Roosevelt’s Baby Still Making Taxpayers Cry
On February 2, 1934, President Franklin Roosevelt issued Executive Order 6581 to create the Export-Import (Ex-Im) Bank in order to facilitate “exports and imports and the exchange of goods between the U.S. and the world.”
The Ex-Im Bank provides credit insurance, direct loans, and loan guarantees to support the export of U.S. goods and services. It must be reauthorized by September 30, 2014.
While the government has previously argued that the Ex-Im Bank is expected to generate revenue in the future, a May 2014 Congressional Budget Office (CBO) report concluded that it will cost taxpayers approximately $2 billion over the next decade. The projections of a net economic benefit were made by using accounting rules from the Federal Credit Reform Act (FRCA) instead of fair value accounting methods. According to the CBO report, “under FCRA, the expected losses, but not the value of the market risk, would be included in the cost. Because a loan without a guarantee has more market risk than the same loan with a guarantee, assigning a cost to market risk through the use of the fair-value approach results in a higher estimated cost for the guarantee.”
The CBO report added fuel to the fire for Ex-Im Bank critics. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) responded to the CBO report by saying, “As I have said previously, the Export-Import Bank’s supposed profits are nothing more than an illusion.”
On June 10, 2014, the Ex-Im Bank lost one of its best allies, House Majority Leader Eric Cantor (R-Va.), when he was defeated in a primary. Leader Cantor and House Minority Whip Steny Hoyer (D-Md.) joined to “win bipartisan support for the bank’s last reauthorization in 2012, which also raised the bank’s lending cap to $140 billion” according to a June 12, 2014, Washington Times article.
The good news for taxpayers is that Cantor’s replacement as House Majority Leader, Kevin McCarthy (R-Calif.), is leaning toward allowing Ex-Im Bank’s authorization to expire. On June 22, 2014, McCarthy stated, “I think Ex-Im Bank is … something government does not have to be involved in. The private sector can do it.” Rep. McCarthy continued, “One of the biggest problems with government is they go and take hard-earned money so others do things that the private sector can do. That’s what the Ex-Im Bank does.”
Not only is the Ex-Im Bank wasting taxpayer money, it is also an unnecessary and vestigial entity from a New Deal era of government overreach. According to a May 22, 2014 article in the Daily Signal, “98 percent of the $2.2 trillion in annual U.S. exports are financed without help from Ex–Im. And despite promises to clean up their act, Bank officials persist in underestimating costs, misstating losses, and failing to maintain adequate capital reserves.”
Opponents of the Ex-Im Bank also complain that it functions as a form of corporate welfare for America’s largest corporations. In the last five years, Boeing has been the beneficiary of “197 Ex-Im deals totaling $48 billion” according to the Daily Signal article. General Electric, John Deere, Caterpillar, and Ford Motor Company have all queued with Boeing at the corporate soup kitchen, benefitting from the Ex-Im’s corporate cronyism while the American taxpayer pays for the “free lunch.”
Proponents of the bank often state that because other countries subsidize exports, the U.S. should as well. A June 8, 2014 Wall Street Journal article refuted this argument, stating that “The illogic here is that because China subsidizes exports for American consumers at the expense of the Chinese taxpayer, American taxpayers should return the favor for Chinese consumers.”
In addition to concerns over its institutional purpose, Ex-Im Bank is having problems with employee impropriety. According to a June 23, 2014 Wall Street Journal article, the bank “has suspended or removed four officials in recent months amid investigations into allegations of gifts and kickbacks, as well as attempts to steer federal contracts to favored companies.” An official from the bank’s short-term trade finance division, Johnny Gutierrez, was escorted from the Ex-Im Bank building in April after allegedly accepting payments in return for “trying to help a Florida company obtain U.S. government financing to export construction equipment to Latin America.”
The Ex-Im Bank is an institution that circumvents the free market to pick winners and losers at the expense of taxpayers. The clock strikes midnight for the Ex-Im Bank on September 30, 2014. Congress would do well to let the time expire. Taxpayers are counting down the seconds.
– Anderson Haxton
