America Cannot Extend the Ex-Im Bank Charter

Thomas Warns*

Deep within the United States federal government lurks an independent agency that functions as the United States’ official credit agency. The Export-Import Bank (Ex-Im Bank) was chartered to insure and finance foreign purchases of U.S. goods when customers large and small were unwilling or unable to accept the accompanying credit risk. The Ex-Im Bank website claims that it does not compete with private institutions, but instead fills gaps in the private credit market; they also boast a profit of $1 billion over the last year and $2 billion over the last five. One could ask how it is possible to claim that the private credit market would not compete with the bank for that profit, but that would imply that the Ex-Im bank’s website was inaccurate.

The Ex-Im bank has survived far longer than intended.

The Ex-Im bank has survived far longer than intended.

The Ex-Im bank’s charter is due to expire at the end of this month, reigniting debates over whether or not it should exist in the first place. The bank was a creation of the New Deal, when credit was particularly difficult to get for companies that wished to import goods from the U.S. Like many creations of the New Deal, however, the bank soldiered on long after the Great Depression ended, and morphed into a monster from a Mary Shelley novel (other Franken-programs exist to this day, such as Fannie Mae and the NLRB).

How does the Ex-Im bank work? When foreign companies looking to buy U.S. goods are rebuffed by private banks, the buyers can seek help from the Ex-Im bank. If the Ex-Im bank decides to get involved (and here it helps to be politically well-connected), it collects a fee from the foreign buyer, and in return will secure the buyer’s line of credit at a private bank for up to 85% of its value. This takes most of the risk away from the bank, allowing the bank to extend a more generous line of credit to the buyer. The buyer then purchases U.S. goods with the loan, boosting that U.S. company’s bottom line. That, of course, is only half the picture.

The most obvious objection to the Ex-Im bank is that it is crony capitalism at its worst. As a candidate for President in 2008, Barack Obama railed against the Ex-Im bank, calling it “little more than a fund for corporate welfare.” Unlike the impartiality of the free market, the Ex-Im bank gets to choose winners and losers when it extends lines of credit to certain businesses. It is easy to spot the inequity of their lending processes. Though they finance just 2% of all exports, 61% of their total financing benefited 10 large corporations. By one measure, the bank creates 200,000 jobs in America, of which 85,000 are in Washington State. The reason? Boeing.

Washington-based Boeing received about $8 billion in loan guarantees, or 30% of the bank’s total authorizations, in 2013. That’s why many call Ex-Im “Boeing’s bank.” If you find yourself flying with a foreign carrier in a 787, there is a decent chance that your tax dollars underwrote the loan for that plane – nearly one in five Boeing jetliner sales hinges on Ex-Im financing. If you are skeptical about how desperately a multi-billion dollar corporation needs the government to secure lines of credit for potential purchasers, you aren’t alone. The Tea Party has been a vocal critic of crony capitalism at the Ex-Im bank; even Washington’s Cathy McMorris (R-Spokane) has opposed the bank, though every other Representative from her state supports it. Perhaps they are swayed by the 18 lobbyists that Boeing has sent to Capitol Hill in order to assure the bank’s charter is extended.

Boeing is the largest beneficiary of the Ex-Im bank's operations.

Boeing is the largest beneficiary of the Ex-Im bank's operations.

The bank has assuredly created losers as well. Besides redistributing taxpayer money to one of America’s largest corporations, it has hurt competition in the market. Delta has complained that the Ex-Im bank leaves it at a competitive disadvantage when buying airplanes vis-à-vis foreign competitors. Foreign airlines can obtain cheap credit through the Ex-Im bank, and essentially pay less for the same plane as Delta does, being an American company; the foreign purchases also act as a subsidy, which drives up the price of Boeing planes. Delta tried to lobby against the renewal of the Ex-Im bank charter in Congress, but found the Boeing lobbyists so well entrenched that they gave up and decided to take their fight directly to the people.

And what of those profits claimed by the bank? Even that claim has come under fire. The non-partisan Congressional Budget Office released a report which contradicted the Ex-Im bank, and stated that it would actually contribute $2 billion to the deficit over the next decade if the Ex-Im bank used a more accurate accounting method which reflected the riskiness of the loans. Even by the bank’s own accounting standards however, it has not always been successful – in the 1980’s, the bank racked up a deficit of $5.3 billion. This doesn’t even take into account the hidden costs: the costs to all the other small and mid-size businesses that sought bank loans but were rejected because the banks’ money was tied up in Ex-Im backed loans.

We just need to cut back, like waste at the...Export-Import bank, which has become little more than a fund for corporate welfare.
— Presidential Candidate Barack Obama (2008)

Even environmentalists are joining in on the criticism, arguing that the bank has backed loans for coal producers and loans to construct coal burning power plants abroad. The loans in a sense keep coal-fired plants in operation, even as a variety of forces push the energy industry towards cleaner energy. In 2013, President Obama moved to restrict Ex-Im loans towards constructing coal-fired power plants abroad; however, Ex-Im bank still helps guarantee loans for coal mining and exporting.

So where does all this leave things? The Ex-Im bank is reviled by the right for meddling in the free market, was denounced by Barack Obama as a fund for corporate welfare, has indeed served as a fund for corporate welfare, is likely going to lose taxpayer money over the next decade, and is hated by environmentalists. With the bank’s charter set to expire on September 30th of this month, libertarians ask: what is there to debate?

* Thomas Warns is a J.D. Candidate in the Class of 2015 at New York University, and the Editor-in-Chief for the N.Y.U. Journal of Law & Liberty.