The South African Civil Society Information Service

Chomsky on the Obama/Geithner Rescue Plan

31 Mar 2009

There's been an outcry in America about the financial rescue plan unveiled by the Obama administration under the leadership of Treasury Secretary, Timothy Geithner. The Obama administration plans to buy up $2 trillion in toxic financial assets. The plan is being denounced by economists in the mainstream press, as well as commentators in the alternative media.

Pepe Escobar also provides excellent commentary of Geithner's PPPIP (Public-Private Partnership Investment Programme), which he refers to as hedge fund socialism. According to Escobar, if PPPIP fails, Obama sinks.

The Real News Network interviewed, world-renowned professor of linguistics at MIT, Noam Chomsky, to get his perspective on the Obama/Geithner rescue plan. Find a transcript of the interview below.

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PAUL JAY: Welcome to the Real News Network. We’re in Cambridge at MIT with Professor Noam Chomsky, whom I think needs no introduction. Thanks for joining us.

NOAM CHOMSKY: Glad to be with you.

PAUL JAY: So, a few days ago the Obama administration and Geithner, they announced their plan for the banks. What do you make of it?

NOAN CHOMSKY: Well there are several plans actually. One is recapitalisation. The other is … the more recent one is picking up the toxic assets with a private-public coalition and that sent the stock market zooming right away and you could see why. It’s extremely good for bankers and investors. It means that an investor can, if they want, purchase these valueless assets and if they happen to go up, he makes money if they go down, government assures it. So there might be a slight loss, but there could be a big gain and that's ... one financial manager put it in the Financial Times this morning: it’s a win-win situation.

PAUL JAY: Win-win situation if you're the investor...

NOAM CHOMSKY: Win-win situation for the investor; for the public, it’s a lose-lose situation. They’re simply recycling, pretty much the Bush-Paulson measures, changing them a little, but essentially the same idea.

Keep the institutional structure the same. Try to kind of patch things up; bribe the banks and investors to help out, but avoid the measures that might get to the heart of the problem and however at the cost ... if you consider the cost of changing the institutional structure...

PAUL JAY: What's the plan you would support?

NOAM CHOMSKY: I would say, for example, take the bonuses. The AIG bonuses that are causing such anger, rightfully. Dean Baker pointed out that there's an easy way to deal with it. Since the government pretty much owns AIG in anyway, it doesn't use its power to make decisions.

Split off the section of AIG, the financial investment section that caused all the problems ... split it off and let it go bankrupt and then the executives can seek to get their bonuses from a bankrupt firm if they like. 

So that would pretty much take care of the bankruptcy problem and the government would still maintain its large-scale effective control if it wants to exert it over what's viable in AIG. 

And with the banks - the big banks like Bank of America, one of the problems is nobody knows what's going on inside. There are very opaque devices and manipulations, which technically the government ... they're not going to tell you themselves, why should they? It’s not their business. 

In fact, when Associated Press sent journalists to interview bank managers, investment firm managers and ask them what they had done with the TARP money, they just laughed. They said it's none of your business. We're private enterprises. Your task, the public, is to fund us, but not to know what we're doing. 

But, the government could find out. They might essentially take over the banks.

PAUL JAY: Is all of this, sort of machinations of policy, because they want to avoid nationalisation?

NOAM CHOMSKY: You don’t have to use the word 'nationalisation' if it bothers people, but some from of, you know, receivership, which would at least allow independent investigators - government investigators to get into the books, find out what they’re doing, who owes what to whom, which is the basis for any form of modification. 

You could go on to something much beyond, but it's not contemplated. It’s not law of nature that corporations have to be dedicated solely to profit for their share holders. That's not even legislation. It’s mostly court decisions and management rules and so on -- and it’s perfectly conceivable for the corporations, if they exist, to be responsible to stakeholders, to the community, to the workforce...

PAUL JAY: Especially, when it's all public money, at this point, that's running the system.

NOAM CHOMSKY: Listen, the fact of the matter is that it's always public money. So take, say, the richest man in the world, Bill Gates - how did he become the richest man in the world? Well a lot of it is public money. In fact, places, like where we're sitting right now...

PAUL JAY: MIT...

NOAM CHOMSKY: That's where computers were developed, the Internet was developed, and the fancy software was developed. Either here or in similar places, almost entirely on public funding. 

The way the system works fundamentally - this is kind of an overstatement - but, fundamentally is that the public pays the costs and takes the risks and the profit is privatized. 

PAUL JAY: Which is what we are seeing now with the whole banking bailout?

NOAM CHOMSKY: There's a lot of talk about it now because it's the financial institutions and it's very visible, but it happens all the time. As I say, computers and the Internet, the basis for the IT revolution in the late 90’s...

PAUL JAY: So when you say challenging the institutional structure, what would you like to see happen?

NOAM CHOMSKY: For a start corporations, banks and so on, should be, I think, responsible to stakeholders. That's not a huge change. In fact, its even been brought to the courts. 

It was an important case - highly relevant now. About thirty years ago, when the major steel companies wanted to destroy the Youngstown steel plants. It was a major part of the steel industry, the community had been built up around it and so on, and they wanted to move it; get rid of it. The workers and the community wanted to keep it and felt they could run it privately.  In fact, they brought a case up through the courts, arguing that the management rules ought to be changed, so that stakeholders, rather than just shareholders should have control over the corporation.

Well, it lost in the courts naturally, but it’s a perfectly feasible idea. It would be a way to keep communities alive and industry here.

PAUL JAY: So if you looking at the financial system now and you take this principle of representing the interests of all stakeholders and not just shareholders, what would that look like in terms of policy?

NOAM CHOMSKY: To begin with it would mean that the government would just not bail out the banks and pour capital into them, but would exercise control - and control begins with inspection. So we find out what they're doing and then you keep the viable parts and if they're viable, they might just as well be under public control. 

The government could have probably bought AIG or Citigroup for far less than what they're paying them now. In a democratic society, the government would mean the public and then there should be direct public engagement with what these institutions ought to do and how they ought to distribute their money, what the terms ought to be and so on.

I mean they could be democratically run by the work force, by the community...

PAUL JAY: But, whether you use the word or not, it requires a kind of nationalization. Does a bank then become a publicly owned institution?

NOAM CHOMSKY: They become publicly owned institutions, which serve the public and where decisions are made by the public. That's a long way off. You have to approach that in steps.

When we think of nationalisation; the doctrinal system, with historical reasons, associates nationalisation with some big brother taking over and the public follows order. But that's not necessarily the way it’s done. There are many national institutions that are run quite efficiently.

In fact, take, say Chile, which is supposed to be the poster child for Thatcherite-Reaganite free market economics.  A large part of the economy is based on a nationalised very efficient copper producer, Codelco, which was nationalised by the Andes, but was so effective that during the Pinochet years, it was never dismantled. It's being sort of chipped away at now, but it's still the biggest copper producer in the world, it provides most of the government's income and elsewhere too, there are highly successful nationalised firms, but nationalisation is only one step towards democratisation. The question is, who manages them? Who makes the decisions? Who controls them?

Now in the case of nationalised institutions, it's still top-down. But, it doesn't have to be. Again, it's not a law of nature that institutions can't be democratically run.

PAUL JAY: What would it look like?

NOAM CHOMSKY: What would they look like? The participation by workers councils, by community organizations -- meetings, discussions in which policies are made. That's how a democracy is supposed to work. We're very far from that. 

Even in the political system - take say, primaries. The way our system works, candidates running for office, his campaign managers, go to some town in New Hampshire and they set up a meeting and the candidate comes in and says "Here's what a nice guy I am, vote for me." People either believe him or not and go home.

Suppose we had a democratic system that worked the other way around. The people in the town of New Hampshire would get together at conferences, meetings, public organizations and so on and they would work out the policies that they would like to see and then if somebody is running for office, he could come if they want. They could invite him and he would listen to them. They would say: "look here's the policies we want you to implement, if you can do this, we'll allow you to represent us, but we'll recall you if you're not doing it.”

PAUL JAY: But as you say, this is far off in terms of today's politics.

NOAM CHOMSKY: It's not that far off, it happens - 

PAUL JAY: But, I mean at the national level.

NOAM CHOMSKY: At the national level, its far off, but let’s take what's probably the most democratic country in the Western hemisphere, although people don't like to think of it that way, Bolivia. Poorest country in the hemisphere ... poorest in South America.

It’s had elections in the last couple of years in which the large majority of the population, who happen to be the most repressed people in the hemisphere, the indigenous population, have for the first time in 500 years, entered the political arena, determined the policies they want and elected a leader from their own ranks - a poor peasant.

And the issues are very serious. They're control over resources, economic justice, cultural rights, the complexities of a highly very divers, multi-ethnic society. But, the policies are pretty much coming out of the public themselves and the president is supposed to implement them.

Now, nothing works that perfectly, there are all sorts of problems, but that's kind of the basic theme. Okay, that's functioning democracy. That's almost the opposite of where our system is.

PAUL JAY: Well in the next segment of our interview, lets talk about the future of democracy or what we might call it in the United States. Please join us for the next segment of our interview with Professor Noam Chomsky.

To watch part two of this interview where Chomsky says that the only way forward is 'unionisation', please click here.

To watch part three of this interview where Chomsky talks about the economy and democracy, please click here.

To watch part four of this interview where Chomsky continues his discussion of the economy and democracy, please click here.

Editors Note: Part one of this interview was transcribed by SACSIS. For the most part, it is transcribed verbatim.

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