1:18 P.M. PDT

THE PRESIDENT:  Thank you so much.  it is good to be here.  (Applause.)  It is good to be here.  Although I was hoping that the Governor was going to take a little longer on his remarks, because I was standing outside soaking in some rays.  (Laughter.)  Nothing like California weather.  (Applause.) 

I am greatly honored to be joined here by one of the great innovators of state government, somebody who has been leading California through some very difficult times, and somebody who has turned out to be just an outstanding partner with our administration.  I'm grateful for him.  I'm grateful for the First Lady of California.  Please give it up for Arnold Schwarzenegger and Maria Shriver.  (Applause.)  Thank you. 

Another outstanding public official, somebody who is fighting every day on behalf of the working people of Los Angeles and has a vision for the future for this great city, please give a huge round of applause to your Mayor, Antonio Villaraigosa.  (Applause.)  Somebody who's always been ahead of his time and has covered the waterfront in public service, and has excelled in each thing that he's done, please, a big round of applause for your Attorney General, Jerry Brown.  (Applause.)

Some other friends who are here, State Auditor Elaine Howe.  Where's Elaine?  Right here.  (Applause.)  Speaker of the Assembly, a great supporter of Obama from the start, Karen Bass.  (Applause.)  Senate President Pro Tem Darrell Steinberg is here.  (Applause.)  State Senator Gil Cedillo is here.  (Applause.)  Assemblyman John Pérez is here.  (Applause.)  Your two wonderful United States senators are not here, but I want you to applaud them anyway, because they work for us each and every day -- Dianne Feinstein and Barbara Boxer.  (Applause.)  Congresswoman Lucille Roybal-Allard is not here, but she is your Congresswoman, so give her a big round of applause.  (Applause.)  And, last person I want to mention -- well, two other people I want to mention -- I believe that my Secretary of Labor, Hilda Solis, is here in the house.  (Applause.)

I also want to make this point.  We are in a facility named after one of the finest labor leaders in this region's history and in this country's history, Miguel Contreras.  (Applause.)  And Miguel's widow is a great friend of mine, a great supporter, a great labor leader in her own right.  Please give it up for Maria Elena Durazo.  (Applause.)

Maria Elena was one of our earliest supporters at a time when nobody gave us a chance.  She said, sí, se puede.  (Applause.)  We could do it.  And we're grateful to her. Thank you so much.

It's always nice to get out of Washington -- at least for a little bit -- and to come to places like this.  The climate is nicer.  So is the conversation sometimes.  (Laughter.)  So I am looking forward to taking your questions and hearing about your concerns.  And I look forward to telling you about the work my administration is doing to address some of those concerns.

But the one thing I don't need to tell you is that these are challenging times.  I don't need to tell you this because you're living it every day.  Between December of last year and January of this year, this state lost more than half a million jobs; one out of every 10 Californians is now out of work.  Housing prices here have fallen 20 percent in the past year, and you've got one of the highest foreclosure rates in the nation.

So your public servants are working double overtime to address these critical issues.  And I know how tough times are -- in Los Angeles, in California, but also all across the country.  Here's what I want you to remember, though:  We are going to meet these challenges; we will come out on the other side stronger and a more prosperous nation.  That I can guarantee you.  I can't tell you how long it will take, what obstacles we'll face along the way, but I promise you this:  There will be brighter days ahead.  (Applause.)

Because of the Recovery Act that I signed into law last month -- and that your two outstanding senators, Feinstein and Boxer, worked so hard to pass -- we're making major investments to create jobs right here in California:  rebuilding infrastructure, weatherizing homes, and putting more police on the streets, supporting community health centers.  Altogether, we expect to create or save more than 396,000 jobs in this state over the next two years.  (Applause.)

But we also know that we can't create as many jobs as we want, or rebuild our economy the way we hope, without addressing the problem at the heart of this economic crisis -- and that's our housing crisis.  We know that fixing that crisis, breaking that cycle of falling home values and rising foreclosures, is one of the keys to fixing our economy.

And that's why we've launched a housing plan that will help millions of responsible homeowners save money by refinancing or modifying their mortgages.  Our plan included important steps to help lower interest rates.  And today, millions of Americans -- people who never thought they'd be able to lower their monthly payments -- are now able to take advantage of these rates, which are the lowest that they have been in decades.  (Applause.)

Already -- already, we're seeing a burst of refinancing.  Refinancing applications jumped 30 percent last week, to more than double the rate we had last fall, saving the average homeowner hundreds of dollars a month -- the equivalent of a generous tax cut.  That's money in their pocket -- money you can use right now to pay your bills, or pay off your debts, or save up for a rainy day, to save for retirement or that college education for your child.

And today we launched a new web site called makinghomeaffordable.gov -- to help borrowers determine whether they're eligible for our plan, and to help them calculate how much money the plan could save them on their mortgage, on their monthly payments.

And keep in mind, this is in addition to the $8,000 tax credit for first-time home buyers that's in our recovery plan.  And if you buy your home -- your first home -- anytime between now and December 1st, you can claim that credit this year, on your 2008 tax return, and receive that money in as little as 10 days.

So if you haven't filed your taxes yet, but you're thinking about buying a house -- (laughter) -- you can request a six-month extension until October 15th, and claim the credit before then.  (Applause.)  Or if you've already filed your taxes, or you wish to do so before April 15th, you can just amend your form later this year after you've bought your home and get your money then.

The idea here is very simple:  If you buy a home this year, you should be able to get your tax credit this year.  That's when you need it most.  That's how we'll help people start spending again.  That's how we'll help raise home values, stabilize our housing market, create new jobs again.  That's our plan.  That's what we're going to do right here in California.  (Applause.)

Now, I'm also pleased to announce that today California will be receiving $145 million from the Department of Housing and Urban Development to provide additional help to communities hardest hit by the foreclosure crisis.  (Applause.)

So these funds will be used to buy up and rehabilitate vacant and foreclosed homes and resell those homes with affordable mortgages -- and to provide mortgage assistance and rehabilitation loans for low-income and middle-income families.  That's how we'll help people here in California live their dream of homeownership -- and how we'll start transforming abandoned streets lined with empty houses back into thriving neighborhoods.

Now, we know that it's not enough to address challenges like housing and infrastructure and job creation just in the short term.  None of this will make a difference unless we build an economy that offers prosperity in the long run.  We can't go back to a bubble-and-burst economy based on reckless speculation and spending beyond our means, where a relative few do spectacularly well while the middle class loses ground.  We can't go back to a culture on Wall Street that says it's okay to bend or break the rules and a culture in Washington that says it's okay to look the other way.  We can't go back to that.  (Applause.)  

We can't allow what happened at AIG to ever happen again in this country.  (Applause.)  I know -- I know a lot of people are outraged about this.  I'm outraged, too.  The idea that some of the very people who drove our economy into the ground could accept bonuses with one hand while they're taking taxpayer money with the other goes against our most basic sense of what's fair and what's right.  I'm committed, as President, to ensuring that we have the tools to prevent the kinds of abuses that sent AIG spiraling in the first place so we never again put our financial system at that kind of risk, and we're not held hostage by companies that are "too big to fail."

We also want to do this because it serves the most important goal we have today, which is to rebuild our economy in a way that's consistent with our values -- an economy that rewards hard work and responsibility, not high-flying financial schemes; an economy that's built on a strong foundation, not one that's propelled by an overheated housing market or everybody maxing out on their credit cards.  We need to bring about a recovery that endures.  That's how we'll bring about a recovery that endures. 

You remember -- remember that ad where it used to say, "We earn money the old-fashioned way; we earn it."  Right?  (Applause.)  "We make money the old-fashioned way; we earn it."  That's what we have to do.  We have to get back to the principle of hard work and innovation and dedication.  And that's exactly the purpose of the budget I'm submitting to Congress.  It's a budget that makes hard choices about where to save and where to spend.  Because of the massive deficit we inherited and the cost of this financial crisis, we're going through our books, line by line, so that we can cut our deficit in half by the end of my first term and reduce it by $2 trillion over the next decade.  (Applause.)

Now, I know that the Governor is having to make these same tough choices.  There are going to be initiatives here that talk about the need for everybody to chip in, everybody to give a little something up in order to get our fiscal house in order.  We're going to have to do that same thing at the federal level.  Mayor Villaraigosa has got to do the same thing with respect to city budgets.  These are tough times.

What we won't do, though, is cut investments that will lead to real growth and real prosperity over the long term -- investments that will make a difference in the lives of this generation and future generations. 

So, because we know that spiraling health care costs are crushing families and dragging down the entire economy, and because we know it represents one of the fastest-growing parts of our budget, we've made a historic commitment to health care reform in this budget -- reform that brings us closer to the day when health care is affordable and accessible for every single American.  That's something we've got to seek for.  (Applause.)  It's time.  It's time.  It's time.

We know -- we know, and we've got three principals right here in the front row -- we know that -- (applause) -- we know and they know that countries that out-educate us today will out-compete us tomorrow, and that's why my budget invests in a complete and competitive education for every American -- (applause) -- in early childhood education programs that work; in high standards and accountability for our schools; in finally putting the dream of a college degree or technical training within reach for anybody who wants it.  (Applause.)

Because we know that enhancing America's competitiveness will require reducing our dependence on foreign oil and building a clean-energy economy, this budget will spark the transformation we need to create green jobs and launch renewable energy companies right here in California.  (Applause.)  It makes clean energy the profitable kind of energy, and invests in technologies like wind power and solar power and fuel-efficient cars and trucks, and high-speed rail -- powered by batteries like the one I saw in Pomona earlier today -- all of which will help us combat climate change.  That's got to be a priority.

That's what this budget does.  Now, here's what this budget doesn't do.  It doesn't raise taxes on any family making less than a 150 -- $250,000 a year, by a single dime.  In fact, 95 percent of all working families will receive a tax cut as a result of our recovery plan.  (Applause.)

Now, there are those who say these plans are too ambitious, that anything we should be trying to do is just focused on the banking crisis; that we should be trying to do less, not more.  In fact, somebody was saying the other -- today, I think, that I shouldn't be on Leno.  (Laughter.)  I can't handle that and the economy at the same time.  (Laughter and applause.)

Listen, here's what I say.  I say our challenges are too big to ignore.  The cost of our health care is too high to ignore.  Our dependence on oil is too dangerous to ignore.  Our education deficit is too wide to ignore.  (Applause.)  To kick these problems down the road for another four years or eight years, that would be to continue the same irresponsibility that led us to this point in the first place.  (Applause.)  And I did not run for President to pass on our problems to the next generation.  I ran for President to solve these problems for the next generation and for the next President.  (Applause.)  So I -- that's what you want.

I know -- I know some folks on Washington and on Wall Street are saying we should just focus on their problems.  And I understand the thinking behind that.  It would be nice if I could just pick and choose what problems to face, when to face them.  So I could say, well, no, I don't want to deal with war in Afghanistan right now; I'd prefer not having to deal with climate change right now.  And if you could just hold on -- even though you don't have health care, just please wait, because I've got other things to do.  (Laughter.)  

But that's not how things work.  That's not how it works for you.  You don't get to choose between paying your mortgage bills or your medical bills.  (Applause.)  You don't get to choose between paying your kids' tuition and saving enough for retirement.  You've got to take all those problems on at the same time, and you need a government that will do the same.  That's what leadership is about, that's what the debate on this budget is all about -- (applause) -- about whether we're willing to do what it needs to be done to get our economy moving and put people back to work and put us on the road to shared and lasting priorities.  That's what I'm going to do.  That's what I'm going to focus on.  We're going to get it done, with your help.  I need you all.  (Applause.)

Okay.  All right.  This is the fun part of the program.  Everybody have a seat.  This is the fun part of the program.  Now, first of all, we haven't pre-screened anybody.  So if you don't like me, go ahead and just say, you know, you're a bum -- that's okay.  Hold on, hold on one second.  Just hold on.  (Laughter.)  Just a couple of rules.  First of all, we're going to go girl, boy, girl, boy -- (applause.)  I'm not going to be able to get to every question, so, people, raise your hands; I'll try to get as many as possible, we'll try to go around the room.

There are people with microphones in the audience -- this young lady, for example -- an example.  So wait until she gets there so everybody can hear your question.  And the only other thing is, since we have a lot of people and not that much time, if everybody could try to keep their question relatively short, that will be helpful.  Okay?  And stand when I've called on you  -- you don't need to stand before I've called on you, but stand when I've called on you.

Okay, this young lady in the black right here, she gets the first question.  (Applause.)  Introduce yourself, too.

Q    My name is Patricia --

THE PRESIDENT:  Hey, Patricia.

Q    Hi.  First I want to say I'm very glad and thankful that you are our President.  (Applause.)  And five years ago I told my friend Ken that Barack Obama will be President, and he said, no, not in my lifetime there won't be a black President.  I said, just wait a few years.  And when you won I said, "I told you so."

THE PRESIDENT:  See there.  Always satisfying to say, "I told you so."

Q    And he was very happy.  But he was very happy for me to tell him so.

THE PRESIDENT:  Good.

Q    So my question is -- you talk about health care, which usually means insurance after you're sick.  What about making our lifestyle healthier?  Like we have corn syrup, we have trans fats, and all that food -- those things are illegal in Europe.  And I know people that go to Europe and they overeat, but they lose weight because their foods don't have all the hormones and the additives.  And also, you know that Clinton (inaudible) that limited the dumping of mercury into the rivers, and then you know who came into office and took that legislation away, and now the --

THE PRESIDENT:  Okay, all right, all right, all right.

Q    -- are out of control.

THE PRESIDENT:  Okay.  Let me answer your first question.

Q    Are you going to put that legislation --

THE PRESIDENT:  Okay.  First of all, if you burn that many calories asking a question -- (laughter) -- you know, I mean, she's fired up.  (Applause.)  So you'll be able to eat whatever you want.

Q    No, not trans fats --

THE PRESIDENT:  Anyway, all right, let me answer your question.  Did you just -- hand the mic to somebody else.

This is actually a serious question.  You're exactly right that if we are going to reform our health care system, what we can't do is simply add more people to a hugely inefficient system that is costing us more and more each and every year -- because eventually it will bankrupt families, it will bankrupt state governments and it will bankrupt the country.

So the only way that we can initiate true health care reform is if we control costs.  And one of the most important ways for us to control costs is to deal with the issue of prevention.  Which means making sure that we have proper nutrition programs in our schools; making sure that we've got effective physical education programs for our children.  (Applause.)  It means making sure that everybody has access to a primary care doctor and that they are getting regular checkups; that we are avoiding preventable diseases like diabetes that are helping to shoot our medical costs through the roof.

So that's going to be a huge component of whatever health care reform package that I sign, is a major push towards prevention.  There's some other areas where we can do some important cost savings as well.  Information technology -- the Recovery Act provides (microphone out) dollars just putting our medical records online so (microphone out).

(President’s microphone fails.)

Okay, hold on one second.  If we've got a replacement mic, that would be helpful because this one's going in and out a little bit.  You got one?  Well, no, but you need that for your guys.  There we go.

Let's -- okay, that's good.  But these -- if everybody's data, medical data is in digital form with important privacy protections, we can reduce medical errors, we can make sure that doctors and nurses, pharmacists are all communicating more effectively.  We'll have actually better quality in hospitals and we will also be driving down costs.  So there are a whole host of measures that we put down payments on, on the recovery package, but we've got to get our budget passed in order to actually make it happen.

One last point I'll make.  Something that has not been getting a lot of attention -- we signed a renewal of the Children's Health Insurance Program that added -- (applause) -- added millions of children, including children of legal immigrants, into the mix.  That's an important tool to prevent long-term diseases that can cost us a lot of money.

All right.  All right, the gentleman right here.  The gentleman right here with the beard. 

Q    I'm unable to stand up.  I believe that I'm entitled to an exception of that rule under the ADA. 

THE PRESIDENT:  Go ahead.

Q    I forgive you.

THE PRESIDENT:  Go ahead. 

Q    Okay.

THE PRESIDENT:  Introduce yourself.

Q    I'm Gary Carr (phonetic), and Mr. President, thank God for you.  (Applause.)  Sir, my question regards the true renaissance that's happening with people with disabilities.  They are an emerging population -- millions of people with more potential in capacity, more mobile, more educated, more healthy, more empowered technology, but still trapped in very, very old social models that see them in terms of tragedy and charity and need and care.  And the modern population of people with disabilities simply does not fit that model. 

And as your plan succeeds and you generate these jobs, and as baby boomers retire, we're going to need every single person of capacity to work that we can.  And that must include many, many, many thousands, if not millions, of people with disabilities.  (Applause.) 

So -- I see you nodding your head, so my first question is, do you subscribe to what I'm saying, and next of all, can you talk about how your disability agenda will release this emerging potential that's currently wasted and untapped?

THE PRESIDENT:  Well, you are exactly right, that we need everybody.  And every program that we have has to be thinking on the front end, how do we make sure that it is inclusive, and building into it our ability to draw on the capacities of persons with disabilities.  That's true on the education front, where our recovery package increases funding for children with disabilities.  It is true in terms of how Hilda Solis, our Secretary of Labor, will be thinking about our training programs, to make sure that we are not excluding from training for high-tech jobs, the new jobs of the future, persons with disability.

It means enforcing the ADA and fighting back on some court opinions that have tried to narrow in ways that I think are inappropriate the original intent of that legislation.

So one of the things that I think is important is to make sure, as you pointed out, that we don't see this as an afterthought, a segregated program, but we are infusing every department, every agency, every act that we take with a mindfulness about the importance of persons with disabilities, their skills, their talents, their capacity.  That I think is the approach that my administration is going to take, and we hope that by taking that approach that attitude will infuse state and local governments that are also receiving federal money.

Okay?  (Applause.)

This young lady right here has had her hand up for a while. 

Q    Hello, Mr. President --

THE PRESIDENT:  Don't worry, I'm going to get around.  Hold on a second, I'm going around. 

Go ahead.

Q    Hello.

THE PRESIDENT:  Hi.

Q    My name is Sharnette (phonetic).

THE PRESIDENT:  Hey, Sharnette.

Q    And first of all, I would just like to say, as a mixed-race individual, it's so fantastic to finally have a role model and a leader that I can actually identify with as President.  Thank you.

THE PRESIDENT:  Well, that's nice.  Thank you.  (Applause.)

Q    They're haven't been a whole lot, growing up.  Okay, so my question is specific to California.  As you know, we have one of the highest costs of living in the U.S. here.  A household income that is considered middle or upper class in any other state wouldn't go very far here.  However, the tax laws and the recent economic stimulus address household income on a national level and do not take into account the cost of living by state, as far as I know.  California now has, as you mentioned before, a higher unemployment rate than the national average; we make up one-third of nation's foreclosures. 

So what I want to know is what can be done to address California's unique and -- unique situation and stimulate the economy here in California, and like you mentioned, just be prosperous into the future -- keeping in mind again, household incomes, and we're not really apples-to-apples with other states, but we're taxed as if we are.  (Applause.)

THE PRESIDENT:  Well, I -- I mean, obviously there's differentiation between states both in terms of cost of living, but also in terms of salaries.  And generally, those are taken into account through the deductions that are available through the tax code.  I would say that the biggest problem, though, is probably not -- in our tax code -- is not the difference between how Californians are treated and people in Idaho are treated.  The bigger difference actually has to do with how people inside California are treated by the tax code.

So if you are a multimillionaire who get most of your income from dividends and capital gains, then you're typically paying 15 percent of your income in taxes, at the federal level.  But if you're a secretary making $30,000 a year in wages, then you're paying a higher rate.  So the secretary is paying a higher rate than Warren Buffett as a percentage of their income.  That's the inequity that I think is most destructive because what it's done -- (applause) -- what it's done is, over the last decade the average working family has seen their median income flat line; their wages and income have not gone up. 

On the other hand, people who were at the very top of the income scale -- and I'm now included in that category -- we've seen all the benefits of economic growth when things were going well.  And I actually think that contributes to a cycle of bubble and bust.  And if we have a situation in which middle-class people are earning a decent living, where we've got bottom-up economic growth, then I think that's good for everybody.  I think ultimately that's good for businesses, I think it's good for rich folks, because when the economy rises everybody does well.  And you don't get as many distortions as you've gotten in this sort of bubble-and-bust cycle that we've had.

Now, there are some things in California that we are doing that focus on particular needs here.  We just talked -- Governor Schwarzenegger and Mayor Villaraigosa -- here in Los Angeles, for example, there is an enormous opportunity to deal with traffic and transit and transportation -- (applause) -- in a way that will relieve congestion, make this economy more efficient, more productive.  But the needs of Los Angeles in terms of transportation dollars are going to be different from the needs of somebody in a predominantly rural state.

And one of the things that we want to do in terms of how transportation dollars flow is to start emphasizing the fact that the vast majority of people live in suburbs or in cities in metropolitan regions, and how can we do a better job in planning and coordinating regionally so that you aren't in your car for two hours a day.  (Applause.)  There are things that we can do that end up being specific to the situation of the economy in California, but generally, California oftentimes gets hit worse when recessions come, but you also rise up faster when the economy starts to recover.  So I'm confident California will continue to be on the cutting edge of our economy.

All right, it's a guy's turn, so ladies, put your hands down.  (Laughter.)  It's a guy's turn.  This gentleman right here, right here.

Q    Mr. President, I really don't have a question, but I'd like to offer up to you a young lady by the name of Lena Kennedy (phonetic) who hosted you in Pasadena as possibly your domestic policy advisor for children and families. 

THE PRESIDENT:  Oh, okay.  (Laughter and applause.)  All right.

Q    And my name is John Kennedy (phonetic).

THE PRESIDENT:  Okay, John.  (Laughter.)  All right, well, we'll -- does she know that you were just doing that?

Q    No.  Oh, no.

THE PRESIDENT:  That's a shame.  She's going to be all embarrassed.  (Laughter.)  All right, since that wasn't really a question, I'm going to call on another guy. 

Gentleman back there in the cap, right there.  Let's get a microphone.  Right there.

Q    Thank you.

THE PRESIDENT:  What's your name?

Q    My name is Peter Graff (phonetic).  I immigrated here from Germany, and last summer I was very excited when you had that wonderful reception in Berlin. 

Now, former Vice President Cheney used to say deficits don't matter.  But since you inherited his mess -- (laughter and applause) -- the national debt has been growing and growing, and no ending in sight.  I'm very happy you are in the White House, but for the first time I'm worried about this country, the stability and the future.

My question:  How -- is there a chance that we may follow in the footsteps of Iceland and one day just simply be broke?  That's the question.

THE PRESIDENT:  No.  (Laughter.) 

Q    Thank you.

THE PRESIDENT:  No.  (Applause.)  But, you know, there is a chance that we leave such a mountain of debt to the next generation that it makes them poor over the long term, because we're having to borrow from foreign countries, make interest payments to other countries, and that over time standards of living here are lower than they should be relative to other countries.  So we've got to get control of our deficit.

Now, you're right, I inherited a $1.3 trillion deficit.  And we saw the national debt double during the previous administration, which is why when I hear -- generally, I'm a -- I try to be a bipartisan guy, but when I hear some folks from the other party in Congress start howling about the deficits, I'm starting to think, well, where have you been?  What have you been doing?  (Applause.)

I mean, you would've thought -- you would've thought a good time to do something about deficits was when the economy was going good, right?  You would have thought that's when you would have been saving away a little bit.  If you had inherited a surplus, you would have thought that maybe, you know, we'll maintain that.

So I don't put much stock in some of those political attacks.  But what is true is that the path we're on right now is unsustainable. 

So here's what we have to do.  Our most immediate and urgent task is to put people back to work and get the economy rolling again.  That's the thing we have to do right now.  And that means that for the next couple of years, we're going to have to tolerate much higher deficits than I'm comfortable with, not just for the recovery package, but the money that we've had to put in to deal with the financial crisis.  The fact that people are out of work means they are needing unemployment insurance, they need additional -- there are greater needs for food stamps -- all sorts of pressures and strains are placed on state government and local governments during a deep recession like this one.

So we've got to suffer some big deficits while we move into recovery.  The worst thing we could do is not worry about recovery/government spending at the same time as businesses are slashing their spending and consumers are slashing their spending.  That creates a downward spiral that could make things even worse.

But as soon as we start seeing a recovery -- and my hope is, is that over the next couple of years, we will have started moving again, building back up -- then what we have to do is build in a pathway for reducing our deficits.  We've already, in this budget, slated that in the out years we're going to reduce non-discretionary -- non-defense discretionary spending.  Everything other than defense spending and entitlements like Social Security and Medicare -- we're going to reduce those to the lowest level relative to GDP of any time since the 1960s.

I've also said that we are going to end the Iraq war, which is going to save us money during that period of time.  (Applause.)  We are going to have to reform Medicare, and that's part of the overall health care reform that we were talking about earlier.  If we can get control of health care costs as a whole, then we can start bending the curve of costs for Medicare and Medicaid.

So we are already making some tough choices -- reducing the deficit by $2 trillion -- but we're going to have to do more.  And the biggest thing we're going to have to do is take on Medicare and Medicaid health care costs.  That's going to be the most important thing that we can do over the long term.  All right.  (Applause.)

Okay.  It's a woman's turn.  This young lady back there, go ahead.

Q    Hello, Mr. President, my name is Blanca Aguilar Gomez (phonetic).  And this question is on behalf of my sister, who's a public school teacher for the Los Angeles Unified School District.  (Applause.)  And on behalf of all the children, which is over 700,000 children -- the second-largest school district in the nation -- we need help.  (Applause.)

Even with the best leadership that we have currently with the district, with Board President Mónica Garcia and the new Superintendent, Ray Cortines -- you know, when the state doesn't have the money, and we're having to lay off thousands of teachers, you know, it's scary for our children.  (Applause.)      

You know, even with the stimulus packet, in three years I think we're going to be in a deficit of $1.3 billion.  Where are we going to get that money?

THE PRESIDENT:  Well, this is why -- before we came on, the Governor and I were talking.  And the fact is, is that we are massively ramping up education spending at the federal level -- on a whole variety of fronts.  But historically most education funding is done at the state level, at the local level.

So we may be able to take education funding at the federal level from 7 percent to 9 percent, for example, but the lion's share is still going to be coming locally.  And that's why it's so important for everybody to be engaged in the various initiatives that are going to be coming up -- to make sure that what you just articulated, the need to invest in our kids, that that is reflected in terms of state budgets.

Now, one thing I've got to say, though -- and I think I speak for every public official here -- you can't have something for nothing.  You can't have something for nothing.  I was in the White House and we had done this event when we signed stem cell research -- (applause) -- and a woman who was in the audience, she came up to me and she shook my hand and she said, oh, President Obama, I'm very excited, but you just had this health care forum -- please, please, I hope your plan is free health care for all.  And I said, listen, nothing is free.  Nothing is free.

So the reason I make that point is you can't ask local elected officials to raise teachers' salaries and cut taxes and balance the budget and increase roads -- at some point you've got to make some choices.  So if you want a high quality education -- and California historically had the best education system in the country -- then somebody has got to pay for it.

Now, the obligation of local officials -- and this is the same -- is true on the federal government -- our obligation is to make sure that every dime of money is being spent wisely.  Every dime of money is being spent wisely. 

And when it comes to education, when it comes to education  -- and I'm speaking to teachers here and educators -- let me say this, I want to do some truth-telling here.  Uh-oh.  (Laughter.)  I love teachers.  There is no profession that is more important than teaching.  My sister is a teacher -- (applause) -- but -- and I am a huge supporter of the teachers' unions.  They were some of my first supporters.  But let me tell you, you can't just be talking more money, more money, without also talking about how are we going to reform and make the system better.  (Applause.)  There's got to be a reform agenda in exchange for the money.  (Applause.)  There's got to be a reform agenda in exchange for the money. 

So don't just say, give us more money or smaller classrooms -- but you're not willing to consider, for example, how are we going to do better assessments; or how are going to -- how are we going to work to improve teacher performance; and if a teacher is not improving, how do we get them to choose a different career, right?  (Applause.)  I mean, there's got to be -- there's got to be some serious conversation about that.

Now, before I get off the topic of the education, let me do a little more truth-telling.  Parents -- (applause) -- you can't complain about the schools and complain about the teachers, but when your child comes home, they're playing video games and not doing homework, and you don't have time to go to your teacher and parent -- teacher-parent meeting.  Our parents have to instill a sense of excellence and a thirst for knowledge. 

And the truth of the matter is even as overcrowded as schools may be, as poor the computer equipment may be, if you took a bunch of kids right now from China or India and you put them in these classrooms, from their perspective these would be unbelievable schools.  I mean, they don't have better facilities, but they're out-performing us in math and science.  Why is that?

Well, part of it is, is that we as parents are not insisting and demanding on the kind of higher performance from our kids.  So everybody has got to be more accountable in order to improve our education system.  (Applause.)

All right.  It's a man's turn.  I'm going to turn back here -- this guy in the green shirt, right here.  (Applause.)  Everybody likes you, man.  Is he on like Gossip Girl, or something?  I don't -- (laughter.)  I didn't recognize him, but maybe he's -- is he a movie star?  Who's got a mic?  Go ahead.

Q    Not a movie star, just one of your volunteers.  (Applause.)

THE PRESIDENT:  There you go.

Q    And they're all around here.  And in my book, that's even more powerful.  I guess that's -- the fundamental question I have is, there's such a passion in this country and you inspired such a passion for us to do things that we never had before in the name of volunteerism, in the name of making you become our President -- like -- and thank you to everyone that was involved with that.  (Applause.)

My question is, clearly this is not something you can do alone in terms of changing our country.  How can we best partner with you, how can we be most effective, moving forward, to change this country?  (Applause.)

THE PRESIDENT:  Well, the first thing, I think, is patience.  No, I'm serious about this, because, look, there was a lot of excitement during the campaign and we were talking about the importance of bringing about change.  We are moving systematically to bring about change.  But change is hard.  Change doesn't happen overnight.  And the change we bring has to be matched by a sense of responsibility because if you try to just change things overnight and you haven't thought everything through, you could have some real problems.

So for example, I closed Guantanamo.  That was the right thing to do.  But I made -- but in making that decision I said we're going to take a year to figure out how are we going to deal with the folks who are detained there, some of whom really are dangerous folks, who if we just release them could do us harm.  I believe that we are going to be able to effectively balance our national security needs with our civil liberties concerns, but it's not something that happens overnight.  We've got to do it systematically.

On the economy.  This financial crisis that we've had is the largest since the Great Depression.  I understand how mad everybody is about this AIG bonus business.  I understand that.  As I said before, I'm mad.  And even though I didn't draw up these AIG contracts, my White House didn't -- it's my responsibility to fix the system.  But fixing the system requires us understanding that if banks are not solvent, if they are not lending, then businesses are not going to be able to invest, we are not going to be able to create jobs.  And we can be as mad as we want, but the fact of the matter is we've got to work through this huge mess that was made in the financial system.  It's going to cost some money.  It's not going to be pretty, people are going to be frustrated.  And we are going to get it done.  So on a whole range of these fronts, the first thing we need from the American people is a sense that we are going to get it done, but it's going to take a little bit of time. 

The second thing is keep paying attention to the debates that are taking place right now, so when we have a big budget debate -- I want everybody who was paying so much attention during the election to be as interested in what's going on in terms of education spending, what's going on in terms of higher health care spending; are the investments we're planning to make on energy, are they right ones?  Because, again, we're going to have some tough choices to make.

I can't just keep on -- I can't print money.  And so if we are going to make a serious investment in clean energy, well, that requires that we phase out dirty energy.  And that requires that we stop subsidizing certain things and instead subsidize other things.  Somebody is not going to be happy about that because they've been getting the subsidies, so they will start running ads on television saying this is a terrible energy plan.

And you've got to pay attention and educate your coworkers and educate your friends and your family.  And we're not -- my administration also -- here's one last claim I want to make:  I guarantee we are not always going to be right, and I don't want everybody disappointed if we make a mistake here or there.  The important point is, are we moving in the right direction; are we generally speaking consistent with our campaign promises; are we reflecting the values of hardworking middle class Americans who are trying to see Washington work for them? 

And that's one thing I can assure you of, is that four years from now, you are going to be able to look back and you're going to say, you know what -- A, the guy worked hard on what he said he was going to work hard on during the campaign, and he may not have gotten everything perfect, but we are moving in the right direction.  (Applause.)  That's what we've -- that's what we're going to be focused on over the next few years.

All right, I've only got time for a couple more questions.  All right.  I've got to -- I'm trying to look.  I'm going to go way up there.  Way up there.  Yes, that young -- it's a young lady's turn right there.  Right there.

Q    Hi, President Obama.  My name is Kirsten Perry (phonetic), and I'm a recent college graduate.  (Applause.)  My mom is a teacher and my dad is a disabled carpenter, so needless to say, I have accrued a significant amount of student loan debt.  And I want to know what your administration is going to do for young people like me who are educated, who are new to the workforce, who would be ready to enter the housing market, ready to invest in small business, ready to take lower-paying jobs like teaching, but can't because we're burdened with an excess of student loans.  (Applause).

THE PRESIDENT:  Right, well, it's a great question.  It's a great question.  Here's what we're going to be doing going forward, so let me start there.  In our current budget, we are calling for mandatory increases in Pell Grant programs to keep up with inflation, improvements in the Perkins Loan Program.  We are going to cut out the middle men -- banks that are making huge profits on student loans, just make those loans that are federally guaranteed directly to the students.  That will save us billions of dollars, that will allow us to expand student loan assistance and grant assistance to more people.

So we've got a significant increase in student loan support slated in this budget.  Now, I recognize, though, if you've already graduated that that may not -- that will be cold comfort for you.  And one of the things that we're trying to figure out is, are there ways that we can lower interest rates or principal on some of the existing student loans that are out there, by consolidation or other tools.  We have not announced an official program on that front, but we do believe that there are going to be some things that we can do.

This is an example, by the way, of where the banking reforms that we are talking about are so important.  We just announced some changes, for example, in the ability of the student loan market -- the secondary market of securitized student loans to be purchased in such a way that we can reduce the interest rates on student loans for everybody.  But if we don't help the banks it's going to be hard for us in order to lower some of these student loan rates.  So a lot of these things are intertwined, and we've got to make sure that we deal with that.

The last point I want to make -- I expect that over the next couple of weeks, maybe even next week, we are going to be in a position to sign a national service bill coming from the House and the Senate -- (applause) -- and as part of this, what we're going to be doing is expanding programs like the Peace Corps and Teach For America and other mechanisms, other avenues where you can make a decision as a young person to teach for three years, or to serve in the Peace Corps, or to serve in the Foreign Service, or volunteer in some fashion in your communities, and help finance your education in the process.  And I think there are young people all across California, all across America, who are interested in that opportunity and I want to give that opportunity to you.  (Applause.)

All right.  Okay, this is the last -- last question.  You know, I'm going to -- on the last question I think I -- hold on a second, I think I want to call on -- I want to call on a young person.  But it's got to be a guy -- it's a guy.  No, no, you're not that young, you sit down.  (Laughter.)  That guy right there.  The young guy in the T-shirt, or in the tie -- in the tie.  This young man right here.  That guy right there.  (Applause.)

All right, you've got to stand up, though.  You look good in that tie.

Q    Hi, my name is Ethan.  President Obama, our school is in big trouble because our budget cuts are -- 25 of our teachers already have been fired, to get pink slips.  And the whole school, my class, we made this.

THE PRESIDENT:  Oh, you made -- are those letters for me?

Q    Yes.

THE PRESIDENT:  What's your name?

Q    Ethan Lopez.

THE PRESIDENT:  Ethan Lopez.  How old are you, Ethan?

Q    Eight.

THE PRESIDENT:  Eight.  So what grade are you in?

Q    Third grade.

THE PRESIDENT:  Third grade.  Do you like school?

Q    Yes.

THE PRESIDENT:  Yes, you do?  Is that your mom next to you?

Q    Yes.

THE PRESIDENT:  Yes.  She looks very nice.  (Laughter.)  Well, let me -- as I said before, Ethan, we're going to do everything we can to protect our teachers.  We already passed a law in Washington that's going to give more money to the state to help keep teachers in their jobs.  And one of the things that we didn't talk about earlier, we're also going to be putting more money into school construction, because there are a lot of overcrowded schools and overcrowded classrooms that aren't wired for the Internet effectively.  And we are going to make sure that we invest in that as well, because I want you to get a first-class education.

What do you want to be when you grow up, have you decided yet?

Q    Yes.

THE PRESIDENT:  What would you like to be?

Q    A cop.

THE PRESIDENT:  A cop.  (Applause.)  That's what I'm talking about, all right.

Well, I can tell that you will be an outstanding police officer.  Your mom is proud of you.  We're all proud of you.  Give Ethan a big round of applause.  (Applause.)

Thank you, everybody.  God bless you.  (Applause.)

END
2:20 P.M. PDT
 

10:59 A.M. PDT

THE PRESIDENT:  Thank you, guys.  Thank you.  Please, everybody have a seat.  Well, first of all, Lavon, what a wonderful story.  I can tell you're a great dad.  And Alex is lucky to have you. 

I want to make some additional acknowledgments.  We've got a lot of dignitaries here, people who were helpful in helping to pull this together.  First of all, the Congresswoman from this district, Grace Napolitano.  There she is right there.  (Applause.)  We've got Senator Gloria Negrete McLeod.  (Applause.)  Did I pronounce that properly?  No?  Why don't you help me out? 

SENATOR NEGRETE McLEOD:  Negrete McLeod. 

THE PRESIDENT:  Negrete McLeod.  So nice to see you.  Assemblywoman Norma Torres.  Senator Christine Kehoe.  (Applause.)  Good to see you.  Senator Ron Calderon.  (Applause.)  We've got the Mayor of Long Beach, Mayor Bob Foster is here.  (Applause.)  We've got the Mayor of Pomona, Mayor Elliott Rothman.  (Applause.)  We've got Village Academy High School students who are here.  (Applause.)  Ted Craver, who is the CEO of Edison International, is here, and just helped us on the tour.  Go ahead and stand.  (Applause.)  Thank you, Ted.  We've got Al Fohrer, who is the CEO of Southern California Edison, who is here.  (Applause.)  We have Ed Kjaer, who just gave me the tour, right here.  (Applause.)  Pat Lavin, Business Manager, IBEW Local 47.  (Applause.) 

Thank you all for taking the time to be here.  And it is good to be back in California.  It's always -- always nice to get out of Washington for a little bit, recharge your batteries.  (Applause.)  You know a little bit about that here.  (Laughter.)  I want to thank the folks here at the Electric Vehicle Technical Center for the tour we just had.

Yesterday, I was in Costa Mesa talking with people about this economic downturn that we're in.  It's a downturn that's hitting this state as much as any state in the union.  One out of 10 Californians are out of work and actively looking for jobs.  The foreclosure crisis has had a devastating impact on Southern California in particular.  But Californians aren't just bearing the brunt of this crisis -- you are doing what needs to be done to overcome it.

This workshop is a perfect example of that.  Day by day, test by test, trial by painstaking trial, the scientists, the engineers, the workers at this site are developing the ideas and innovations that our future depend on.  It's your ingenuity that will help create the new jobs and new industries of tomorrow.

I know it's not easy.  There are days, I'm sure, when progress seems fleeting, and days when it feels like you're making no progress at all.  That's how it feels in the White House sometimes, too.  (Laughter.)  But often, our greatest discoveries are born not in a flash of brilliance, but in the crucible of a deliberate effort over time.  And often they take something more than imagination and dedication alone -- often they take an investment and a commitment from government.  That's how we sent a man to the moon.  That's how we were able to launch a worldwide web.  And it's how we'll help to build the clean-energy economy that's the key to our competitiveness in the 21st century.

We'll do this because we know, as Lavon just said, that the nation that leads on energy will be the nation that leads the world in the 21st century.  Our children's futures depend on it.  That's why, around the world, nations are racing to lead in these industries of the future.  Germany is leading the world in solar power.  Spain generates almost 30 percent of its power by harnessing the wind, while we manage less than 1 percent.  Japan is producing the batteries that currently power American hybrid cars.

So the problem is not a lack of technology.  You're producing the technology right here.  The problem is that for decades we've avoided doing what we must do as a nation to turn challenge into opportunity.  As a consequence, we import more oil than we did on 9/11.  The 1908 Model T -- think about this -- the 1908 Model T earned better gas mileage than the typical SUV in 2008.  Think about that -- a hundred years later and we're getting less gas mileage, not better, on SUVs.  Even as our economy has been transformed by new forms of technology, our electric grid looks largely the same as it did half a century ago.

So we have a choice to make.  We can remain one of the world's leading importers of foreign oil, or we can make the investments that would allow us to become the world's leading exporter of renewable energy.  We can let climate change continue to go unchecked, or we can help stop it.  We can let the jobs of tomorrow be created abroad, or we can create those jobs right here in America and lay the foundation for lasting prosperity.

And that's what my recovery plan does.  It will create or save 3.5 million jobs, nearly 400,000 of them right here in California -- (applause) -- in part, by making investments in areas critical to our long-term growth.  And that is the forward-thinking purpose of the budget that I submitted to Congress.  It's a budget that makes hard choices about where to save and where to spend; that makes overdue investments in education, health care and, yes, in energy -- investments that will catalyze innovation and industry, create green jobs, and launch clean renewable energy companies right here in California.

Over the next three years, we will double this nation's supply of renewable energy.  We've also made the largest investment in basic research funding in American history -- an investment that will spur not only new discoveries in energy, but breakthroughs in science and technology.  We will invest $15 billion a year to develop technologies like wind power and solar power, advanced biofuels, clean coal, and fuel-efficient cars and trucks that are built right here in the United States of America.  (Applause.) 

We will soon lay down thousands of miles of power lines that can create new energy in cities and towns across this country.  And we will put Americans to work making homes and buildings more efficient so that we can save billions of dollars on our energy bill, just like you've done in California for decades.  And we will put 1 million plug-in hybrid vehicles on America's roads by 2015.  (Applause.)  That's where we're going to focus on.

Now, because these cars of tomorrow require batteries of tomorrow, I'm announcing that the Department of Energy is launching a $2 billion competitive grant program under the Recovery Act that will spark the manufacturing of the batteries and parts that run these cars -- (applause); that will allow for the upgrading of factories that will produce them, and in the process, create thousands of jobs in facilities like this one -- all across America. 

Show us that your idea or your company is best suited to meet America's challenges, and we will give you the chance to prove it.  And just because I'm here today doesn't exempt all of you from that challenge -- every company that wants a shot at these tax dollars is going to have to prove their worth.  So, Lavon, you're going to have to work hard.  (Laughter.)

We're also making a $400 million down payment on the infrastructure necessary to get these cars on the road.  And because these cars won't leave the showroom unless consumers buy them, the Recovery Act includes a new tax credit of $7,500 to encourage Americans to plug one in at home.  (Applause.)

Now, true to form, true to form, California has already forged ahead with its own plans rather than wait for Washington.  It's fitting that the state home to the first freeway and the first gas station is already at work devising the next freeway and the next gas station.  This "green freeway" you're planning with Oregon and Washington would link your states with a network of rest stops that allow you to do more than just grab a cup of coffee, but also charge your car, refuel it with hydrogen or biofuels, swap out a battery in the time it takes to fill a gas tank.  Charging stations have begun to pop up -- pop up around downtown San Francisco, and that city has just joined with San José and Oakland with the vision of becoming the "electric vehicle capital of the United States."

And here at Southern California Edison, and all across the country, in factories and laboratories, at the Big Three and at small startups, these innovations are taking place right now.  In Michigan, and Ohio, and right here in California, we're seeing exciting developments in this field as hardworking men and women like you are already laying the groundwork for this new industry.  Even as our American automakers are undergoing some painful adjustments, they are also retooling and reimagining themselves into an industry that can compete and win -- and millions of jobs depend on it.

So this is the critical work you're doing.  But it's just one component of what must be a comprehensive energy plan.  And that's why we're making an $11 billion investment in upgrading our power grid, so that it can carry renewable energy from the far-flung places that harness or produce it to the cities that use it.  That's why we'll create jobs retrofitting millions of homes and cutting energy use in federal buildings by one quarter, saving the American taxpayer $1.5 billion each year.

These are challenging times, but we know we can do this.  It won't come without a cost, it won't be easy.  We've got 240 million cars already on the road.  We've got to upgrade the world's largest energy grid while it's already in use.  And other countries aren't standing around and waiting for us; they're forging ahead with their own bold energy plans.

But this is the thing we have to remember:  We've faced tough challenges before.  At our best, we have never relied on hope and chance alone.  Time and time again, we've tapped those great American resources:  industriousness and ingenuity.  That, after all, is what California is all about.  This is a state that has always drawn people who've had their eyes set on the horizon; who've always dreamed of a future that others thought beyond reach.  That's the spirit that you are reclaiming here at the Electric Vehicle Test Center.  That's the spirit we need to reclaim all across the country.

Thank you very much, everybody.  Thank you.  (Applause.)

END
11:10 A.M. PDT

 
 

3:44 P.M. PDT

THE PRESIDENT: Thank you. Thank you, everybody. (Applause.) Everybody have a seat -- we're going to be here a while. Well, thank you so much Orange County for the wonderful reception. Thank you.

First of all, let me thank Jerome for the wonderful introduction. Give him a big round of applause. (Applause.) We've got a number of elected officials who are here, who I want to acknowledge. We've got the Lieutenant Governor, John Garamendi. Give the Lieutenant Governor a big round of applause. (Applause.) We've got the Secretary of Labor, Hilda Solis, who is here. (Applause.) Got an outstanding member of Congress, Representative Loretta Sanchez. (Applause.) Now, this is not Loretta's district, this is actually Dana Rohrabacher's district

AUDIENCE: Booo --

THE PRESIDENT: No, no, no, we actually -- our office screwed up and I think didn't get the invitation to him on time, so he's not here. That was a screw-up on our part. So I want to let him know we're sorry about that, and I want everybody to give him a big round of applause, it's his district. (Applause.)

Secretary of State Debra Bowen is here. (Applause.) State Comptroller John Chiang is here. (Applause.) Superintendent of Public Instruction Jack O'Connell is here. (Applause.) And I've got a couple of others. We've got the Mayor of Santa Ana, Miguel Pulido, who's here. (Applause.) We've got -- let's see, who else? We have -- State Senator Jose Correa is here. (Applause. We have State Representative Jose Solorio here. (Applause.) We have the State Democratic Party Chair Art Torres is here. (Applause.) And a great friend and supporter, Steve Westly, is here. Give everybody a round of applause. (Applause.) I hope I did not miss anybody.

Now -- and all of you are here. Give yourself a big round of applause. (Applause.)

All right. Now, let me just say that, for those of you who have chairs, go ahead and sit down so folks behind you can see. All right. Make sure to sit down if you've got a chair. We'll have time to shake hands afterwards.

Now, it is always good to get out of Washington for a little while, and come to places like Costa Mesa. (Applause.) The climate is a lot nicer and so is the conversation. (Applause.) So I am looking forward to taking your questions in a few minutes and talking to you about your concerns. But before I do, I want to say a few words at the top. And I'm going to start out just by talking about these AIG bonuses you've been hearing about.

Now, I know a lot of you are outraged about this -- rightfully so. I'm outraged, too. It's hard to understand that a company that's relying on extraordinary assistance from taxpayers to keep its doors open would be paying anybody lavish bonuses. It goes against our most basic sense of what's fair and what's right. It offends our values.

But these bonuses, outrageous as they are, are a symptom of a much larger problem. And that's the system and culture that made them possible -- a culture where people made enormous sums of money, taking irresponsible risks that have now put the entire economy at risk. So we're going to do everything we can to deal with these specific bonuses.

And I know Washington is all in a tizzy and everybody is pointing fingers at each other and saying it's their fault, the Democrats' fault, the Republicans' fault. Listen, I'll take responsibility; I'm the President. (Applause.) We didn't grant these contracts, and we've got a lot on our plate, but it is appropriate, when you're in charge, to make sure that stuff doesn't happen like this. So we're going to do everything we can to fix it.

So for everybody in Washington who's busy scrambling, trying to figure out how to blame somebody else, just go ahead and talk to me, because it's my job to make sure that we fix these messes, even if I don't make them. (Applause.)

But what's just as important is that we make sure we don't find ourselves in this situation again, where taxpayers are on the hook for losses in bad times, and all the wealth generated in good times goes to those who are at the very top of the income ladder. That's the kind of ethic we've had for too long. That's the kind of approach that led us into this mess. That is something we have to change if we're truly going to turn our economy around and move this country forward.

So I'm absolutely committed to ensuring that we have the tools we need to prevent the kinds of abuses that sent AIG spiraling. And we've got to make sure that we've got regulations that don't allow companies to take these huge risks that are so big that they can sort of hold us hostage. We can't let them fail because it would bring the entire banking system down and hurt a lot of innocent people, but on the other hand, they act irresponsibly. We have to make sure we don't put ourselves in that position.

And I'm also committed to ensuring that if we ever do have to intervene again to prevent a bankruptcy that could cause catastrophe for the whole financial system, that we have some of the tools that a bankruptcy judge has to help renegotiate contracts, to sell off insolvent parts of an institution, to protect the healthy parts, to protect depositors and creditors and other consumers.

We also want to do this because it serves the most important goal we have today, which is to rebuild our economy in a way that's consistent with our values -- an economy -- (applause) -- and I want to describe to you the kind of economy that we want to build: an economy that rewards hard work and responsibility, not high-flying finance schemes -- (applause); an economy that's built on a strong foundation, but not one that's propelled by overheated housing markets and maxed-out credit cards. In other words, we want to build an economy that offers prosperity for the long run. You remember that ad that they used to have out there that said, "We earn money the old-fashioned way; we earn it." Well, we need to get back to that philosophy, because that's what all of you do. You're out there earning a living, and we've got to reward people who are working hard, not the bubble-and-burst economy we've experienced in recent years. (Applause.)

We don't need these house of cards, these Ponzi schemes, even when they're legal, where a relatively few do spectacularly well while the middle class loses ground. You know what I'm talking about. I don't need to tell you these are challenging times. I don't need to tell you this because you're living it every day. One out of every 10 Californians is out of work right now. You've got one of the highest foreclosure rates in the nation. Budget cuts are threatening the jobs of thousands of teachers across this state. (Applause.)

But here's what I know -- here's what I want you to know: We are not only going to make it through this crisis, we are going to come out on the other side a stronger and more prosperous nation. (Applause.) I can't tell you how long it's going to take or what obstacles we'll face along the way, but I can promise you this -- there will be brighter days ahead, here in California and all across America. (Applause.)

But that's only going to happen if we pull together and focus on the big things -- focus on the long term. We've got to get past this petty bickering, the constant trivialization of politics, and focus on getting the job done.

And we're already -- we're seeing signs of progress. Because of the Recovery Act that your two outstanding senators, Senator Feinstein and Senator Boxer -- (applause) -- along with Congresswoman Sanchez -- along with Congresswoman Sanchez -- (applause) -- worked so hard to pass and that I signed into law the other week, a new hospital will be built at Camp Pendleton that will give our servicemen and women the care they deserve. (Applause.)

Over in Inglewood, the police department is planning to expand its staff by 30 people. (Applause.) Orange County is hoping to add a new lane on SR-91 -- (applause) -- creating about 2,000 jobs -- creating about 2,000 jobs and easing congestion in the process. These are just a few of the 396,000 jobs we will create or save in California -- and the 3.5 million jobs we'll create or save across America over the next two years. (Applause.)

We are also taking unprecedented steps to unlock our frozen credit markets so families can get the loans they need to buy a home or a car, and businesses can pay for inventory or make payroll. That's why earlier this week, we took a sweeping step to free up loans for entrepreneurs, helping them start and grow the small businesses that employ half of our private-sector workers. (Applause.) That's why we're creating a fund that will help support up to $1 trillion in loans, including auto loans and college loans. (Applause.) That's why we've launched a housing plan that will help responsible homeowners save money by refinancing their mortgage loans. (Applause.)

Now, none of this will make any difference, however, unless we strengthen our economy over the long term; unless we put our economy on a firmer footing by rebuilding its foundation. And that's exactly the purpose of the budget I'm submitting to Congress. It's a budget that makes hard choices about where to save and where to spend. Because of the massive deficit we inherited and the costs of this financial crisis, we are going through our books line by line so that we can cut our deficit in half by the end of my first term and reduce it by $2 trillion over the next decade. (Applause.) Now, what we will not cut -- what we will not cut are investments that will lead to real growth and real prosperity; investments that will make a difference in the lives of this generation and future generations.

Let me give you some examples. Because of spiraling health care costs that are crushing our families, dragging down our entire economy, and represent one of the fastest-growing parts of our federal and state budgets, we've made a historic commitment to health care reform in this budget -- reform that brings us closer to the day when health care is affordable and accessible for every single American. (Applause.)

Because we know that countries that out-educate us today will out-compete us tomorrow, this budget invests in a complete and competitive education for every American -- in early childhood education programs that work; in high standards and accountability in our schools; in finally putting the dream of a college degree or technical training within reach for anyone who wants it. (Applause.)

Because we know that enhancing America's competitiveness will also require reducing our dependence on foreign oil and building a clean energy economy, this budget will spark the transformation we need to create green jobs and launch renewable energy companies right here in California. It makes clean energy the profitable kind of energy. It invests in technologies like wind power and solar power and fuel-efficient cars and trucks powered by batteries like the ones I'll be seeing in Rosemead tomorrow, all of which will also help combat climate change -- because the weather is already nice in Orange County, we don't want it to get warmer. (Applause.)

So that's what this budget does. Now, here's what it does not do.

AUDIENCE MEMBER: Love you, Obama!

THE PRESIDENT: I love you back. (Applause.)

Here's what the budget does not do. It does not raise the taxes of any family making less than $250,000 a year by a single dime. (Applause.) In fact, 95 percent of all working families will receive a tax cut as a result of our recovery plan.

Now, there are those who say these plans are too ambitious; we should be trying to do less, not more. Obama is trying to do too much, they say; just focus on Wall Street, focus on the banks.

AUDIENCE: Nooo --

THE PRESIDENT: Well, I say our challenges are too large to ignore. The cost of health care is too high to ignore. The dependence on oil is too dangerous to ignore. Our education deficit is too wide to ignore. (Applause.)

To kick these problems down the road for another four years or eight years, that would be to continue the same irresponsibility that got us to this point. I didn't run for President to pass on our problems to the next generation, or the next President. I ran for President to solve these problems so that you've got a better shot in life. (Applause.)

AUDIENCE: Obama! Obama! Obama!

THE PRESIDENT: So I know folks in Washington and folks on Wall Street are saying, no, no, no, one problem at a time -- our problems. (Laughter.) I understand the thinking behind that -- and it's true, we've got to solve this banking crisis. There's no doubt about it. Not because I'm that concerned about the bankers, but because I'm concerned about you. And we've got to get liquidity and credit flowing again to small businesses, to people who want to buy a car or who want to refinance a home. So I understand their thinking about solving that problem. But, you know, I've said before, when you're President you've got to walk and chew gum at the same time. (Applause.)

It would be nice -- it would be nice if I could just pick and choose what problems to face and when to face them, and say, no, I'm sorry, hold off on health care; Afghanistan, let's put that aside for a while. You know, I would sleep a little easier. But that's not the way it works. It doesn't work that way for you. It doesn't work that way for you -- you don't get to choose between paying your mortgage bills or your medical bills. You don't get to choose between paying your kids' tuition and saving enough for retirement. You don't get to say, well, I'm sorry, hold on a second, you know, I really got to take on some issues at home here so I don't think I'm going to go to work for a week. It would be nice to do, but you don't do that. You need to take all these problems on. And you need a government that's going to help you on all these problems, that will do the same. That's what leadership is all about. (Applause.)

And that's what this debate on the budget is all about -- about whether we are willing to do what needs to be done not only to get our economy moving right now, but to put it on the road to lasting, shared prosperity. It can be easy to lose sight of this. It's easy for pundits to get on TV and put their ratings ahead of their own sense of responsibility, and try to oversimplify what's at stake. It can be difficult to break free from the partisanship that's held sway in Washington for so many years. But that's what we have to do. That's what this moment requires.

For all of you know deep down -- and what folks in Washington sometimes forget -- in the end, a budget is not merely numbers on a page or a laundry list of programs. It's about your lives; it's about your families; it's about your dreams for the future. You did not send us to Washington to stand in the way of your aspirations. You didn't send us there to say no to change -- you sent us there to get things done and bring about change, and that's what I intend to do. (Applause.)

But I can't do it without you. I can't do it without you, the American people. That's why I'm here today, because it will take all of us talking with one another and all of us working together to see our nation through this difficult time and bring about that brighter day.

So I hope you're all ready to get to work. (Applause.)

I want to thank you all for this opportunity to speak with you. Here's what we're going to do. We're going to open it up to questions. And I know there are a lot of folks back there, too. (Applause.) So I'm going to try -- I'm going to try not to completely discriminate to the folks who got here, here in front. There are no rules to this -- except a couple. (Laughter.) First of all -- first of all, nobody has been preselected here, so, you know, I don't mind if you want to take me to task. If you think I'm a bum and doing a bad job, you go ahead and ask your question.

The only thing I'd ask is everybody raise their hands, number one -- not everybody now, I mean everybody who has a question. (Laughter.) Number two is that I'm going to go girl, boy, girl, boy, so it's fair. (Laughter.) Number three, I would ask that everybody try to keep their question relatively brief so that we can get as many questions in as possible. Now, it doesn't have to be a question, it can be a comment, as well, but, you know, we want to try to keep the speeches to a minimum. And I will try to also answer questions as briefly as possible.

Okay? All right. And I hope you don't mind, I'm going to take off my jacket. If you guys are hot -- (applause.)

Okay. All right. We're going to call on this young lady right here. And wait till you get a microphone so everybody can hear you. Introduce yourself if you can.

Q Good afternoon, President Obama. I have a very simple question. Do you have intentions of, when the reelection comes, of running for President again?

THE PRESIDENT: Oh, well, the -- first of all -- first of all, let me say this: I've been in office -- I've been in office for two months now. The last thing I'm thinking about is reelection. But I will tell you this -- I mean -- and this is a serious answer to your question: If I could get done what I think needs to get done in four years, even if it meant that I was only President for four years, I would rather be a good President taking on the tough issues for four years than a mediocre President for eight years. (Applause.)

So I will -- and I will also say this -- I will also say this, that my obligation is to make sure that we've improved our economy, that we've gotten serious on health care, made significant progress on energy, made education more affordable, and improved the excellence of our educational system K-12, that we have started controlling our deficits.

So there's some very specific standards by which I think you should hold me accountable and measure my success. And if I don't deliver on those things four years from now, then I think you will be answering the question of whether I run for re-election or not, because ultimately I'm answerable to you -- I'm your employee. Okay?

All right, the gentleman in the black shirt right here.

Q Mr. President.

THE PRESIDENT: Yes, sir.

Q My question concerns those states who have refused to take certain portions of the stimulus money. Is there any way to reallocate that money to those states who are willing recipients -- (laughter and applause) -- such as California? (Applause.)

THE PRESIDENT: Well, look, we had a vigorous debate on the stimulus, on the Recovery Act, and let me just say a couple of things about the Recovery Act. Number one, there was almost uniform consensus among both conservative and liberal economists that when you have the economy on such a free-fall, that you need a big stimulus to try to make sure that goods and services are still being purchased, and that the decline in demand, as consumers pull back, is being filled. If you don't, then the recession gets even worse. There's almost uniform consensus on it. So that's point number one.

Point number two: The Recovery Act that we put forward contained some provisions in it that I don't think anybody should be able to argue with -- that we're providing extended unemployment insurance to people who have lost their jobs; that we are allowing -- if you've lost your job, right now you can get COBRA, but you can't afford COBRA -- so subsidizing health insurance for people who have lost their jobs; investing in our roads and our bridges and our infrastructure, so that we are more competitive over the long term.

Now, there are some people -- there have been just a handful of states, two or three, who have said, we don't want to take some of the unemployment insurance because what we said was that a portion of this unemployment insurance -- you have to make it more available to people who are temporary workers or part-time workers because the labor force has changed and there are a lot of people, particularly women, who, you know, they may have children, they may be working part-time, but when they lose that job it's tough for them. So we've got to modify how we think about unemployment insurance. And they said, well, we don't want to change how we do things.

I think that's a mistake. And I think that the folks in those states should let them know that it's a mistake. And I'm still hopeful that they may end up changing their minds. But I will keep in mind what you just said, which is there's at least one guy in California who's willing to take the money. (Applause.)

Can I make one last point? I hope you don't mind, can I make one last point about this stimulus package? I want to make a larger point about the deficit and the national debt -- because the main argument that you're hearing right now in opposition to some of our economic plans, including our budget, is you've got all this money going out, you're creating huge deficits and debt, and that's irresponsible.

Well, first of all, most of these critics presided over a doubling of the national debt. We are inheriting a $1.3 trillion deficit. So they don't have the standing to make this criticism, I think, given how irresponsible they've been. That's point number one. Having said that, even somebody who caused the problem isn't wrong when they say it is a problem that we've got this big debt and these big deficits.

So what we've tried to do is to say let's, right now, just focus on getting the economy back on track, reducing unemployment, creating jobs, making sure our school systems still have teachers, cops are still on the streets, firefighters are still in the station house. Let's do what we need to do to get through this difficult time. Let's make some investments in health care, energy, education that will lay the foundation for long-term economic growth. But let's also start making some tough choices about the deficit as soon as we get out of this recovery.

So, for example, we can't keep on providing the insurance companies huge subsidies under Medicare for a program called Medicare Advantage that doesn't make our seniors any healthier than the regular Medicare plan. (Applause.) We need to go ahead and use that money for other things.

We can't keep on giving these huge procurement contracts to defense industries that end up being 50, 60, 100 percent over budget -- very good for contractors, not so good for taxpayers. So we've got to institute reforms and we've already identified potentially pulling $40 billion out annually in savings on procurement. (Applause.)

Those are the kinds of things -- those are the kinds of steps that we need to take. And we are going to go through this budget line by line. And some of these choices may be difficult. I won't lie to you, we can't keep on just printing money and saying we'll let our children worry about it. But we have to do it in a way that right now focuses on just getting people back on their feet, getting the economy running again. And then we're going to have to make some difficult choices -- especially over some of these longer-term entitlements like Social Security and Medicare.

All right, this young lady right here. Hold on a second, we've got a mic right here, right in front.

Q Hello, Mr. President.

THE PRESIDENT: Hello.

Q I'm a community bank SBA lender and have proudly been one for 20 years. We're very, very excited about the stimulus package and we are going to do everything we can to get the money out there, including financing the construction projects that you're talking about. However, as a lender and as a bank, we have a problem that I feel needs to be addressed. When we make loans that are less than the normal quality, even with the SBA guarantee, the regulators tend to criticize us. And when they criticize us, they make us set aside reserves as if the loan is going to be bad, and that eats into our capital. That's part of the problem that banks are having right now and why they needed the TARP money. Not all banks are bad banks, as you know, and as a community bank that's been around for 85 years, we haven't even taken TARP money. We want to make SBA loans, but we don't want to get our hands slapped by the regulators when we try to help these people. And last year is going to be a less than stellar tax return for everybody that's had a problem, that is going to come to the SBA for help.

Will you be able to speak with the regulators and set some kind of new bar so that we won't be criticized and we can actually go out and loan this money that we want to?

THE PRESIDENT: Well, you make -- you make a terrific point. This is a excellent point. (Applause.) Let me say a couple of things on this. First of all, just so everybody caught the issue here, there are a lot of community banks, smaller banks, local banks that did not act irresponsibly; they weren't involved in, you know, buying some of these weird financial instruments that didn't work; they're not paying out the $100-million bonuses. You don't look like you got a $5-million bonus. (Laughter.) You wish, right? Yes, they're working with local businesses, small businesses, small contractors. They take in deposits; they do what banks are supposed to do.

They're still having some problems --- local community banks -- and they're having some problems in two areas. Number one is, a lot of these community banks give Small Business Administration loans, SBA loans, that are guaranteed by the federal government, but the problem is, is that historically what they've done is they get the loans and then they sell them on what's called the secondary market. They sell them to other parties who invest in these loans. The problem is all these secondary markets have all frozen up right now, because everybody is so nervous about all these losses that have been happening on Wall Street.

So we just announced this week a program that will allow the Treasury Department to buy these loans directly from the community banks, so if you've got $5 million worth of loans, SBA loans, already on the books, you can sell them to Treasury. That will then mean that you'll have $5 million that you can now put back to work providing loans without worrying about your capital -- your capital ratios. So that's -- so we'll -- you should find out -- this is on our website, the White House website; it will tell you about this program.

Now, you're right, though -- we still have a problem that a lot of small businesses are seeing their credit lines restricted. And part of that has to do with the issue you're talking about, which is regulators may be saying to banks, look, we're worried about all these losses, so pull back on what you consider riskier loans. Well, if you've got a credit line to a small business, and they're seeing some of their business dry up right now, then you might be saying to yourself, maybe I can't continue that credit line.

We don't have direct authority -- the White House does not have direct authority over these regulators. These regulators are supposed to be somewhat independent from politics. But, you know, we have had conversations to note that during a difficult period like this, we want to make sure that the bottom line is ultimately that liquidity and lending is going out the door. And I think that we're going to be having broader conversations with the community banks to figure out how can we take even further steps to help them be in a position to help the small businesses and individuals who depend so much on banks like yours. Okay?

All right, this young man right here, this young man right here. He's been -- okay. (Laughter.) See, I'll admit that part of the reason -- (laughter) -- I should -- I'm getting old and it's hard to see back there. (Laughter.) Go ahead.

Q I'd like to ask you what are you planning to do on immigration, the broken system that we have? And when do you plan on doing this? (Applause.)

THE PRESIDENT: I just met with the Congressional Hispanic Caucus today, which Congresswoman Sanchez is a member of -- (applause) -- to talk about this issue directly. As many of you know, during the campaign I was asked repeatedly about this, and I reiterated my belief that we have to have comprehensive immigration reform.

Now, I know this is an emotional issue, I know it's a controversial issue, I know that the people get real riled up politically about this, but -- but ultimately, here's what I believe: We are a nation of immigrants, number one. Number two, we do have to have control of our borders. Number three, that people who have been here for a long time and put down roots here have to have some mechanism over time to get out of the shadows, because if they stay in the shadows, in the underground economy, then they are oftentimes pitted against American workers. Since they can't join a union, they can't complain about minimum wages, et cetera, they end up being abused, and that depresses the wages of everybody, all Americans. (Applause.)

So I don't think that we can do this piecemeal. I think what we have to do is to come together and say, we're going to strengthen our borders -- and I'm going to be going to Mexico, I'm going to be working with President Calderón in Mexico to figure out how do we get control over the border that's become more violent because of the drug trade. We have to combine that with cracking down on employers who are exploiting undocumented workers. (Applause.) We have to make sure that there's a verification system to find out whether somebody is legally able to work here or not. But we have to make sure that that verification system does not discriminate just because you've got a Hispanic last name or your last name is Obama. (Laughter.)

You've got to -- and then you've got to say to the undocumented workers, you have to say, look, you've broken the law; you didn't come here the way you were supposed to. So this is not going to be a free ride. It's not going to be some instant amnesty. What's going to happen is you are going to pay a significant fine. You are going to learn English. (Applause.) You are going to -- you are going to go to the back of the line so that you don't get ahead of somebody who was in Mexico City applying legally. (Applause.) But after you've done these things over a certain period of time you can earn your citizenship, so that it's not -- it's not something that is guaranteed or automatic. You've got to earn it. But over time you give people an opportunity.

Now, it only works though if you do all the pieces. I think the American people, they appreciate and believe in immigration. But they can't have a situation where you just have half a million people pouring over the border without any kind of mechanism to control it. So we've got to deal with that at the same time as we deal in a humane fashion with folks who are putting down roots here, have become our neighbors, have become our friends, they may have children who are U.S. citizens. (Applause.) That's the kind of comprehensive approach that we have to take. All right. Okay. (Applause.)

All right, I promised to go back there. I promised to go back there, but I can't see anybody, so -- but it's a girl's turn, it's a lady's turn. There's a whole bunch of folks just kind of waving. One young woman from the back, just go ahead -- somebody with a mic go find somebody. There you go.

Q Thank you. Hi. I'm a teacher in Santa Ana. (Applause.) Thank you. And I got my RIF notice on Saturday and --

THE PRESIDENT: I'm sorry, you got what notice?

Q My RIF notice, which is I'm going to be -- the intention to be laid off.

THE PRESIDENT: A pink slip?

Q Yes, a pink slip. That's why it went pink. My question is -- oh, I'm so nervous, okay. Thank you for coming.

THE PRESIDENT: You're doing great.

Q I just love you. Okay. Our class sizes are between 36 and 44. This is normal. I've been in the district for over 25 years. I have seen what our kids can do when someone cares. The Teacher of the Year also received a pink slip. We're talking about quality teachers being laid off because of something -- I don't know what. Tomorrow we have a meeting.

My real question is, you have put money towards retention. How are we going to make sure that money comes to our districts that need it the most, the urban districts? (Applause.)

THE PRESIDENT: Well, look, most of -- almost all of the money -- almost all of the money that's going to states under the Recovery Act for education is designed to retain teachers. Almost -- the lion's share of it. I mean, there's some money for school construction as well, and there's some money for innovation because we can't just put more money into the schools without also reforming the schools and making them better.

But a huge -- right now the biggest chunk is for teacher retention. It generally flows in the same way the Title I monies flow, so that there should be a formula that the states are working with in terms of how it's allocated to various districts. I don't know the exact figures here in California or what would happen in terms of this school district. Your school superintendent is here, though -- there he is right here --

AUDIENCE: Boo!

THE PRESIDENT: Wait, wait, wait, wait. Hold on a second. Hold on. Hey, hold on a second. It's not his fault that the state has run out of money. So he is going to -- he is -- he was in a meeting with Arne Duncan, our Secretary of Education, and I stopped by in the meeting -- and these were the school superintendents for all -- all across the country, to come together and work on how do we both deal with the immediate short-term crisis, but also how do we think about long-term reforms?

You're right that class size is something that we've got to deal with. You can't have a 5th grade class with 40 kids. There's no teacher who can deal with 40 kids all at the same time, especially if many of them are at different levels in terms of reading and math skills and so forth. So we've got to do something about that.

But what's also true, though, is we've got to provide better teacher training. There are teachers who may not know their subject matter as well as they should. They've got to be given more time to -- for professional development. We've got to have more flexibility, I believe, in terms of how we reward teachers. I think that it is important for us to make sure that we have assessments that everybody can agree -- because ultimately we've got to know that our kids are meeting high standards.

Now, it can't just be a single high-stakes standardized test -- but we do need to have strong, powerful measures of performance, because schools are like anything else. We can't afford our kids to be mediocre at a time when they're competing against kids in China and kids in India who are actually in school about a month longer than our kids. So there's a whole bunch of reforms that we're going to have to do.

And the last point that I always make -- so I'll make this again -- is we've got to do our jobs as parents. You can't put all the burden on a teacher. (Applause.) You can't put all the burden on a teacher. If you're not making sure your child does their homework, if you're not reading to them, instilling a sense of excellence and a thirst for knowledge in them, then they're not going to do very well, no matter how good your teacher is. Okay, so that's very important.

One last point I want to make about education: This budget that we are now arguing about -- and you're going to be hearing a bunch of arguments about, oh, you know, Obama, he's a spendthrift, et cetera, et cetera, -- we reduce non-defense discretionary spending as a percentage of gross domestic product, but what we insist on is that we make some investments in education.

And I haven't -- and one of the things that we haven't talked about is higher education. I've said we've got to increase student loans, student grants, the Pell Grant program. That's got to be a priority. (Applause.) That's our future, and I'm going to fight for it. I don't care how long it takes, we're going to make it more affordable to go to college, because that's what everybody needs. (Applause.)

All right, we need a gentleman. Gentleman in the tie right here. Since he wore a tie today, I appreciate that. (Laughter.)

Q It's awful hot.

THE PRESIDENT: It's hot. I want to take mine off, too, but I --

Q I'm President of the State Building and Construction Trades Council of California, the umbrella organization for construction unions. I would like to thank you for your leadership on the stimulus package, and particularly for trying to get construction workers back to work.

But during the last eight years, the administration chose not to enforce the Davis-Bacon requirements, chose not to enforce wage and hour conditions, and many thousands of workers were denied the wages that they were legally entitled to. What can your administration do to make sure that people get the wages that they're entitled to in this terrible economic downturn?

THE PRESIDENT: Well, look, I have already said that we are going to promote Davis-Bacon. We think it is important that unions have the opportunity to organize themselves. (Applause.)

Now, you know, sometimes, you know, the business press says, oh, that's anti-business. And whenever I hear that I'm always reminded of what Henry Ford said when he first started building the Model T -- and he was paying his workers really well. And somebody asked him, they said, why are you paying your workers so well? He said, well, if I don't pay them well, they won't be able to buy a car.

Think about that. Part of the problem that we've had with our economy over the last decade at least is that -- well, there are a number of problems. Number one, it turns out that a huge amount of the growth that was claimed was in the financial services industry. And now we find out that a bunch of that stuff was just a paper growth that wasn't real and vanished as soon as somebody pulled the curtain.

Another part of the problem with our economy and the way it was growing was that wages and incomes for ordinary working families were flat for the entire decade. Now, I don't need to tell you this because you've experienced it in your own lives. You're -- just barely kept up with inflation while people at the very top -- and look, I'll be honest with you, because I'm now in that category -- we were seeing all the benefits.

So when I say that we should make it easier for unions to organize and observe Davis-Bacon, all I'm trying to do is to restore some balance to our economy so that middle-class families who are working hard -- (applause) -- they're not on welfare, they're going to their jobs every day, they're doing the right thing by their kids -- they should be able to save, buy a home, go on a vacation once in a while. You know, they should be able to save for retirement, send their kids to college.

That's not too much to ask for; that's the American Dream. And the only way we get there is if we have bottom-up economic growth instead of top-down economic growth. (Applause.) And that's why -- that's why the debate about this budget is so important.

Let's talk tax policy for a second, because, again, some on the other side have said, oh, Obama, he's a tax-and-spend Democrat -- tax and spend. Well, it turns out, yes. You know, what I've said is we should return to the tax rates that we had under Bill Clinton, which means -- which means this: which means that for people who are making more than $250,000 a year, they would pay instead of 36 percent, they'd pay 39 percent. Like, a 3 percent increase on their tax rate.

Now, these folks can afford it. They were rich -- they were rich back in the '90s. It's not like suddenly they're going to have to go to the poor house. But what that does is it allows us to pay for health care reform for a lot of people who are out there working every day but are just one illness away from bankruptcy.

Now, that's -- I don't think that's unreasonable. I don't think that's socialism. I think that's part of understanding that we're all in this together and that if the middle class is working well, if working people are doing well, then everybody does well. (Applause.) Then they can buy products and services, and businesses will succeed. That's the philosophy that we are pursuing in this budget; that's why I need your support. (Applause.)

I'm going to take two more questions, two more questions. Back here, because everybody -- these folks have been in the lights, so they're really hot. So we got to -- we got to make sure that -- anybody got a mic back here? No? No mics over here? These folks can't just be props back here, just sitting here. (Laughter.) You got to give them a little love.

All right, it's a lady's turn. And we have so many nice ladies here. I feel -- eeny, meeny, miney -- I'm going to call on this young lady in the green right here. Go ahead, yes.

Q Good afternoon, Mr. President.

THE PRESIDENT: Yes.

Q Thank you for taking my question. It's amazing.

THE PRESIDENT: Of course.

Q Since American taxpayers have had to bail out a lot of large banks -- Citibank, et cetera -- and they don't feel they've gotten any benefit for themselves, do you support caps on interest rates that the same companies we have bailed out with our money can charge regular consumers on credit cards? Because it's up to 30 and 40 percent. (Applause.)

THE PRESIDENT: It's a great question. It's a great question. It's a great question. This was a really good question. First of all -- first of all, I generally support a credit card bill of rights, even -- setting aside the whole issue of TARP and who's been getting TARP and who hasn't been getting TARP. The truth of the matter is that the banking industry has used credit cards and pushed credit cards on consumers in ways that have been very damaging.

There's a woman named Elizabeth Warren who's a professor at Harvard who did a great deal of study around this. And she made a simple point. You know, if you bought a toaster, and the toaster blew up in your face, there would be a law, a consumer safety law, that would protect you from buying that toaster. But if you get a credit card that blows up in your face, that starts off at zero-percent interest, and once they kind of suck in the -- buying a bunch of stuff and suddenly it's 29 percent; and if you're late two days, suddenly, you know, you just paid another $30, and all kinds of fine print that a lot of folks didn't understand -- well, somehow that's okay.

So just putting aside the issue of TARP, I think generally having some consumer safety, some consumer protection around credit cards, is important.

Now, all of us -- I think a lot of people have learned their lesson with credit cards. And credit cards can be an important convenience. But generally speaking, if you're just running up your credit card and you don't think that there's a bill to be paid, you've got problems. So all of us, I think, have to be more thoughtful about how we use them, and ultimately we've got to take responsibility if we are going on shopping sprees that we can't afford.

On the other hand, it's also important that we have consumer safety laws, and that's something that I want to promote and get done as President of the United States.

Now, let me talk about the larger issue of banks just for a second. Because a lot of people, I know, just are so frustrated -- and I am so frustrated with this banking situation, I just want to just briefly explain to you sort of what's happened.

These banks purchased a lot of what are securitized mortgage instruments. They took a lot of these subprime loans and they bundled them up, so they weren't just holding a mortgage, they were holding a whole bundle of mortgages that were made into a security, a stock. And they were sliced up, and so you could buy different pieces of these mortgages. And unfortunately what ended up happening was a bunch of these mortgages -- and this was certainly true in California, it was true all across the country -- a bunch of these mortgages were based on people who never had the income to buy the house, nobody tried to verify whether or not they could actually afford it. It was based on these complicated mathematical formulas.

And then what happened -- and this is where AIG and some other companies come in -- what happened was since the banks knew that there might be some risk around having these financial instruments, they bought these things called credit default swaps that were supposed to be guarantees or insurance on these instruments -- on these securities, these mortgage-backed securities.

The problem was, companies like AIG, they'd sell, like, 50 policies without having the money to cover the possibility that they would all go belly-up. So they were way over-leveraged, overextended, just as the banks were way over-leveraged and overextended. And in some cases they'd take a dollar worth of assets and they'd loan or use $30 off that one dollar just to make bigger and bigger bets and take bigger and bigger risks out in the financial system. And these started getting into trillions of dollars.

And as long as nobody was checking to see if anybody was going to be able to pay back these mortgages, and as long as housing prices were appreciating and this housing bubble was continuing, everybody was making a lot of money. So nobody wanted to check and there was no serious regulation to say, hold on, stop a minute, you guys are getting way overextended; you're putting the entire financial system at risk.

So when the economy started slowing down, and in some markets like Miami and here in California, the housing market starts really weakening, and suddenly some of these subprime loans start defaulting, this whole house of cards just began to collapse.

Now, a lot of people say, well, why not just let the banks fail? Right? See, somebody is clapping. Why not just, you know -- they were making all these bad bets; why don't we just let them fail, let them go bankrupt? What's the problem?

Well, here's the problem. If you've just got one small bank -- I mean, unfortunately -- let's take the community bank -- what's the name of your community bank? Fullerton Community Bank. All right, now, let's just say this. If Fullerton Community Bank fails, heaven forbid, we've got something called the FDIC, the Federal Deposit Insurance Corporation, that would take it over, it would guarantee all the deposits so you don't have to worry about your deposits; they're not at risk. And it would be able to kind of sort things out and then resell the bank fairly quickly, and it doesn't threaten the whole system as a whole.

When you've got big banks, Citicorp or Bank of America or, you know, Wells Fargo, that controls 70 percent of the banking system, and all of them are weakening, you can't afford to have all those banks all at once start going under. Even though the deposits might be guaranteed, you've got the entire economy resting on that credit. We've got to get that credit lending, because they can take down businesses large and small alike if we don't make sure that they are still providing loans.

And so we had to step in. And it was the right thing to do -- even though it's infuriating, even though it makes you angry, because you're thinking, I was responsible, and these folks are irresponsible, and somehow I'm paying for them -- it was the right thing to do to step in.

The same is true with AIG. It was the right thing to do to step in. Here's the problem. It's almost like they've got -- they got a bomb strapped to them and they've got their hand on the trigger. You don't want them to blow up, but you got to kind of talk them -- ease that finger off the trigger.

We've got to, over the next several months, come up with a plan that separates out the bad assets, the loans that shouldn't have been made, these credit default swaps, et cetera. We got to separate out some of those from the good assets, because there are a lot of very healthy banks, the vast majority of banks are healthy. We've got to figure out how to raise their capital -- the point that you were making earlier so that they can start lending again.

This is a very complicated, difficult task. It's not easy. We're talking about a huge system that's not just national, but international.

And so we're not going to unwind this all in a day, but what I do have confidence in is that with the plans that we're putting forward, slowly you're starting to see the system stabilize, you're starting to see more loan activity taking place, some of the security markets are coming back. And if we continue to provide some guarantees and help depositors and help strengthen some of the banks that are weakened, then my expectation is, is that we're going to be able to work our way out of this problem, and we are going to be able to get back to a point where banks are lending, businesses are investing, jobs are being created, and the economy gets back on its feet.

And when that happens, we should get a bunch of the money that has been lent to these banks back. Now, we're not going to get all of it. I just -- you know, we're not going to get 100 percent of it back in some cases. In some cases we may get 100 percent back; in some cases we might even make a profit.

I don't want to pretend that this is going to be cheap. But the point is that instead of looking backwards, the main thing we've got to do is look forwards and say, how do we make sure that we get out of this mess, but also prevent this mess from ever happening again. And that requires the kind of financial regulation that's going to be so important for our long-term future. (Applause.)

All right, I've got -- it's a guy's turn. It's a man's -- it's a man's turn, and he's got the last -- this gentleman, because he's big and I don't want him to be mad at me.

Q Good afternoon, Mr. President.

THE PRESIDENT: Good afternoon.

Q Thank you for taking the time to listen to me. Last October I lost my job after 13 years. I was laid off. Now when I look for a job, people tell me that I have a felony from 20 years ago -- I can't get no work. I have a family to support. What do I do?

THE PRESIDENT: Well, first of all, I know how hard it is for you right now being out of work -- because I can tell you've got pride, you've been working, you've been supporting your family. And one of the things that's been happening in this most recent recession is men have actually been losing jobs faster than women. And that is a very difficult thing. I mean, I know that I take great pride in, you know, taking care of my family. And it's hard when you lose your job.

The fact that you've been working steadily for 13 years post-felony seems to me a message that you made amends for your past mistakes and that you are rehabilitated and that you've proven yourself in the job market. (Applause.) So in that sense -- in that sense I think you're actually better off than a lot of folks who make mistakes and then never get that first job that allows them to rehabilitate themselves. They've got no employment history, they're just an ex-felon. They go in and nobody gives them the time of day, and oftentimes they end up getting back into trouble.

Now, we're trying to set up some programs to help ex-felons make that transition. But frankly, based on what you're telling me, your problem is a problem that has nothing -- or less to do with your felony than the fact that the job market is really tough right now. And that's why all I can tell you is we are working as hard as we can to invest in construction and infrastructure; to invest in things like clean energy, building solar panels and wind panels -- (applause) -- wind turbines and other things that point to a new manufacturing base and a new energy future.

We're trying to create the jobs of the future and we're trying to get this economy moving again -- fix the banking system so that you start seeing more economic activity. I have confidence that you will find a job. I have confidence in you. (Applause.) But in the meantime -- in the meantime the most that I can do is to make sure that you've got unemployment insurance that you can rely on, that you've got COBRA that you can rely on, that your family is able to get some support during these difficult times, and then to try to get these jobs created as quickly as possible.

What kind of work did you do?

Q (Inaudible.)

THE PRESIDENT: You worked in what?

Q I worked in the auto industry for Toyota.

THE PRESIDENT: In the auto industry. Well, let's talk about the auto industry for a second. Now, first of all, you worked for Toyota, which is obviously one of the best companies, and so you -- when Toyota is having problems and laying off, that tells you how tough the problems are in the auto industry right now.

We are going to have to work to move in the direction of fuel-efficient cars and trucks. I would have expected you to say that you were working for an American car company, because they're having much bigger problems. But whether it's Toyota or GM or Chrysler or Ford or any company right now, the future is going to be in fuel-efficient cars. It's going to be in these plug-in hybrids. (Applause.) It's going to be in developing the battery technology that allows electric cars to run for 150 miles for every gallon of gas.

And what we need to do is to invest in research and development around this clean-energy auto technology. And one of the things that we've committed to doing in our budget is to spend $15 billion every single year in new technologies that maintain cutting-edge auto technologies that will ensure that good, efficient, clean cars are made right here in the United States of America. And hopefully we're going to put you back to work in the process.

Q Thank you.

THE PRESIDENT: So all right, everybody. Thank you. (Applause.)

END
4:55 P.M. PDT