September 18, 2008

Construction Bonds Revisited

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CONSTRUCTION BONDS REVISITED….This is not exactly a critical issue, but over at Washington Wire Easha Anand takes a stab at defending Sarah Palin’s contention that the AIG bailout was necessary because of its involvement with “construction bonds,” concluding that “Palin’s answer wasn’t as outrageous as some have claimed.”

You can read the entire post for yourself, but once you cut through the clutter there’s not much there. Like me, Anand believes that Palin was referring to surety bonds on construction projects, but it turns out that (a) only government projects require surety bonds, (b) AIG is the 14th largest provider of surety bonds in the U.S., amounting to a paltry $79 million out of an industry total of $5.3 billion, (c) there are about ten other companies that can underwrite even the biggest surety bonds, and (d) surety bonds are written by AIG’s regulated commercial subsidiaries, which were in no danger of default and are guaranteed by state funds anyway. In other words, surety bonds played no part whatsoever in the decision to bail out AIG. Palin just pulled them out of nowhere because she happened to be familiar with them from her tenure as mayor and governor.

Basically, I figure that presidential candidates can toss out three kinds of comments during a crisis like this:

  1. Intelligent comments that actually address the issue at hand (which you may or may not agree with, of course).

  2. Random bromides designed to fill up airtime.

  3. Stupid things.

Comments in category 1 are rare, especially in a crisis like this one that has extremely arcane and technical causes. However, Obama’s remarks today about the subprime meltdown, maintaining the flow of credit, ensuring liquidity in capital markets, and helping homeowners in trouble, qualifies. He’s at least talking about the right things. John McCain’s comments about the “casino culture” on Wall Street fall into category 2, as does Joe Biden’s complaint about tax cuts for the wealthy. Both are basically harmless political posturing.

But then we have category three, which includes stuff like McCain saying he wants to fire Chris Cox and Sarah Palin claiming that AIG needed to be bailed out because of “construction bonds.” These are just actively dumb comments that do nothing but make life more difficult for the folks trying to work on solutions. If they can’t do better than that, they should just keep quiet.

UPDATE: Of course, I guess there’s also a category 4: bromides so halting and clueless that they just scare the hell out of everyone. As Ezra says about Palin’s disjointed reaction, “Meanwhile, McCain’s response made Palin’s commentary look like a model of analytical clarity.” Scary stuff.

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