In an April 13, 2009, interview on Democracy Now Amy Goodman asks for his views on Obama’s handling of the bail-out. Chomsky notes that Obama, as a centrist Democrat, is relying on exactly the same people who crashed our economy to fix it. He quotes an article from Bloomberg News in which they analyzed the past histories of Obama’s economic team and those he invited to his economic summit in December, 2008:
They just reviewed the record. I think there were a couple dozen of them. People on the—you know, people like, say, Stiglitz, Krugman, they were never even allowed close to it, let alone anyone from the left or labor and so on, given token representation. So they went through the records, and they concluded that these people should not be invited to fix up the economy. Most of them should be getting subpoenas because of their record of accounting fraud, malpractice and so on, and helping bring about the current crisis
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The people he is referring to are Geithner, Summers and Robert Rubin, all of whom participated in the push to abolish Glass-Steagall restrictions on banks and to otherwise deregulate the financial economy.
It was that deregulation which paved the way for the big financial institutions to go wild with leveraging and selling un-supported securities – the collateralized debt obligations which, with the collapse of the housing market, became virtually worthless, and the credit default swaps whose payouts were triggered by that crash.
With the collapse of the housing market, the collateralized debt obligations comprised of mortgages, lost their value, leaving the companies who sold the credit default swaps with no assets from which to pay on their CDS insurance policies. That is where the trillions of dollars of bail-out funds are primarily going – to the banksters to pay off their gambling debts.
The 800 billion in stimulus funds going to invest in infra-structure and alternative energy are a drop in the bucket compared to the trillions that is being funneled to the gambling debts.
Why is Obama Bailing Out the Banks Rather than Investing in Jobs?
Chomsky points to the investment theory of politics, propounded by Thomas Ferguson, the political economist:
Ferguson describes elections as occasions in which groups of investors coalesce and invest to control the state. And he takes a look at the formation of campaign contributors, and it gives you a surprisingly good prediction of what policies are going to be. It goes back a century, New Deal and so on. So, yeah, it can predict pretty well what Obama is going to do.
Although much as been made of the small donations made by individual Obama donors over the Internet and such, in fact a large percentage of his donations came from the same financial sectors which are now reaping their rewards in the bail-out. The banksters contributions to Obama’s campaign funds turns out to have been a much, much safer investment than their credit default swaps. Those campaign contributions are now being repaid by the U.S. treasury itself, and the returns on those donations are running profits at billions to one.
Amy Asks: Would you have let Citibank and AIG Fail?
Chomsky responds that Obama should have invested taxpayer funds more wisely and with much more control over his donor bailees:
So, the government could just take over the viable parts. And parts of them are functioning; parts are dysfunctional, like the toxic—what they call the toxic asset parts, you know, the financial manipulations.
Well, one thing you could do, which has been suggested by a number of economists like Dean Baker, just take over the good parts, essentially nationalize them, put them under public control. And "nationalize" means public control, at least if you have a democracy. Not here, but if you had a functioning democracy, it would mean let them be under public
control, and the parts that are responsible for the huge losses, just let them go off by themselves. In fact, that would be the way of taking care of the AIG bonuses that everyone’s screaming about. In fact, as Baker pointed out, just spin off the parts that were involved in financial manipulations and caused the crisis, let them go bankrupt and let the executives try to get the bonuses from a bankrupt firm, OK, with no legislation necessary. That’s what should be done with Citigroup.
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But if Obama took Control of the Good Assets and Let the Bad Assets Fail, What Would Happen to the CEOs and their bonuses?
They would have to bear their own losses and likely lose their astronomical bonuses, but the taxpayers and the average individual donors to the Obama campaign would be a hell of a lot better off.
The unfortunate truth is that, once again, American voters did not get the change they voted for. Neither our capitalist economy nor our Democratic Party is meeting the urgent needs of the majority of our citizens.As Chomsky sees it:
...we basically are a kind of a one-party state. I think C. Wright Mills must have pointed this out fifty years ago. It’s a business party, but it has factions—Democrats and Republicans—and they’re different. They have somewhat different constituencies and different policies. And if you look over the years, the population has—the majority of the population has tended to make out better under Democrats than Republicans; the very wealthy have tended to make out better under Republicans than Democrats. So they’re business parties, but they’re somewhat different, and the differences can have an effect. However, fundamentally, they’re pretty much along the same lines.
According to Chomsky, it was Carter who began the financialization of the economy and deregulation, a process which was deepened by Reagan, continued by Clinton, and, with Bush, was taken to absurd extremes. So the Republican and Democratic Parties share the blame for the current disaster, with only shades of differences in their policies:
So there are differences, but differences within a pretty narrow spectrum. And anyone who’s a little off the spectrum, like Nobel laureates in economics who are a couple of millimeters off the spectrum, they’re basically on the outside. You can interview them, but they don’t show up at the economic summit.
It appears that, although Obama may have deigned to have dinner with Krugman and Stiglitz, he is married to the Geithners, Summers and Rubins, the big banksters, whose cohorts so generously donated the virtual pennies to Obama’s campaign which are now returning the really big bucks – in bail-out buckets.
We Must Remove the Deep Pockets From Politics.
The only real solution to the continual looting of the U.S. economy is to totally replace private money with public funding from our electoral campaigns. The deep pocket donors will murder,rape and pillage to prevent exclusive public funding. They might even go so far as to donate their bonuses to prevent it, but that is what we must fight to bring about. The investment theory of politics must be made obsolete.