October 2, 2014 – In September the House passed a stop-gap spending bill to avert an October government-shutdown. The bill also contained an agreement to arm “moderate” Syrian rebels, and a provision to extend the Export-Import Bank (Ex-Im) through June of 2015. Here, we will focus on the Ex-Im.
What is the Ex-Im? The Ex-Im was instituted in 1934 on executive order by FDR. It’s an independent agency of the executive branch, and chartered as a U.S. government corporation. Ex-Im’s purpose is to provide loans to foreign customers of U.S. goods. The “goal” is to make U.S. goods cheaper, thus boosting exports while creating and sustaining jobs in the U.S. Ex-Im is not designed to compete with private lenders. Rather, in short, it’s designed to provide risky loans at below-market rates to risky borrowers. In other words, Ex-Im provides loans that would otherwise not be loaned on the free market.
So what’s the problem? Ex-Im distorts markets, is inflationary, is rife with moral hazard, is destructive of foreign economies, and is the embodiment of crony capitalism. Also, if the risky borrowers can’t pay back the loan, the bill is left with the American taxpayer. In other words, profits are privatized by U.S. companies, and losses are socialized, to be paid for by the taxpayers. And remember the deeper economic lesson: everything that government gives away must be taken away from more productive uses.
Has the American taxpayer had to bail out Ex-Im before? In 1987 Ex-Im sought a $3 billion taxpayer bailout. Importantly, Ex-Im’s capitalization has more than doubled since the 1990’s. It now has a $140 billion statutory cap. There have been calls in the House to raise the cap $5 billion annually through 2021. This would expose taxpayers to $175 billion in potential losses.
Who benefits most from Ex-Im? Ex-Im most benefits large corporations. This is what is meant by “corporate welfare.” According to George Mason University’s Marcatus Center, 76% of Ex-im’s loans benefit some of the U.S.’s largest corporations such as Boeing and General Electric. Furthermore, the head of Ex-im, Fred Hochberg, has said the corporate giants who benefit from Ex-Im can “arrange their own financing without the banks help.” Also, amid speculation and of fraud and corruption at Ex-Im, Hochberg has overseen the redacting of documents and rebuffed interview requests of Ex-Im staff sought by the U.S. House Financial Services Committee.
Who else benefits from Ex-Im? The politicians whom corporations lobby to preserve the Ex-Im. It’s called “pay-to-profit.” For example, InTheCapital.com reveals that Boeing spent $4.18 million in the 2nd quarter of 2014 alone, lobbying for the Bank’s reauthorization bill. OpenSecrets.org reveals that in 2013 Boeing lobbied $15.2 million and received $8.3 billion. Nice return. That’s a lot of bang-for-the-buck.
What about Ex-Im’s effect on borrowers? Take for example Ethipoia, where 78% of the population live on an income of less than $2 per day. Mercatus Center economist Veronique de Rugy focuses on Ex-Im’s loans to Ethiopian Airlines, which is owned by the Ethiopian government. Writes de Rugy: “And how does Ex-Im encourage Ethiopia to spend its meager public funds? Perhaps on education improvements, health services, or critical infrastructure? Don’t be silly. They sell them Boeing planes, of course! Bad credit, no credit? No problem!.. Ethiopia has borrowed nearly $2.3 billion to buy U.S. products… That’s an awful lot of money that the Ex-Im Bank felt comfortable encouraging the Ethiopian government to spend, given its modest budget and the many needs of Ethiopian citizens.” Also, de Rugy notes, these are planes most Ethiopians will never be able to afford to fly on.
What prominent politicians support Ex-Im? Well, the extension passed, so supporters come from both sides of the aisle. Most notable is President Barack Obama (who railed against Ex-Im while campaigning):
Others include“populist” Sen. Elizabeth Warren; and House Speaker John Boehner. But, as former Democratic Congressman Barney Frank asserts, Democrats have especially fallen in line in support of Ex-Im so as to corral Corporate America for their own uses.
So, one more time, what is the Export-Import Bank? The Ex-Im is the destructive, unsustainable embodiment of crony-capitalism. Which is why it should be defunded and eliminated.
Did your representative vote to extend Ex-Im? Will your representative vote to extend Ex-Im next summer, 2015? If they say they plan to, what are you going to do about it?