[Caption & credits for above photo: Senate Majority Leader Harry Reid of Nev., center, flanked by Senate Majority Whip Richard Durbin of Ill., left, and Sen. Charles Schumer, D-N.Y., calls for swift passage of the Export/Import Bank Reauthorization Act. (AP Photo/J. Scott Applewhite)]
The Export-Import Bank died last night when its charter expired. After 81 years, what is commonly known as Boeing’s Bank is headed toward Washington’s trash bin.
When Congress returns it could revive Ex-Im, which primarily subsidizes big business exports. But a proper burial for what Barack Obama once called “corporate welfare” would save Americans money, reduce economic injustice, and promote economic growth.
The Bank was established in 1934 to promote trade with the Soviet Union, ExIm now is one of a score of federal agencies tasked with encouraging exports. The agency exists to borrow at government rates to provide credit at less than market rates for select exporters, mostly corporate behemoths.
ExIm claims to be friendly to small business, but cherchez the money: it goes to Big Business. According to Veronique de Rugy of the Mercatus Center, between 2007 and 2013 the Bank subsidized $66.7 billion in sales by Boeing. ExIm also underwrote $8.3 billion for General Electric, $5.2 billion for Bechtel, $4.9 billion for Caterpillar and its subsidiary Solar Turbine, $3.2 billion for CBI Americas, $3.0 for Exxon Mobil, $2.1 billion for Applied Materials, $2.0 billion for Westinghouse, and $1.4 billion for Noble Drilling. During that period Boeing enjoyed 35 percent, GE 4.4 percent, and Bechtel 2.7 percent of the Bank’s largesse.
In 2012, noted Timothy Carney of the Washington Examiner, the aircraft maker accounted for 83 percent of all loan guarantees. The following year just five firms collected 93 percent of the loan guarantees. Also in 2013 the top ten ExIm beneficiaries accounted for two-thirds of the Bank’s total activities: Boeing, General Electric, Bechtel, Applied Materials, Caterpillar, Space Systems/Loral, Komatsu America, Case New Holland, Ford, and Sikorsky Aircraft. Other frequent beneficiaries include Dow Chemical, John Deere, and Lockheed Martin.
Giants of the financial world, such as Citibank and JP Morgan Chase, also do well by the Bank. Loren Thompson of the Lexington Institute thought he was arguing in favor of ExIm when he observed: “Private lenders often don’t like the risk profile of countries seeking export assistance” and “want the kind of protections available to lenders who finance the exports of other countries.” Of course they do. But the U.S. government’s role is not to protect profit-making private firms from risks at home or abroad.
The Bank denies providing subsidies since it charges fees and interest and claims to make a “profit”—more than $1.6 billion since 2008. But if ExIm operated like a normal commercial bank there would be no need for it. Anyway, economists Jason Delisle and Christopher Papagianis explained that the Bank’s “profits are almost surely an accounting illusion” because “the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im Bank.” Most important, there is no calculation for market risk. Including that would provide “a more comprehensive measure of federal costs” concluded the Congressional Budget Office.
Alas, politicians understandably hate accurate assessments of costs. Delisle and Papagianis estimate counting everything would make ExIm’s actual expense more than $200 million a year. CBO comes to a similar conclusion, figuring real losses over the coming decade likely to exceed $2 billion. However, this might be on the low side. Federal Reserve economist John H. Boyd also looked at the “opportunity cost, a payment to taxpayers for investing their funds in this agency rather than somewhere else.” He estimated that the Bank’s real cost averaged around $200 million annually in the late 1970s and rose to between $521 million and $653 million by 1980.
If the financial markets get ugly again—witness the ongoing global shock waves from le affaire Greece—taxpayers could get hit with a big default bill. Total outstanding credit is $110 billion, yet the agency’s own inspector general warned that Bank practices create the risk of “severe portfolio losses.”
The agency is supposed to create jobs by throwing cheap money at purchasers of American products. However, if business subsidies are the way to prosperity, why stop with exporters? More business handouts generally would mean more deals and jobs. Underwriting domestic producers would have the added advantage of keeping all the economic benefits at home. The higher the subsidy, the more jobs would be created. If government paid the entire bill, the benefits should be infinite.
First, the Bank backs only about two percent of U.S. exports. That’s not enough to redress the trade deficit, which Thompson cited as an argument for ExIm. The Bank simply doesn’t matter much in an $18 trillion economy.
Moreover, there is plenty of private money available for trade deals. A Goldman Sachs analysis last year predicted that the impact of a Bank closure “would be fairly limited given the robust financing environment at present.” Even Boeing CFO Kostya Zolotusky went off-message two years ago when he indicated his confidence that buyers would find “alternative funding sources” if the Bank closed. No doubt foreign buyers prefer that Uncle Sam bankroll American companies, but the U.S. was a major exporter before the Bank was created and will remain so long after the Bank is gone.
Indeed, subsidies do not correlate with exports. Overall commercial flows largely reflect macroeconomic factors and international competitiveness. My Cato Institute colleague Sallie James found that since 2000 “Germany and the United States, historically two of the smallest users of export credit programs, had the highest export growth in absolute terms out of the rich countries.” Reforming capital gains and corporate tax rates, and rationalizing regulation would do more to aid exporters. So would dropping economic sanctions which Washington uses so prolifically but often ineffectively against a host of nations.
Second, no one knows which deals are sealed only with ExIm funding. A host of factors affect any purchase decision, starting with price and quality. One study of aircraft sales, heavily subsidized by what has been called “Boeing’s Bank,” rated financing as only eighth out of twelve factors. Often purchasers would have bought anyway, but everyone in the process has an incentive to claim that ExIm assistance was vital.
Submitted by Tyler Durden
Full report at Zero Hedge
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