Both Joe Biden and Sarah Palin were asked whether or not they were in favor of the AIG bailout today. Now as Ramesh noted, Biden’s decision to blame tax cuts for the wealthy for the AIG bailout is frankly idiotic. But also profoundly troubling is that nowhere in the statement does Biden evince any knowledge of what AIG does or why it was important to be bailed out — and his ignorance goes a long way toward explaining why he’s against a bailout that is pretty obviously necessary to prevent a potential worldwide financial crises. (Meanwhile, Obama issued a statement that makes it impossible to discern whether he’s for or against the bailout, and said statement even gets AIG’s name wrong.)
Now here’s Palin’s statement today on AIG:
“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.”
That is exactly right. It’s terrible that the bailout is occurring but Palin indicates that she understands why letting the world’s largest insurer go down would be a very bad shock to the financial system. AIG underwrites a massive amount of credit default swaps — which are very similar to insurance contracts for debt instruments. While I wouldn’t say AIG couldn’t have done anything to avoid their predicament, in some important respects, AIG’s financial burdens were not created through their own mismanagement so much as being left holding the bag on these contracts after the failings of its customers. Thus the AIG bailout is more about maintaining liquidity — refusing to bailout AIG would not be about addressing moral hazard in the way it would be if the Fed were dealing with an investment bank insolvency.
The bottom line is that Gov. Palin gets it, and veteran Senator Biden is embarrassingly clueless.