Secretary Paulson says he makes no apologies because of changing conditions. His concern is that banks still are not lending. So he wants to inject money to give them the ability to do so.
"During times like these with the slowing economy and some deterioration in credit conditions, even the healthier banks tend to be risk adverse and restrain lending," said Paulson.
The U.S. Treasury has already pumped $115 billion into some of the nation's biggest financial institutions including $25 billion each to Citigroup, JP Morgan Chase and Wells Fargo. Bank of America also received $15 billion.
Brian Garrett is President and CEO of Community Bank of the Bay, based in Oakland.
He says writing off bad loans restricts how much banks can lend.
"By replacing that capital the government, through this TARP program, is hoping that the banks will then take that additional capital and extend it out by a factor of 13 back into the economy," said Brian Garrett, the president and CEO of Community Bank of the Bay.
When asked whether it was guaranteed that the banks would do that he replied, "No, absolutely not. It is capital to be used at the discretion of the bank, but hopefully they will."
Ironically, some financial institutions are actively promoting home loans.
The San Mateo Credit Union is running radio commercials that say they are giving away a free, five-day carnival cruise along with $600 back on lender fees.
"This is a premium offer to encourage you to come talk to us about a loan. And, if you qualify for a loan and take the loan, we fund the loan, you will get the cruise," said San Mateo Credit Union Vice President Stephen Tabler.
The treasury would like to hear more of this.
"We have the money to lend. We are willing to lend. We're looking for people to come in and let us help them achieve their goals and dreams."
The offer is good through the end of the year. You must live or work in San Mateo County.
Secretary Paulson's shift in plans will likely face criticism from those who think homeowners and bad loans need help, too.