It is safe to say that America is not the same country it was in 1934 when the Export-Import Bank (i.e. Ex-Im and Bank) was created. It would be nice to think that the U.S. government agency has also changed with the times, but nothing could be further from reality.
The Ex-Im Bank is a fossilized remnant of a bygone era. The Bank no longer assists in “financing trade with the Soviet Union” as was written in its 1934 mission statement. It is a politicized tool used to cull favors and promote corporate welfare.
The main purpose of the Ex-Im Bank, according to its original charter, was to finance and insure foreign purchases of goods from the U.S. and create and sustain jobs for American citizens. However, recent policies enacted by the Bank severely impair American corporations. Ignoring any notion of a free market, the Ex-Im Bank picks winners based largely on the politics of the day, and subsequently, guarantees taxpayer money in whatever those at the top of the Bank hierarchy deem prudent with almost no accountability. It represents crony capitalism at its worst.
When President Obama signed into law the Export-Import Bank Reauthorization Act of 2012 last May, his signature granted the Bank the freedom to guarantee loans using American taxpayer money as the collateral to firms and entities that many in the private market would scoff at. Arthur Brookes recently noted in The Wall Street Journal that the Export-Import Bank “doles out about $20 billion annually in corporate welfare.” Companies that either don’t need the money, or simply don’t deserve it, are getting billions of dollars in loans guaranteed by American taxpayers.
Take the example of Mahindra & Mahindra, the world’s largest tractor manufacturer and a direct competitor of the American tractor manufacturer John Deere. Recently, the Ex-Im Bank loaned the Indian company $57 million dollars for the completion of a solar plant project even though the company maintains strong yearly profits and a highly-competitive business model. This loan was a complete waste of money, which happens to be guaranteed by the full faith and credit of the American people. Instead of helping American companies, the Bank was funding one of John Deere’s biggest competitors.
Going further, this year the Bank guaranteed a loan of $3.4 billion to Air India, a company currently $4 billion dollars in debt, to facilitate the purchase of 30 new Boeing planes. Indian taxpayers were already trying to bail out the public/private company, which had been in the red for years. The money guaranteed by Ex-Im allowed a foreign bankrupt company to attempt to achieve solvency in the short term, while hurting American carriers in the long term. The Air India loan guarantee is an example of government intervention into free markets. at its worse.
And if that’s not enough, in 2009, Ex-Im Bank loaned almost 90% of its entire budget to Boeing, the American airplane manufacturer, in order to facilitate exports of planes around the world. This loan allowed foreign airlines to receive discounted rates on new American aircraft. Many foreign airlines capitalized on the cheap capital, while American carriers still had to pay high market rates. The Ex-Im Bank’s ill-advised loans have made it impossible for American-based airlines to compete with these foreign carriers. As a result, U.S. based airlines have cut nearly 7,500 jobs.
The Export-Import Bank is, quite simply, a political tool that bucks free market principles, and engages in riskier and riskier investments. By guaranteeing loans to companies that don’t deserve them and others that don’t need them, we are needlessly exposing ourselves. For those of us who saw the collapse of the housing industry on the horizon as the government became more and more involved in manipulating and distorting the marketplace, we are increasingly concerned we may end up footing the bill when the loans guaranteed by the Ex-Im Bank go south.