Second, I absolutely agree that our long-term deficit is a major problem that we have to fix. But the fact is that this recovery plan represents only a tiny fraction of that long-term deficit. As I’ll discuss in a moment, the key to dealing with our long-term deficit and our national debt is to get a handle on out-of-control health care costs — not to stand idly by as the economy goes into free fall.
So the recovery plan has been the first step in confronting this economic crisis. The second step has been to heal our financial system so that credit is once again flowing to the businesses and families who rely on it.
The heart of this financial crisis is that too many banks and other financial institutions simply stopped lending money. In a climate of fear, banks were unable to replace their losses from some of those bad mortgages by raising new capital on their own, and they were unwilling to lend the money they did have because they were afraid that no one would pay it back. It’s for this reason that the last administration used what they called the Troubled Asset Relief Program, or TARP, to provide these banks with temporary financial assistance in order to get them lending again.
Now, I understand that TARP is not popular, and I have to say that I don’t agree with some of the ways the TARP program was managed, but I do agree with the broader rationale that we must provide banks with the capital and the confidence necessary to start lending again. That’s the purpose of the stress tests that will soon tell us how much additional capital will be needed to support lending at our largest banks. Ideally, these needs will be met by private investors who are willing to put in money to these banks. But where that’s not possible, and banks require substantial additional resources from the government, then we will hold accountable those who are responsible, we’ll force the necessary adjustments, we’ll provide the support to clean up those bank balance sheets, and we will assure the continuity of a strong and viable institution that can serve our people and our economy.
Of course, there are some who differ with our approach. On the one hand, there are some who argue that the government should stand back and simply let these banks fail — especially since in many cases it was their bad decisions that helped create the crisis in the first place. But whether we like it or not, history has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months — years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.