Time to dump the Ex-Im Bank?

posted at 2:30 pm on March 3, 2012 by Jazz Shaw

Here’s a hot, exciting topic for your weekend reading pleasure. Is it time for us to get rid of the Export Import Bank of the United States? (Please, try not to let that get your heart racing too quickly.) What’s that you say? You’ve never heard of the Ex-Im bank? Well, you’re not alone. I never had either until a couple of weeks ago. If you want to get seriously deep in the weeds on this, (and you might) there is a 10 page .pdf file you can download for the full history and description.

But the short version is that this is a government entity, established back in the 1940s, which ostensibly exists to help American businesses compete more effectively overseas by promoting exports. Sounds pretty good, right? But the way it’s being used today is drawing criticism from both sides of the aisle. Tim Carney explains that the government’s use of Ex-Im has evolved into a sort of Venture Socialism.

Ex-Im exists to subsidize U.S. businesses, with most of the subsidy dollars facilitating Boeing sales. Other industrial titans like GE, Bechtel, and General Dynamics devour most of the rest of the Ex-Im subsidy pie. But manufacturers aren’t the only beneficiaries of this little-known federal agency — banks profit from it, too. For instance, when Ex-Im recently approved $1 billion in financing to subsidize Pemex, Mexico’s government-owned oil company, 3M and other U.S. exporters of oil-field equipment benefited, but so did some big banks. Bank of America and JP Morgan financed these sales, and so if Pemex defaults, it’s these megabanks the U.S. taxpayer will be bailing out.

Now Obama has created a new Ex-Im subsidy for banks. The name is a mouthful: “The Supply-Chain Finance Guarantee Program.”

Here’s how to understand what’s going on: Imagine I’m a shoe exporter. I ship shoes to stores in Europe, and then I wait a few weeks to get paid by the stores. But what if more orders come in, and I need to restock the shoes right away, before I get paid for my last shipment? I could just borrow from a bank. But another option is that I can just sell my invoices, in effect, to the bank. If the shoe stores owe me $1,000, I might sell Citibank, for $950, the right to be paid by those shoe stores. That’s called supply-chain finance, and it’s a quintessential capitalist arrangement.

But in the midst of this commerce among banks, exporters, and importers, Barack Obama has inserted the unwitting U.S. taxpayer. As part of his Export Initiative aimed at doubling U.S. exports in five years, Obama created the Supply-Chain Finance Guarantee Program to guarantees 90 percent of the banks’ exposure. In our hypothetical example, if the European shoe stores welched, the U.S. taxpayers would cover 90 percent of Citibank’s loss.

Carney does a better job of explaining what is obviously a very complex and wonky issue than I ever could, so read his entire analysis. Ex-Im has become known in congressional circles as the “Boeing slush fund” because of the large amount of taxpayer funds going to guarantee and insure loans which allow foreign airlines to purchase their planes. But it’s also worth noting that while activities supporting Boeing account for the largest share of actual dollars invested, a vastly larger number of smaller transactions cover exports by actual small businesses. (This is part of the original charter for Ex-Im.)

This is a tough call. On the one hand, as this Wall Street Journal article reports, there is a coalition of people working to keep Ex-Im in it’s current form, including Republican Gary Miller and Democrat Barney Frank. Now, I don’t know about you, but when I see a pairing like that, my first response is to reach for my back pocket and make sure I still have my wallet.

But on the other hand, parts of this just sound like an attack on Boeing and other job creators, bolstering our ability to compete in foreign markets. The real question is, does the Ex-Im do a good enough job protecting taxpayer dollars with these sorts of investments and is it an appropriate use of your money? As I mentioned to several people I contacted when researching this subject, it’s a very, very complicated issue.


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How much will Obama put us on the hook to bail them out?

Roy Rogers on March 3, 2012 at 2:35 PM

Time to dump the Ex-Im Bank?

HELL YES – it’s not only a waste of taxpayer money, it’s a cesspool for more crony capitalism.

TeaPartyNation on March 3, 2012 at 2:37 PM

Off the top of my head, any taxes used to subsidize any business is very bad.

If the problem is unfair competitive trade practices, then employ counter trade legislation. If that means a trade war, so be it.

Shy Guy on March 3, 2012 at 2:38 PM

It’s long past time to dump the EX-IM Bank. It has loaned $2 billion to Petrobras (George Soros is a major investor) for drilling off the coast of Brazil and another $1.5 billion for an oil refinery in Columbia.

It’s also time for Boeing to stand on its own. I’m tired of financing Boeing stuff like the virtual border fence which was a huge failure.

bw222 on March 3, 2012 at 2:43 PM

Normally this should be an easy question for conservatives, but there are complications as Jazz mentions in the final sentence.

One complication is that those companies involved are defense contractors who may or may not have enough business outside of defense contracts to sustain their existence during budget-tightening.

If it were the case that we either provide subsidies or be forced to buy equipment and vehicles from foreign corporations, the issue becomes very tricky.

chimney sweep on March 3, 2012 at 2:45 PM

This is the same Federal agency that loaned Petrobras money in 2009 and again in 2011:

The Ex-Im Bank has previously provided funding to facilitate U.S. exports of goods and services to Brazil. In 2009, Petrobras signed a letter of intent with the Ex-Im Bank on a 10 billion USD financing package.

Petrobras has also been G. Soros’ largest investment as recently as three years ago.
.
It’s not just Boeing or banks that have benefited from the activities of the Ex-Im bank – so have liberal socialist investors and bailed-out bankers. Not fair to blame Boeing for benefiting from the activies of Ex-Im when crony-capitalist socialists do so as well.

ExpressoBold on March 3, 2012 at 2:59 PM

C-R-O-N-Y Capitalism?

do most voters even care, or does everyone just assume that all politicians are crooks?

PappyD61 on March 3, 2012 at 3:06 PM

… or does everyone just assume that all politicians are crooks?

PappyD61 on March 3, 2012 at 3:06 PM

That’s actually a pretty safe assumption, Pappy.

bw222 on March 3, 2012 at 3:07 PM

Subsidies are simply government picking winners and losers. Wrong. Terminate it.

jb34461 on March 3, 2012 at 3:08 PM

Here’s your answer PappyD, from someone much wiser than I:

“There is no distinctly native American criminal class except Congress.”

Mark Twain

jb34461 on March 3, 2012 at 3:19 PM

Here’s a hot, exciting topic for your weekend reading pleasure. Is it time for us to get rid of the Export Import Bank of the United States?

I wonder if Is it run by Art Vandelay?

Chip on March 3, 2012 at 3:24 PM

Regarding the EX-IM Bank.
You can do some looking….when Obama put the moratorium on the Gulf for us…
The EX-IM Bank supplied money to Brazil and Mexico to drill in water in the Pacific (deeper than Deep Water Horizon), and for Mexico’s Oil Company in the Gulf (PEMCO I think is the name..)

The Ex-Im bank initially denied funds to India to build a Coal plant who was going to be using equipment produced by one of two companies in the world….One company was in Racine, Wiconsin….the other was in Russia or China…..
So because of our Presidents love for the Greenies, he was gonna let over a 1,000 people lose their jobs, because the EX-IM Bank would not secure a loan from India for them to buy from the company in Wisconsin….

Well Obama had an event there a week later….so amazingly, the EX-IM Bank reversed their decision….
I guess it would have looked bad to show up in Wisconsin after he denied a company there business.

MityMaxx on March 3, 2012 at 3:31 PM

This is probably a reason that Boeing did not raise too much heck when the NLRB punished them for opening a plant in a right-to-work state.

Vince on March 3, 2012 at 3:33 PM

Subsidies for oil ? Oh, it’s Mexican, okay then.

marinetbryant on March 3, 2012 at 3:34 PM

Vince on March 3, 2012 at 3:33 PM

.
The same realization crossed my thinking pathways…

ExpressoBold on March 3, 2012 at 3:37 PM

Can someone explain to me how Barrack Obama legally “created” the Supply-Chain Finance Guarantee Program ?

His desire to increase exports if neato. But doesn’t that have to be created by Congress ?

Frankly, that is exactly what I see as the greatest danger of a second term from Obama – the fact that he will have to destroy the separation of powers from within by imagining some non-existent King-Presidency where all his initiatives and his entire agenda are somehow enacted through executive fiat.

A second term for Obama will make the second Clinton term look like child’s play.

deadrody on March 3, 2012 at 3:38 PM

You can read about the India Coal planet from a piece Paul Ryan did.

http://paulryan.house.gov/News/DocumentSingle.aspx?DocumentID=192774

MityMaxx on March 3, 2012 at 3:38 PM

A second term for Obama will make the second Clinton term look like child’s play.

deadrody on March 3, 2012 at 3:38 PM

Correct. Just imagine Barack Obama as a lame duck, not having to answer to the voters.

bw222 on March 3, 2012 at 3:44 PM

Then let’s send the azzhole home to Chicago.

jb34461 on March 3, 2012 at 3:51 PM

Jazz, for more comments you ought to try a movie review, like Ed.

Emperor Norton on March 3, 2012 at 3:53 PM

Can someone explain to me how Barrack Obama legally “created” the Supply-Chain Finance Guarantee Program ?
[...]

deadrody on March 3, 2012 at 3:38 PM

.
It’s included in the Ex-Im re-authorization legislation which is out of Barney Frank’s House Financial Services Committee and making its way through the House Rules. The WSJ article alludes to this new feature which further entrenches Crony Socialism (no risk for banks but let a home owner twist in the wind as his home is foreclosed and he is financially ruined – no problem there).

ExpressoBold on March 3, 2012 at 3:55 PM

I am not familiar with this particular “The Supply-Chain Finance Guarantee Program.” However, I am an attorney that represents banks that do “asset based financing” or “working capital” financing – essentially making revolving lines of credit available to companies based on and secured by the value of the accounts receivable owing to the company and its inventory – and I can tell you that the Ex-Im Bank has has multiple programs of this type available for at least as long as I have been an attorney (@15 years). Large banks that have a client with any significant export business ALWAYS encourage their borrowers to apply for these programs – which are extremely easy to qualify for – and then the Ex-Im Bank gives a guaranty to the lending bank that covers 90% of any amounts lent on the value of “export accounts receivable” owing from foreign customers or “inventory held for export” (essentially that percentage of their inventory that is equal to the last year’s percentage of export sales). I see an average of 3 or 4 deals like this per year. And while there is no reason my clients should unilaterally disarm by not taking advantage of these programs – I have always been appalled that we are all on the hook for these. So it is awful – but not strictly Obama’s fault

erin_harkiewicz on March 3, 2012 at 4:07 PM

Why get rid of it. I mean I just found it and am applying for my Obama money account. You know, the one that you don’t have to put any money into and instead it just pays your mortgage.

Bunsin2 on March 3, 2012 at 4:31 PM

If Capitalism were allowed to be free of overbearing and ill conceived government meddling, then institutions like the Ex-Im bank would not be needed. This is why liberals say that the free market system of Capitalism is a failure–there hasn’t been a free market system in this country for at least 100 years.

Government is just too damned big. And the result is that they only want to get bigger. The crony-class is inevitable in a bastardized capitalistic system such as ours. Crony capitalism will not be cured under any circumstances unless the size and reach of government is scaled down significantly. This, in a nutshell, is the difference between Liberals and Conservatives (not establishment Republicans, but Conservatives). So, it really is not too complicated–Ex-Im bank must go.

NOMOBO on March 3, 2012 at 4:46 PM

Maybe this is the 3rd agency Govenor Perry was going to eliminate but forgot what it is.

Resolute on March 3, 2012 at 5:02 PM

Correct. Just imagine Barack Obama as a lame duck, not having to answer to the voters.

bw222 on March 3, 2012 at 3:44 PM

So, he’s not afraid of the voters now…he knows he has the politburo behind him.

KOOLAID2 on March 3, 2012 at 5:03 PM

But the short version is that this is a government entity, established back in the 1940s, which ostensibly exists to help American businesses compete more effectively overseas by promoting exports.

Another reason why all agencies and programs need “sunset” provisions.
Something that may have been vitally necessary immediately after WW2 continues unabated long after the need for government-supported liquidity is gone.
If a deal isn’t good enough for the bank to loan its own money without a guarantee, then it isn’t good enough to back with the taxpayer’s money.

AesopFan on March 3, 2012 at 5:23 PM

Selling accounts receivable at a discount to a third party for management and collection is called factoring, and it is quite common. The purchaser evaluates the risk based on who owes the money (debtor) and factors that risk, plus the profit they expect to make, into the amount of discount from the face value of the debt.

I’m not sure why the government would get involved in assuming the risk for foreign companies. This should probably be an entirely private transaction.

For example:

Say the air freight carrier Cathay Pacific wanted to buy some new Boeing planes. Cathay Pacific and Boeing enter into a purchase agreement. Boeing substantially performs on the agreement. Then Boeing goes to a bank in Hong Kong, say the Hang Seng Bank Ltd, and a bank in the U.S., say JP Morgan Chase. In any case, several banks, each competing for the business. These banks evaluate the terms of the transaction, the risk of a Cathay Pacific default, and how much profit they must have.

From that analysis the banks determine a discount rate, say 9%. Boeing agrees and collects 91% of the sales price from the bank, and the bank acquires Cathay Pacific’s obligation to Boeing.

I’m not sure why the U.S. government would want to guarantee Cathay Pacific’s debt, unless the U.S. government is trying to act as a high-risk insurer where they need to guarantee the credit of high-risk foreign companies.

In the case of Pemex, I wonder what the U.S. government demanded as security from the government of Mexico. The state of Chihuahua? Hardly seems worth it.

jaime on March 3, 2012 at 6:34 PM

I know about the Ex-Im bank, but I had no idea the government was using it for factoring foreign companies. That’s pretty ridiculous.

Doomberg on March 4, 2012 at 8:44 PM

If the deal is too difficult for your average taxpaying bear then the deal need to be killed. This Ex-Im Bank has been a sham and sooner its killed the better. There are plenty of “Invoice Buyers” out there that would take the financing themselves and you don’t need the fricken banks. The ‘guarantee’ in the deal would be the discount on the paper. So it would be truly more like a Chicago Merk kind of deal for contracts in the future and present value.

End of gubbamint story.

auspatriotman on May 6, 2012 at 1:10 AM