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The question is before Congress this year.

The Export-Import (Ex-Im) Bank was first chartered in 1934, under the Roosevelt administration by Executive Order. In 1945 Congress turned it into an independent executive agency and government corporation by enacting the Export Import Act 1945. The bank supposedly is self sustaining meaning it does not demand taxpayer dollars to support itself either in daily operation nor dollars for its product offerings. The rub of course is the loans it holds on the books is backed by the U.S. Treasury and that equates to backed by US taxpayer dollars or borrowed dollars in the case of default that adds to the national debt.

The Ex-Im Bank offers four financial products: direct loans, loan guarantees, working capital guarantees and export credit insurance. All obligations carry the full faith and credit of the U.S. government.

There has been notable failures. As Ken Blackwell pointed out in an opinion piece for CNN News, dated April 12, 2012, titled, The Export-Import Bank Nightmare, he reminded us that “General Electric, which in 2010 paid no corporate taxes after earning $150 billion in profit, was helped with over $1 billion in Ex-Im loans for that same year. Even after the Ex-Im bank banked more than $600 billion in loans to Enron and financed loan guarantees to foreign customers of Solendra, the failed solar panel company which was at the heart of President Obama’s “green jobs” initiatives, bureaucrats want to keep the doors of this inherently corrupt Keynesian institution open.”

Those who support the Ex-Im it appears the most used statement for doing so is it creates a level playing field for U.S. Company's in the global arena. Those who do not support will say the bank distorts the market and 'picks winners and losers'. In picking those winners and losers I have no reservations in saying that this harms US workers in those industries who work for the loosing company's.

The government is fond of saying that it supports small businesses. That is a crock since small business definition is cloudy and the top recipients of loan guarantees are the big guys who receive the largest percentage of the loans. Ex-Im is also referred to as the Boeing Bank. In a piece on June 14, 2014 the Washington Examiner wrote the following “the Export-Import is a federal agency that subsidizes U.S. exports. Ask the business lobby or the Obama,administration and they'll tell you Ex-Im is all about small business. That's not what Wall Street thinks, apparently. Boeing stock dropped 2.3 percent starting at the opening bell today, and closed there, while the market as a whole was basically flat, closing down 0.32 percent. Bloomberg market analysts who peg this drop to the loss of Eric Cantor, Ex-Im's most important defender in the House.

One of the best analysis of why Ex-Im is a bad idea is written by Diane Katz titled Export–Import Bank: Cronyism Threatens American Jobs for the Heritage Foundation. In this research report Ms Katz writes the following:

“The Export–Import Bank (Ex–Im) funnels billions of taxpayer dollars each year to overseas businesses for the purchase of American products. This subsidized financing is supposedly a win-win proposition for exporters and their customers abroad. But rare is a subsidy that does not produce disparity elsewhere. In the case of Ex–Im, the losers include domestic companies that are left to compete against foreign firms bankrolled by the U.S. government.

This and other drawbacks of Ex–Im are important to acknowledge as Congress considers whether to reauthorize the bank before its charter expires on September 30. The decision should be an easy one. Ex–Im effectively ignores the impact of its actions on American workers, as well as the risks to taxpayers, while exaggerating the benefits of those actions.

Government authorities have documented a variety of problems with bank operations, but the fact that Ex–Im financing handicaps at least some American businesses is sufficient reason to end it. Recently, for example, the bank approved $694 million in financing for U.S. equipment to develop an open-pit iron ore mine in Australia (owned by the country’s richest woman). The deal was consummated despite warnings from the United Steel Workers, the Iron Mining Association, and all four Senators from Minnesota and Michigan that the subsidies would jeopardize thousands of U.S. mining jobs.

Global trade benefits the U.S. economy, but Ex–Im subsidies confer a competitive advantage to a select group of favored firms. Rather than perpetuate this cronyism, Congress should allow the bank’s charter to expire and undertake tax and regulatory reforms that would strengthen the competitive position of all U.S. businesses.

Economic Impacts Ignored

Foreign firms receive Ex–Im financing to purchase U.S. equipment for manufacturing and resource extraction or to provide commercial services. However, the bank’s charter prohibits financing under three conditions:

  1. The recipient’s production is likely to create a surplus in world markets;

  2. The recipient competes with U.S. production of the same, similar, or competing commodity; or

  3. The financing would cause “substantial injury” to American producers of the same, similar, or competing commodity.

These statutory prohibitions are intended to balance the interests of U.S. exporters and the domestic firms that would compete against subsidized businesses overseas. But there is a major loophole: The charter allows the bank’s board of directors to override the constraints if they decide that a transaction would produce a “net benefit” to the U.S. economy.

In order to determine the potential effects of an export subsidy, the bank is supposed to perform an economic impact analysis, but a review by Ex–Im’s inspector general (IG) of the analysis conducted between 2002 and 2009 found that the bank did not address directly several elements of economic impact contemplated by the Charter, omitted relevant data and analysis beyond that considered necessary to support the staff’s recommendation, did not state the limitations and qualifications of the data, assumptions, estimates, methods and analysis, did not fully address the sensitivity of the staff’s conclusions to possible changes in assumptions and estimates that could be reasonably anticipated.

Indeed, none of the Ex–Im personnel interviewed by the IG’s office possessed professional training or expertise related to economic impact analysis. Moreover, the bank does not consider the impact of any finance deal involving less than $10 million, which excludes some 80 percent of Ex–Im transactions.

All of this means that bank officials dole out billions of taxpayer dollars to foreign firms without a meaningful consideration of the impacts on American workers and the businesses that employ them.

Distorting Competition

Every type of industry undergoes booms and busts. Neither one typically results from a single cause but instead is a product of myriad factors, including changes in demand, currency fluctuations, and innovation. But government policy can dampen gains and exacerbate losses, which is the case with export subsidies. Ex–Im financing of coal mining in Colombia, copper excavation in Mexico, and airplanes for India has been identified as contributing to losses among domestic firms.

The following Ex–Im deals have been cited by lawmakers and industry experts as examples of just some of the billions of dollars in taxpayer subsidies that put domestic firms at a competitive disadvantage:

  • Australia’s Roy Hill mine ($694 million). The mine’s expected output (over the life of the financing) is expected to displace nearly $600 million worth of U.S. iron ore exports and cause a reduction of some $1.2 billion in U.S. domestic sales.

  • South Africa’s Kusile Coal power plant ($805 million); India’s Sasan coal power plant and mine ($917 million). Notwithstanding the Obama Administration’s war on coal, Ex–Im has been a generous source of public financing for coal projects abroad.[9] These and other projects have exacerbated a 70 percent decline in coal prices since 2008.

  • Mongolia’s Oyu Tolgoi copper mine ($500 million). The copper from this open-pit and underground mine competes with excavations in Arizona, Utah, New Mexico, Nevada, and Montana just as global refined copper production is expected to exceed demand by more than 390,000 metric tons this year.[11]

  • Papua New Guinea’s Liquid Natural Gas Project ($3 billion). Despite regulatory challenges faced by U.S. producers of liquid natural gas, Ex–Im approved $3 billion in financing for development of gas fields, on-shore and off-shore pipelines extending 400 miles, a gas liquefaction plant, and marine export facilities.

  • Air India ($3.4 billion). The financing will guarantee the purchase of 27 Boeing aircraft intended for international service, including U.S. destinations. According to the Air Line Pilots Association, Air India will enjoy rates and terms that are not available to U.S. airlines, giving it a cost advantage of about $2 million per airplane. Surplus seat capacity resulting from Ex–Im airline subsidies—totaling about $50 billion between 2005 and 2011—has resulted in the loss of approximately 7,500 U.S. jobs.

A No-Brainer

Ex–Im beneficiaries argue that export financing preserves American jobs, but the vast majority of bank subsidies benefit very large corporations that could self-finance or obtain private investment—as is the case for 98 percent of all U.S. exports. Rather than perpetuate these subsidies, Congress should help all American businesses by reducing corporate tax rates and regulatory burdens.

Allowing the bank’s charter to expire should be a no-brainer for lawmakers. (Even Barack Obama, as a presidential candidate, endorsed its end. With strong growth in privately financed exports, there is no justification for maintaining this Depression-era relic."

Note, I encourage you to read Ms Katz report (see Report) because she provides references that provides further insight/

I agree with Ms Katz analysis. In 1934 the bank was infused with $6 million. The banks cap for lending is set at $150 billion today. While there is some over cite by Congress it is lame. Basically Congress approves extension of its charter and raises its loan cap. The bank appears at public hearings on Capitol Hill and extolls its greatness.

To be fair and balanced a further analysis is provided by Andy Winkler and Douglas Holtz-Eakin, dated May 20, 2014, titled, Reauthorizing the Export-Import Bank: A Policy Evaluation

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If after reading this you find yourself believing that the bank should be shuttered please call and write your representatives.

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Comments

  • Yeah!  Great piece that really lays out what this is all about and educates the "little folk." 

    Now to get them here to read it.

    • Admin

      I need to do a post to show everyone how truly simple it is to have a twitter account and tweet articles to the world.  I know that the older we get, many of us don't like to experiment and get into new technology but using a # hashtag, one can tweet an article (for example: #IRS) and it goes to thousands, if not millions, of people who follow that subject. 

      Talk about spreading the word - *that's* the way to do it.

  • Admin

    It's been a joke for 80 years and will be again.  There's no way Congress will take away one of their lifelines, even if it's obvious they should.  Just my .02 cents.  Great post Patricia.  Read it twice and will be sharing it tomorrow when the futures market opens (more viewers) - I enjoyed it that much.

    • Thanks Laura. Norma Sears requested that I write this. So she shares the thanks.

      You are very correct that Congress will NOT take this gift away. Let's face it in districts such as in the state of Washington where Boeing has a big presence there is no way a republican or democrat would vote against.

      The new republican that came to the House are ones who can be counted on to vote against. Those power houses in the Senate and House who enjoy a long career will support.

      Obama once proclaiming he was against as POTUS he supports.

      The whole notion of the Ex-Im presents opportunity for political gaming domestically and globally.

      • Admin

        Personally I think anyone who reads an article and enjoys it - should share it to Twitter, Facebook, Google+, etc.  I "share" mine the minute I post them and then my "followers" can share again and again.  o/c being in the investment field, we share like madmen. *lol*  Social media is now the BEST way to get the word out to a wide swath.  We need to push "sharing" more I believe within the site.  At least that's my hope 

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