Thursday, September 18, 2008

Sarah Palin blames collapse of AIG "with the construction bonds that they’re holding"

I originally saw this story via the Washington Monthly, and I found it interesting that Republican vice presidential candidate Sarah Palin would blame the federal bailout of American International Group on AIG's holding of construction bonds. The source story is from CBS News:

CLEVELAND, Ohio) During a quick stop at a diner in Cleveland, Ohio, Sarah Palin was asked for her reaction to the AIG bailout.

“Dissapointed that taxpayers are called upon to bailout another one,” she said. “Certainly AIG though with the construction bonds that they’re holding and with the insurance that they are holding very, very impactful to Americans so you know the shot that has been called by the Feds its understandable but very, very disappointing that taxpayers are called upon for another one.”

Construction bonds? I thought that the AIG bailout was due to the over-leveraging of mortgage-backed securities and other debt obligations.

According to USLegal Definitions website:

A bond is an obligation, expressed in writing, to pay a fixed and liquidated sum on the happening or nonoccurence of a specified condition or event. The term "bond" is conditioned on the performance of duties, or other obligations undertaken by the principal obligor in the bond or collateral things to be done by the principal obligor; and indemnity and fidelity bonds or undertakings to indemnify the obligee against loss from conduct of the principal.

Construction bonds usually involve a type ofbond called a surety bond. A surety bond is not an insurance policy. A surety bond is a guarantee, in which the surety guarantees that the contractor, called the “principal” in the bond, will perform the “obligation” stated in the bond. For example, the “obligation” stated in a bid bond is that the principal will honor its bid; the “obligation” in a performance bond is that the principal will complete the project; and the “obligation” in a payment bond is that the principal will properly pay subcontractors and suppliers. Bonds frequently state, as a “condition,” that if the principal fully performs the stated obligation, then the bond is void; otherwise the bond remains in full force and effect.

If the principal fails to perform the obligation stated in the bond, both the principal and the surety are liable on the bond, and their liability is “joint and several.” That is, either the principal or surety or both may be sued on the bond, and the entire liability may be collected from either the principal or the surety. The amount in which a bond is issued is the “penal sum,” or the “penalty amount,” of the bond. Except in a very limited set of circumstances, the penal sum or penalty amount is the upward limit of liability on the bond.

So a construction bond is basically an agreement that a contractor will perform some project, otherwise the contractor will be liable for failing to complete the project, and can be penalized for it. I can see construction bonds being issued to contractors for building government projects, like a hockey rink in Wasilla. But construction bonds have nothing to do with the demise of AIG--Sarah Palin got a little confused between construction bonds and subprime mortgage bonds that AIG was involved with.

And it wasn't just a single Sarah Palin "construction bond" gaffe. She said the same thing during an interview with Fox News Sean Hannity:

The problem with Wall Street executives, Palin says on the program airing at 9 pm EDT, is that they became "addicted to, we call it, OPM, O-P-M, 'Other People's Money.'''

As painful as the government bailout of AIG is, she maintains, "It's just too impacting, we had to step in there. I do not like the idea though of taxpayers being used to bailout these corporations. Today it was AIG, important call there, though, because of the construction bonds and the insurance carrier duties of AIG."


On the AIG bailout: "Well, you know, first, Fannie and Freddie, different because quasi-government agencies there where government had to step in because of the adverse impacts all across our nation, especially with homeowners."

"It's just too impacting, we had to step in there,'' Palin tells Hannity. "I do not like the idea though of taxpayers being used to bailout these corporations. Today it was AIG, important call there, though, because of the construction bonds and the insurance carrier duties of AIG....But first and foremost, taxpayers cannot be looked to as the bailout, as the solution to the problems on Wall Street."

Steve Benen at The Washington Monthly notes:

Putting this in the broader context, in just the last two weeks, we've seen Sarah Palin get confused about foreign policy, housing policy, entitlements, and now, economic policy. Dan Drezner, a conservative who doesn't understand Palin's appeal, added, "Her best skill displayed to date was delivering a speech off a teleprompter (not insignificant in politics, mind you) and she's apparently exaggerating that skill as well."

It occurs to me that first-time candidates for national office often struggle to get over the learning curve. Governors and senators will visit a coffee shop in Iowa City eight months before the caucuses, get confused about a policy detail, but improve as the campaign rolls on. They take their time, go through extensive briefings, and learn to get good. By the time the conventions are done, these candidates are supposed to be on the top of their game.

Sarah Palin was never ready for the national scene, she was simply chosen by the McCain campaign as a pro-life, hard-lined conservative, women candidate in which the McCain campaign had hoped to attract the Hillary voters to their camp. The McCain campaign never bothered to properly vet Sarah Palin, resulting in the Troopergate scandal, Sarah Palin's extremist conservative views, Palin's extreme penchant for secrecy, Palin's use of private email accounts to conduct state business, and finally Palin's pettiness in firing employees who cross her, or refuse to comply to Palin's unethical demands. John McCain took a third-rate candidate and stuck her in a first-rate office--with warts and all. And we're seeing just how unqualified Sarah Palin is for the vice president's office. It is no wonder that the McCain campaign is continually shielding Palin from the national press:

Though she has been on the campaign trail for nearly three weeks, Palin has yet to hold a press conference, and this morning’s stop marked the first time she answered a question from the press on the fly, prompting concerned looks from staffers.

It is like the McCain staffers know that Palin is unqualified in talking to reporters on the complex national issues--Palin's blaming AIG's collapse on construction bonds is just another example. And with 48 days left in the election, there is no way she can overcome the learning curve.

Sarah Palin is not qualified for the vice president's office. And John McCain is certainly not qualified for the presidency, not when he has selected such an unqualified running mate.

1 comment:

mary for monthlynotesstaff said...

Do not be so quick to call Palin unqualified. AIG, Inc. is American International Group, Inc. AIG recently sold off $4.4 billion of debt at its aircraft leasing co., International Lease Finance Corp., to pay back $4 billion on its $19 billion loan balance at the Federal Reserve Bank of NY.
AIG is a big company with lots of different kinds of businesses. Palin may know something about one of AIG's subsidiary businesses which you are do not.