John McCain is sounding pretty confused about the Wall Street turmoil. He comes very close to claiming that a bankruptcy for AIG would actually be a good thing --
"There are great efforts being made to try to raise sufficient capital to keep AIG in business," McCain said in an interview with CNBC. Taxpayers shouldn't be held responsible for the bad performance of U.S. institutions and "the moral-hazard issue is something that we have to take head-on," he said.
One possibility is that the Federal Reserve could be lending a lot of money to the other banks that might end up lending a lot of money to AIG. Is that taxpayer funding? It's definitely taxpayers exposed to risk and lending at interest rates so low that the private banks couldn't get such rates anywhere else. As the Fed is already doing under all the lending facilities that were added over the last year. So does McCain oppose those too?
McCain also doesn't understand that moral hazard isn't just something caused by governments. It's also caused by limited liability. There's only so much you can recover from a dude who has cost you a billion dollars. Maybe McCain wants to bring back debtor's prison.
UPDATE 17 SEPTEMBER: McCain is forced into a reversal of his incoherent position --
On Wednesday, McCain repeated that he didn't want to bail out AIG and knew of no one else who did. But, he told "Good Morning America" on ABC, millions of people with retirements, investments and insurance tied to AIG were "going to have their lives destroyed because of the greed and excess and corruption."
Elaborating on the charge of corruption, McCain said that many Wall Street executives had claimed "everything's fine, not to worry" and that Congress and regulators had paid no attention. "All of them were asleep at the switch," he said, and went on to blame special interests and lobbyists as well.
Asked for specific examples of corruption regarding AIG, senior McCain campaign adviser Steve Schmidt offered none.