RI needs to back its word on 38 studios debt

curt-schillingEver since 38 Studios went bankrupt some folks in the state have suggested that a “Moral” Obligation bond means you don’t REALLY have to pay the creditors, unlike a General Obligation bond. Nonsense. Both mean that the state will stand behind its word. If RI does’t, why would anyone ever believe what the state says or guarantees again? If a moral obligation is meaningless, why did we make it?

RI should cover the 38 Studio bonds because:

  1. It is an obligation. It doesn’t make any difference whether it’s a General or Moral Obligation guarantee, they are both given by the state to show it stands behind the lenders. It doesn’t make any difference what the amount is, it’s still an obligation.
  2. Defaulting on the bonds would negatively impact RI’s credit rating. This is a no-brainer. Would it improve RI’s credit rating? Of course not. This is all common-sense.  (Yes, negligible consequences are possible, but they are not likely. Especially see former URI Business School Dean Mazze’s comments.) (Note: I am on the URI faculty. I don’t always agree with Dean Mazze.)
  3. Because of RI and American values. We stand behind what we promise. If we stop doing that then there is no reason to believe anything the state of RI says (through the legislature), it can’t be trusted.

Counter-arguments, and why they’re wrong:

  • “Moral” in finance does not mean the usual “moral.” All of the definitions I have seen indicate that the meaning is the same whether in finance or common speech. The implication is that as long as it is feasible to pay off the bonds, one must.
  • It costs too much. RI is not on its last legs. We have faced worse financial situations before; remember the savings and loan crisis. RI paid over a billion dollars to depositors. If it became annoying to pay off your mortgage, would you just stop making the payments?
  • Insurance will cover it. This is like burning your house down to collect the covered amount. C’mon, people!
  • It’s a payoff to Wall Street. Unfortunately, some RIers have brought unrelated politics into this. This has nothing to do with supporting Wall Street or supporting the 99%.

(Before the name-calling begins, let me note: I am no fan of Wall St. I’m on the Executive Board of Rhode Island Progressive Democrats of America. I did not support the forcing of pension revisions on the unions by Treasurer Raimondo. And so on.)

I believe that Reps. MacBeth and Lima are wrong to introduce bills to keep RI from paying its debts. Just the  act of doing so tarnishes our reputation. (Note: I ran unsuccessfully against Rep. MacBeth in 2012. We disagree on a lot of things.)

Much of the discussion in the press on 38 Studios has gotten into dollars-and-cents cost-benefit analysis. We are all about so much more than just $$$. We can afford this. Let’s just grin-and-bear it, start paying off our 38 Studios debt, and get back to business, like creating jobs.



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Member of the engineering faculty at the University of Rhode Island. Former candidate for RI state representative of Cumberland. The opinions expressed here are his own. He writes a semi-sporadic commentary series called "Uhtime", usually on RI politics, often written in the wee hours of the morn, which is where the name comes in: "uhtime" is the period just before dawn. Yes, it is a real word.

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