Export-Import Bank

Bipartisan Corporate Welfare

It's time for the Export-Import Bank to go.

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On June 7, the Senate Banking Committee voted to back Fred Hochberg's second term as president of the U.S. Export-Import Bank without bothering to ask the Obama administration about the future of that expensive, inefficient New Deal–era agency. The vote, in which 28 Republicans joined 54 Democrats in supporting Hochberg, was not a good sign for anyone hoping that the GOP's latest promises of fiscal restraint would prove more trustworthy than all the broken promises before. 

The bank, also known as "Ex-Im," provides taxpayer-backed loans, loan guarantees, and insurance to foreign companies, such as Air China, to buy products from some of the richest U.S. exporters, such as Boeing. It is a textbook example of Washington's bipartisan corporate welfare. Yet only two Republicans, Sens. Tom Coburn (R-Okla.) and Pat Toomey (R-Pa.), voted against Hochberg. In an online statement Toomey explained his reasons for withholding support. "I opposed his nomination due to serious concerns that the Ex-Im Bank is using taxpayer-backed loan guarantees to help some companies at the expense of other U.S. companies," he said. "The way to help U.S. exports is to reduce the tax and regulatory burden on businesses, not to pick winners and losers." 

This was not the first time, of course, that Republicans have failed such a test. Last year they voted to reauthorize the Ex-Im charter through 2015 and increase the bank's portfolio (and taxpayers' exposure) to $140 billion from its current limit of $100 billion. 

That increase followed a four-year expansion of the bank's annual lending, from $12.6 billion in 2007 to $32.7 billion in 2011. In 2012 Ex-Im provided an unprecedented $35.8 billion in total authorizations—up more than 9 percent from the year before. The number of Ex-Im clients has jumped from 23 in 2008 to 59 in 2012, while the number of companies whose products were purchased with bank-backed funds grew from 647 in 2007 to 789 in 2011. 

What are we getting for all this money and risk? A more level playing field for U.S. exporters who often find themselves operating in hostile political or legal environments, bank advocates claim. Free marketeers might reply that it's not the federal government's role to help private companies make money in unstable markets. 

But far more important is the fact that all those Ex-Im Bank subsidies are a drop in the vast ocean of global trade. According to Census Bureau data, U.S. exports supported by the Ex-Im Bank represent less than 3 percent of total exports. In comparison to the whopping $2.2 trillion in U.S. goods and services exported last year, estimated exports backed by the Ex-Im bank amounted to a relatively skimpy $50 billion.

So the Ex-Im Bank manages to be both pointless and ineffective. Even young Sen. Barack Obama denounced the program in 2008 as "little more than a fund for corporate welfare."

The theory underlying export subsidies is what Reagan budget director David Stockman described in his 1986 book The Triumph of Politics as "a mercantilist illusion, based on the ideological position that a nation can raise its employment and GDP by giving away its goods for less than what it costs to make them." The truth, Stockman explains, is that "export subsidies subtract from GDP and jobs, not expand them."

The idea that export subsidies will create jobs and increase GDP is yet another example of the single-entry bookkeeping mentality that has larded the federal budget with so many subsidies and payments to special interests. The idea here is that if the government helps a foreign company get access to a loan in exchange for buying an American product then the U.S. company will make profits and create jobs. This account fails to take into consideration the opportunity cost. What might the return on those dollars have been if they were put to work somewhere else in the economy or even left in the pockets of taxpayers?

Back in 1981, when he was fighting to get rid of the Ex-Im Bank, Stockman documented that it bestowed about two-thirds of its subsidies on a handful of giant, profitable manufacturers: Boeing, General Electric, Westinghouse, and the like. Little has changed since then, and what has changed has mostly been for the worse. 

Ex-Im's own data show that bank activity is highly concentrated in a few industries—primarily aviation, gas and oil exploration, and manufacturing. The aircraft industry alone benefited from $11.5 billion worth of loan guarantees in 2012. 

Boeing was the recipient of almost 50 Ex-Im Bank deals worth $12.2 billion (including insurance, loans, and guarantees). This one company, with its army of lobbyists, brought in roughly 80 percent of Ex-Im's loan guarantees. 

Ex-Im's defenders argue that it is profitable and that its default rates are extremely low. But the profits and low default rates are only a product of the way the bank measures its own performance. 

A May 2013 Government Accountability Office (GAO) report explains that Ex-Im doesn't actually count up its own defaults. Instead, the bank currently uses economy-wide historical default and recovery rates to calculate program costs, which may not be accurate in predicting default rates in the future, the GAO warns.

And the bank's alleged profit is almost surely an accounting illusion. "The government's official accounting rules effectively force budget analysts to understate the cost of loan programs…by excluding, or not factoring in the cost for market risk," Jason Delisle and Christopher Papagianis wrote in March 2012 at the economics and public policy research blog, e21. 

The underestimation of market risk can be attributed to rules like the Federal Credit Reform Act of 1990, which require budget estimates to discount expected loan performance using interest rates on risk-free U.S. Treasury debt rather than rates that match the actual riskiness of the loan itself. Citing a November 2011 study by MIT finance professor Debbie Lucas, Delisle and Papagianis note that the bank's lending activities, when measured by the private sector's fair market accounting, cost taxpayers $200 million in 2012. 

The continued existence of the Ex-Im Bank does not bode well for American capitalism. A few select companies benefit from this unhealthy marriage between private industry and government, but most don't. When China Air gets a loan guarantee so it can buy Boeing planes at what is effectively a discounted rate (due to the advantageous borrowing conditions), Delta Airlines, which doesn't get the same deal, suffers from unfair competition. The free market is needlessly and gratuitously distorted.

Such special favors create bad incentives, moral hazards, and inefficient outcomes. Last September, the bank's inspector general issued what should have been an eye-opening report about the institution's poor management, lack of systematic portfolio risk measurement, and perilous overconcentration on the airline industry. The report recommended that the bank put itself through a stress test to weigh its exposure to risks and other market shocks, limit its loan concentration, and be subjected to more oversight by Congress to avoid exposing taxpayers to future bailouts. Returning president Hochberg has rejected these suggestions, illustrating his disregard for U.S. taxpayers. 

More than a century ago, the French economist and polemicist Frederic Bastiat noted that many economic fallacies persist because the beneficiaries of government actions are easily visible while the victims are harder to identify. The Ex-Im Bank is a classic example. All the subventions to the organized clients of Republican and Democratic lawmakers may be satisfying for those receiving them, but they represent an unfair benefit to a few winners at the expense of the rest of us. 

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40 responses to “Bipartisan Corporate Welfare

  1. THERE IS NOTHING LEFT TO CUT.

    1. ERMAHGERS< SERKWERSTER!!!11!

  2. You are right that the bank needs to go. But I am not seeing how the fact that 28 Republicans let the President have his choice on who to run the thing says much about their commitment to eliminating corporate welfare. Should they have filibustered the nominee? Would that have made any difference? And the future of the bank is up to Congress and whether they want to fund it, not Obama. So I am not seeing how asking Obama about the future of it makes any sense.

    There are plenty of good reasons to kill the bank. And there is plenty evidence that many Republicans love their corporate welfare too. But the two issues really don’t come together here.

    1. It’s kind of amazing how often people forget that CONGRESS could, really, have the final say in many of these issues that many assume is just the president being a [insert criticism here].

      Congress could do something about corporate welfare. It chooses not to.

      Congress could do something about NSA abuses. It (so far) chooses not to.

      Congress could do something about [insert favorite issue where this President — or any other — has supposedly abused his power]. It largely chooses not to.

      1. I’d say something about the American People#&174; not doing what they could do (vote the bastards out), but…COLLECTIVISM, and I’m not going to vote in any more national elections so…

        I guess it’s true, but fuck it. I’m abandoning active support of the system (in the form of voting, since I’m not any more).

        1. You’re still supporting the system, you’re just abandoning one of the few options you have to influence it.

          1. Not voting DOES influence it. So long as you’re willing to vote for the right candidate, you increase the potential that such a candidate will arise. The only way you stop influencing things is when you become a partisan hack like shrike. Then no politician will care about your vote.

      2. It is the celebrity culture. People focus on the President because it is one guy. It is like the budget. People always associate the budget deficit with the President. The reality is the budget is the Congress. Congress never pays any attention to the budget the President requests good or bad. The budget deficit rises or falls depending on who controls Congress not the White House.

        1. The budget debates in Congress these past few years have been some of the most irritating things to me.

          Congress passes a budget which REQUIRES deficit spending and additional debt burden.

          Six months later it pretends to refuse to raise the debt limit because of the President’s out-of-control spending?

          It makes no f—ing sense. If you don’t want to raise the debt limit, don’t pass the f—ing budget that requires a higher debt limit. It’s smacks of rank idiocy and hypocrisy.

          1. You’re kind of right but you’re kind of really wrong as well.

            As we can see, attempting any kind of cut in the budget gets an immediate emotive response from the LIVs and their media enablers. “Grandma off the cliff” and whatnot.

            Moreover, the President refuses to propose anything close to a reasonable budget, breaking with a lot of tradition in the process. Why? Because he doesn’t want to have his name associated with anything he has to take responsibility for. If spending is too high in his budget, he’ll take heat from the Right and the public. If spending is cut at all, his own party and the media will howl.

          2. The real bullshit? The House GOP’s budget contains the Obamacare Medicare subsidy cuts that measure in the hundreds of billions – all the while voting to overturn said Act.

            1. Fuck off sockpuppet.

            2. Then a good libertarian like yourself should be loving you some GOP, since they’re trying to give you the same medicare cuts without requiring an individual mandate.

    2. This was not the first time, of course, that Republicans have failed such a test. Last year they voted to reauthorize the Ex-Im charter through 2015 and increase the bank’s portfolio (and taxpayers’ exposure) to $140 billion from its current limit of $100 billion.

      RTANT

      1. But I keep reading in the Obamacre article how trying to defund things is just being a child. Which is it? The Republicans don’t control t he Senate or the White House. No way would Reid agree to kill a pork pot like the bank.

        So if the Republicans did kill it in the House, that would go nowhere in the Senate and be vetoed even if it did. Are the Republicans supposed to shut down the Government over this? They are not supposed to over Obamacare. It would seem odd that they should over this. And if not, then what are they supposed to do?

        1. *sigh* OK, John, whatever you say.

          1. sigh

            Maybe you might consider that not every issue is bipartisan or even partisan at all. Not everything is team. Maybe the bank is just a bad idea and that is all that needs to be said.

            But don’t do that. That would require thought and you would lose your pox on both houses team orange street creed. They might kick you out of the douche bag club.

            1. You manage to make up a lot of stuff from one sentence.

        2. But I keep reading in the Obamacre article how trying to defund things is just being a child.

          It’s worse than that. On the radio this morning I heard someone say that Republicans are banging their spoons on their high chairs. As it becomes ever more clear that the spending party is coming to an end, progs will start accusing their opponents of being zygotes.

  3. Privatize it while interest rates are low. This “bank” is a cash cow. It has never lost money on a loan.

    1. Just like pre-2006 Fannie and Freddie.

    2. Eliminate it and see if the free market finds a need to recreate it.

      It’s not about whether it makes money. It’s about the government playing favorites in the economy.

      1. Kind of like the reverse of the IRS.

        Sometimes payback’s a bitch, sometimes it’s a billion.

  4. This bank is merely a minor symptom of the disease of corporate welfare that is eating away at our government. The company you claim is being harmed by Ex-Im subsidies, Delta, has been sucking at the teat of corporate welfare for over a decade now. Vast federal bureaucracies — including entire Departments — essentially exist to provide subsidies to major corporations, not to mention the favorable tax treatment some of the wealthiest corporations have under the Tax Code.

    While getting rid of the Ex-Im Bank would be nice, it’s barely a drop in the bucket and I wouldn’t even call it a start.

    1. I think that’s absolutely true – I wouldn’t be at all surprised to find that Delta needed to be given some subsidy or other to make up for the damage being done by the Ex-Im subsidies.

      I think that’s why virtually all politicians start to stutter and stammer when you talk about cutting some corporation’s (including Unions’) subsidy – there’s a whole house of cards built out of subsidies offered to compensate for the damge done by other subsidies.

      You remove one card, and the whole thing becomes a free-for-all of damage claims.

  5. CONGRESS could, really, have the final say in many of these issues

    Authority without responsibility; it’s what every autocrat craves.

  6. Even young Sen. Barack Obama denounced the program in 2008 as “little more than a fund for corporate welfare.”

    But he’s EVOLVED since then, Ms. DeRugy, so RACIST for not noting this.

    Also, good to see a post from Ms. dR. It’s been a while.

  7. They probably think the opportunity cost is zero because they think they can make better decisions than the market.

  8. This is exactly why Citizens United drove Progs to the brink of insanity – corporations are found to be “people” with very important constitutional rights that need to be protected, but actual real people are denied their basic rights at every opportunity.

    This is why I find knee-jerk partisan bickering so annoying. If we set aside the 1% of stupid shit controversies that politicians and major media outlets focus on, we’re all actually way more on the same page than they make it seem.

    1. “””corporations are found to be “people” with very important constitutional rights that need to be protected, but actual real people are denied their basic rights at every opportunity.”””

      Yeah, I don’t think so. Suppose Citizens United were limited to unions. Think they’d be in an uproar? I don’t. No, I’m pretty sure they don’t like Citizens United because they think it will mean more money going to Republicans.

      1. In my experience they haven’t even considered the idea that it applies to Unions, too (or environmental advocacy groups, for that matter).

        The point being, don’t you find it rather easy to get distracted by “Team Blue is stupid” when in fact we all agree that its fucked up that ordinary people are having their rights trampled while mega-corporations and mega-unions are everywhere having their rights enhanced?

  9. uptil I saw the bank draft that said $9401, I didnt believe that…my… friends brother had been truly receiving money part-time on their apple labtop.. there moms best frend had bean doing this 4 only about 17 months and just now cleared the dept on their cottage and bourt a brand new Fiat Multipla. go to website
    ?
    ——
    ?http://www.communityjobfinder.pkm.ddp.net/

  10. Wait so promoting legislation that has no chance of passing is a good thing now? Someone tell Suderman.

  11. This is what we say as public confidence and trust.

    used Office chairs for sale

  12. Close this bank and its evil twin, the World Bank. Wastes of time, money, and air.

  13. some companies at the expense of other U.S. companies,”

  14. provides taxpayer-backed loans, loan guarantees

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