up like a rocket ship!!! Getting the government out of the way is the best way to jump start this economy and "build it to last". obama will never ever agree to any downsizing of this bloated, overreaching, intrusive, predatory government monster. You know that, and I know that. Giving him points for things he said in a speech is shallow praise. His goal is bigger government at every turn. Heck, he's even telling Churches they MUST cover abortion and contraception services for their employees!!! What happened to that ficticious "separation of Church and state"? He has no more intention of making things better than I do of flying a hang glider to the moon. If you don't understand that, you aren't paying attention.
And while they are at reducing the tax rate, then making everybody pay it, 10% should be taken off the top of every government program existing. Think of the savings.
Pardon me while I go throw up.
I also view the article as pro-bo.
Bill also mentioned ARII as being a big gainer in the Keystone smack down. The real gainer in it will be Buffett in my opinion. He is heavy into railroads. Who is he best bud's with? You guessed it. bo
I also believe the article has a pro-bo slant.
Bill mentioned this morning that ARII would benefit from the Keystone smack down. There is another person or company that I think will benefit even more and that is buffett. Who is his best bud? You guessed it bo.
The unenlightened are always quick to blame the state of the economy on the President. Yes, maybe he has some fault but this mess could only totally be blamed on the President if he was a dictator. But the fact is that Congress has sole power to pass laws and budgets. And Congress has done a miserable job of even proposing anything that would improve job creation or budget reduction or tax reform. Instead, they have stood in the way of any progress that has been proposed by the White House. We have had a Congress of nays obstruction who have caused the downgrade of our credit rating and the stagnation of our economy. But that is to be expected during an election cycle. Maybe we need to get rid of the "do nothing" Congress in the upcoming election.
I hear so much blame going to the "left" or the "right". So let's try an experiment. Put your right foot forward. Put your right foot forward again. Put your right foot forward again. Have you done the split yet? Now try the same with the left foot. Hard to walk like that isn't it? Now let's try it like the Army does. Your left, your right, your left your right,your left your right. Now we're walking. Maybe Congress needs to learn how to walk again.
Seriously folks, do we want a corporate raider with a silver spoon in his mouth who pays 14% taxes for President, or do we want a serial marriage cheater who was charged with ethics violations, or do we want a racists who published racist papers (or at least lent his name to them and took profit from them) for President? Do we want a President who will work to strip Social Security and Medicare to balance the budget while continuing tax breaks for the wealthiest? I find it hard to believe this is the best the Republican Party can put forth. Where are our best and brightest?
President Obama put forth some good ideas in his SOTU Address and challenged Congress to work with him to make it happen. It is easy to put forth ideas, but the challenge is to be able to fund those programs. But some require little or no funding, instead they require Congress to pass new laws that will enable the program to benefit private sector and encourage them to invest in the economy. Just maybe the "Congress of Nay" might work on finding their "Ayes" before the election. Maybe they will put the economy ahead of the election. No, that would be bucking the Party line. Oh well, maybe after the election. Sigh.
Well balanced summary of Obama's speech. However, Romney controlled the release of his tax returns to coincide with the speech. One point the writer made: "At present, marginal tax rates of more than 50% are common in many instances." Clearly, there are no marginal rates at the federal level that approach that, even including payroll taxes. It really depends on the individual states that would push up rates to that level. So, that seems like a straw issue for a discussion of the federal income tax rate. As far as the invective-filled posts, the only candidate that I have heard mention Saul Alinsky is Newt Gingrich. We won't have much of an intelligent discussion of important issues, like what is a fair tax rate, if we and the candidates resort to name calling, like socialist. We have some real problems that can be solved with discussion and compromise that would result in solutions. I make a lot less than Mitt Romney, have to live off my earnings from a job, and am directly responsible for creating several jobs due to a small business. Yet, I pay lot more percentage-wise in taxes than him (close to 30 %). Is that fair? Ah, that we all could live off passive earnings from trust funds! Envy no, fairness yes.
An opinion from anyone who voted for G. Bush twice is without merit. We are witnessing an historic presidency and given a second term will go down as one of our truly great presidents. President Obama Has accomplished much in three short years and we are fortunate to have him as our president. David Deeb
David, Have you been on an government "induced" high for the past 3+ years????
Answer this with a Yes or No -Smoked crack lately? Yes, HISTORIC in its FAILURES. Solyndra ($525 mil) and two other failed green energy companies, the Gulf oil spill (remember that pathetic episode that included failure to seek help from other nations so as not to offend his union buddies?), budget proposals sent to Congress voted down 99-0 by the Democrat controlled Senate, no budget for 1000 days, failed stimulus, failed mortgage bailouts, $5 trillion+ in deficit spending, base unemployment never under 8.5%, U-6 unemployment approaching 16%, the maniacal concentration on Healthcare legislation that will cost us more, loss of AAA credit rating, on an on.
You are nuts, or have no idea what the founding principles of our country are. You and BO would probably fit in better in Hugo's Venezuela.
Yes, BHO has accomplished much of his and his cohorts' agenda to weaken and destroy USA. And you want more of the same ? What about individual responsibility, initiative, freedom — to succeed (and enjoy the rewards of your efforts and risk taking) or to fail (and to suffer the rewards of your mistakes)?
Yes, accountability has been missing from our elected officials that most people don't know what the truth is, or isn't. More nice talk and no action are what is left in both parts. After all it depends upon what it actually means. The clowns and corrupt have taking over our system. Or what is left of the slim part of capitalism remaining. The next big event that will seal the deal will be total debt monetization and a collapse in our fiat system. Then we can talk about bringing a lot of manufacturing jobs back to US, especially since our standard of living will be significantly lower. Owe, I forgot in order the compete we will still need to fix over regulation and the highest corp tax rate in the world too!
WE LIKE IT
"That, of course, is a slap at his potential November opponent Mitt Romney, who pays about 14% of his income in taxes, thanks to the fact his income consists of dividends and capital gains."
Martin , you "forgot" to mention Romney gives a lot of money to charity as the other reason his income tax rate has been 14-15%, but then again charitable deductions is one of things you want to cap to pour even more money into the DC rathole. Washington DC needs to go on a diet is what needs to happen. It's a fat, bloated tick (we're the host) that needs to be popped.
Also, let us not forget that Romney had already paid a substantially higher rate on the original earnings. And that the Corporation that paid the Dividends also paid taxes on those funds.
Housing and Energy. In a nutshell these will make the useless, exploitative, and misguided government policies look like they are accomplishing something. Housing is still in the dumper and may stay there for a long time. For the ordinary person that softens the appearance of run away inflation that has already started. We have had no Federal government energy policy in my adult life and I am almost 66 years old now. However, the more or less free market is taking care of that as we have horizontal drilling and fracking that can get oil and natural gas out of shale so we are becoming the new sheiks with domestic supply, especially of natural gas, to replace imported oil and we are on the road to energy independence…no thanks to the government(s).
Michael Upper
All another after the fact statement. When does the second revolution begin to be ahead of the American Governmental System ?
Please sign me up for the Money Morning Newsletter. Thanks.
I might also add that the Obamanations purported State of the Union Address was a great campaign speech with little other meaningful content worthy of comment, but it likely satisfied some folks…if they are seeking more government to grant more largess from the public treasury for themselves…a trait of "Democracy".
The title of this article should have read "Subsidizing the Scheme:…"
Reading between the lines on the campaign speech er State of the Union address, Obama wants to continue spending like a maniac, grow the government more and increase federal regulation and federal regulators. Here's the most scary thing. Yesterday Bill O'reilly interviewed Bob Beckel, a Democratic strategist. O'reilly said the greatest threat to our nation is the debt. Beckels response? Nah – doesn't matter – no big deal. Unfortunately that is the attitude and the idea we are goign to get from the Dems this year and for the foreseeable future until the fat lady starts wailing at the top of her lungs and writing jumps off the wall in 1200 sized font at which point Obama and the dems will blame it all on someone or something else.
I'll be the first to admit that I can not stomach any more lies out of the Out-House or Congress.
I did not watch Obama's sales pitch because it only is packaged lies. Ben Bernanke today said
that the economy was far from being back on it's feet. When no oversight by Obama is present,
the truth will occasionally leak out to we the people. What I did gather from Martin's article
that Martin thinks that his speech was fair and balanced. Well in some respects it was,i.e.,
I will steal your money and the balancing part is you go broke.
SORRY FOLKS, I can not disagree more. Obama's whole plan has been to destroy America and
the moral fiber of our country. Where is the Job creation except for Unions and Government
job growth???? Why has he purposefully canceled projects that would generate all kinds of
jobs and instead spent so much of his time wanting to stick it to the rich and destroy the one engine
at this moment that drives what economy we have left and even that is rigged–by increasing
long term capital gains. Isn't 15-20% for doing nothing enough. On top of this he continues to
make new laws and support more and more unconstitutional laws to destroy our freedoms.
Go look up the filth he has operating as his czars and what they have done and why Obama loves
them.
I guess it falls back to an old saying, "If good intentions pave the road to hell" then where will
bad intentions take us??????
Brothers and Sisters Be Blessed–Cliff
The best line in the president's speech was that borrowed from Lincoln, that "government should only do what people can't do for themselves". Unfortunately, it was immediately undermined by justifying bailouts of GM and Chrysler but chastising bailout of banks etc.
As to fair shares of taxes and responsibities it is time someone discusses what that means in real terms and numbers. I am sick of the implications this phrase entails.
Also, when discussing tax rates learn the difference of marginal rates and effective rates. No secretary I know pays a higher effective rate than Buffett, Romney or typical million $ earners. It's just a damn lie designed to arouse the useful voting idiots.
Should banks be bailed out if they are the perpetrators of economic demolition? I think not.
The president already tried to close the oil loopholes and to stop rewarding the companies
exporting of our domestic manufacturing, and much more of the same mentioned by Obama
in the State of the Union Address, but the happy Republican Anarchists killed those bills.
Do you think they will listen during an election year?
The only way we will ever restore sustainable economic viability in the US is to recognize that government spending does not add to, it detracts from, the real economy, and slash the cost, scope and size of government at every level. Then we must reduce, not continue increasing, US labor costs. Only after taking those steps will we be able to compete with the rest of the world and restore economic viability. Obama's proposals will continue destroying our real economy while growing his parasitic, fake government economy.
No one has any idea how much they pay in taxes. Income, Cap. gains, State & local, Sales, Property, Phone, Power usage, Excise, Fuel,…ect,ect, they all add to an effective tax rate that is incalculable. The total list of the various taxes we pay without even thinking about them would number in the hundreds, but they all are a part of MY effective tax rate. They have the effect of taking money from my pocket so I have less to buy the things I want or need.
I fear this social experiment we call democracy is failing rapidly.
Vote them all out, Replace them with non-politicians who don't know where the money was being spent with a mandate to guard every penny spent as if it were their own. It couldn't make it any worse.
I did not watch the State of the Union. If this article really gives a fair summary, what happened to the summary of the response? The speech sounded a awfulmlot like a campaign speech with Obama taking credit for things that would have happened on it's own like the insourcing of manufacturing. If you want to jumpstart the economy, simplify the tax code and have EVERYBODY pay, including GE and the 40% who don't pay. My recommendation is 15% and quit enflaming the population against success.
It is true that some people inherited their wealth; someone in their family did work, like the original Henry Ford. If dividends and capital gains were treated as ordinary income, then those people would be paying taxes as well and at the same rate as everyone else.
Why do you not mention state taxes?I wonder if Romney paid any state taxes.Haven't seen any mention of it.The governor of California is promoting a ballot initiative to raise the state long term capital gains tax,for higher incomes,to almost 12%.Add that to Buffet's 30% and you get a huge disincentive for these people to stay in California.Maybe even stay in the country.I think we need the best people,who take the risks,are smarter,have more initiative to stay in this country.Also,if a person is a long term investor,add in the inflation tax and real rates,for long term cap gains,are even higher.
Martin Hutchinson states that General Electric pays almost no U.S. Taxes. Look at wren's remarks of Jan 27 – does anyone believe GE gets out of paying all THESE TAXES? GE may have a low US income tax rate, but isn"t that reversable by action of congress.
I thought the President's speech was very entertaining.
I think it is 3 years too late. Now he wants something from all of us. He wants to get re-elected. So how come he hasn't paid much attention to us for 3 years?
How come Social Security retires haven't seen a raise in 3 years? Now we get a raise? Little bit suspicious to me. If he is elected we will go another 3 or 4 years without a raise.
He was quick enough to bail out the wealthy banks and mortgage companies 3 years ago. Now they want to prosecute the fraud that went on then? Little bit late isn't it? Oh, it is an election year.
If you want to really know what is happening which most of us don't, start checking the money going into these election campaigns. Starting with Romney as the opposition candidate, why do they have similar thoughts on everything? I mean Romney and Obama both seem to promote a lot of the same garbage as solutions to our problems. They both seem to be beholden to the same team of economics companies trying to get them back in.
Heads you win, tails I lose. That pretty much describes the current election to come.
Many of these post ought to be plain embarrassing to the authors, but it appears that greed and Tea Party philosophy trump allegiance to this country and its democratic ideals. This is a sad commentary; the third post with its implied threat of civil war is where a lot of this "take back America" talk leads you. For Rush and the other radio millionaires, this is mere rhetoric that makes ratings and money. Some of you take this nonsense seriously, forgetting you have a vote and that this is a democracy. The venom that is spewed out on this website ought to be coming from the unemployed and poor and those who have been foreclosed on, not the well-off or rich, bitter at paying a 15% capital gains tax. For one poster, I cannot disagree more that Obama's whole plan is to destroy America; I could make an argument that George Bush, with the help of a Republican Congress, did a pretty good job of that by getting us into a war of choice that was not paid for and getting us into a banking/housing crisis through under-regulation of the mortgage industry. That is why we have elections in this country.