Rep. Eric Cantor didn't just lose his Virginia Republican primary. He was demolished. Dave Brat—a mostly unknown economics professor from a local college—beat the powerful Republican incumbent by 11 percentage points.
Cantor on June 10, 2014, became the first sitting House majority leader in the history of the job to lose his own party's primary. Nearly every pundit in America called Brat's win a political earthquake, and it didn't seem like much of an exaggeration.
One of the Cantorquake's biggest aftershocks came on Wall Street, where the next morning shares of Boeing dropped 2.3 percent-the biggest decline of all companies on the Dow Jones Industrial average that day. The headline at Bloomberg News told the story: "Boeing Tumbles as Cantor Loss Clouds Ex-Im Bank's Future."
How could the loss of a single House seat so thoroughly rattle the stockholders of a giant, profitable, stable company like Boeing, let alone the supporters of an obscure Washington institution like the Export-Import Bank? Boeing, it turns out, is the largest beneficiary of the Ex-Im Bank's loan guarantees, which are typically awarded to foreign companies and governments for the purposes of buying big-ticket items like U.S.-made jets.
And Cantor? He was the political point man tasked with holding down a grassroots insurrection against what many free market champions consider the embodiment of Beltway crony capitalism. His downfall signaled to activists on both sides of the Ex-Im fight that the Tea Party wave of 2010 might be on the verge of forcing the Republican Party to live up to its limited government principles.
In normal times, Congress re-authorizes the Ex-Im Bank every few years with minimal fuss, since both major parties share a broad enthusiasm for corporate welfare. But this time around, as the September 30 deadline for re-authorization approached, an epic battle erupted on the Republican side of the aisle, with free marketeers, libertarians, and Tea Partiers taking on the business lobby over a comparatively tiny but hugely symbolic federal agency.
As issues like war in Syria crowded out the September legislative calendar, the showdown was postponed when lawmakers agreed to a nine-month renewal of the agency, thus pushing the re-authorization battle to as late as June 2015 or as soon as December, should the lame-duck Congress decide to intervene on a longer-term deal. The bruised combatants on both sides are split over whether the postponement signals business as usual or the first real chance at lopping off this dispenser of political favors.
However it plays after the 2014 elections, the questions at stake remain the same: Do Republicans believe their free market talk? Or is it merely a cover for doing the bidding of business? And if Republicans can't kill or seriously trim a New Deal program that subsidizes foreign governments-mostly to buy Boeing jets-will they ever get serious about fighting corporate welfare?
What Is Ex-Im?
Most people have never heard of the Export-Import Bank of the United States.
Ex-Im exists outside of any cabinet department. Due to special accounting methods, it resides almost entirely outside the federal budget. Even its building is nondescript-the agency is housed in the least impressive structure in the neighborhood immediately around the White House, and that's saying something.
Franklin Roosevelt created Ex-Im in part as a way to subsidize Joseph Stalin. "Since the Bolsheviks had seized power in Russia in 1917, the United States had refused to accept the legitimacy of the new Soviet regime," Ex-Im's official historians William Becker and William McClenahan explain in their 2003 history The Market, the State, and the Export-Import Bank of the United States. "Throughout the 1920s, Presidents Harding, Coolidge, and Hoover conditioned recognition on the USSR agreeing to accepted standards of international conduct. That is, they wanted the Soviet government to end its support of revolutionary activities in other countries, return confiscated property, and accept the international financial obligations of its predecessor government."
But as Hitler's threat grew, FDR's foreign policy advisers and the business lobby pushed for normalized relations without conditions. To this end, FDR created the Export-Import Bank, initially capitalizing it with $10 million from the New Deal Reconstruction Finance Corporation. "Roosevelt's executive order of February 2, 1934, authorized the new bank to finance American trade with the USSR," Becker and McClenahan explain.
FDR steadily expanded the agency's purpose beyond the initial goal of helping Stalin, as Cuba and then China became Ex-Im customers. In 1945, Congress passed the Export-Import Bank Act, codifying the agency. Soon, ironically, Eisenhower was sold on Ex-Im's importance as a Cold War tool-the goal was to subsidize Third World countries to win them away from communism, as Becker and McClenahan tell it. Since then, the justification for it has constantly shifted: a foreign policy lever, an international development agency, a weapon in trade wars, and finally a job creator.
Ex-Im subsidizes U.S. exports through a few different financial products that all have one thing in common: they put the U.S. taxpayer on the hook if a foreign customer fails or refuses to pay back a loan. In Fiscal Year 2013, Ex-Im extended $27.3 billion in financing.
Ex-Im's biggest product is the long-term loan guarantee. Over the past three fiscal years, such guarantees made up $52.6 billion of the agency's $95.9 billion in financing. A fairly typical guarantee is the one that the Ex-Im's board of directors approved on August 22: Virgin Australian International Airlines was buying a new batch of Boeing jets and Canadian TD Bank was providing the financing, in the form of a 20-year loan to the Aussie airline. This looks like a regular market transaction until the Ex-Im Bank steps in to guarantee the loan, meaning that if Virgin Australian fails to pay back the Canadian lender, U.S. taxpayers cover the bank's loss.
The long-term loan guarantee program is mostly a subsidy program for Boeing. Of the agency's $52.6 billion in loan guarantees over the past three years, more than half has covered Boeing sales. This isn't a very diversified portfolio, but luckily for Ex-Im (and U.S. taxpayers), purchasers of jumbo jets have a tiny default rate so far.
Ex-Im also makes direct loans-$25 billion over the past three fiscal years. For instance, Ex-Im loaned $1.03 billion to Global Foundries, a semiconductor manufacturer owned by the Emirate of Abu Dhabi. The loan covered Global Foundries' purchase of U.S.-made equipment to build a factory in Germany.
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