Quiet Cronyism: The Export-Import Bank of the United States
By Steven Russell
The Export-Import Bank is “little more than a fund for corporate welfare” said then-Senator Barack Obama on the campaign trail in 2008. And yet, President Obama decided to re-charter the Export-Import Bank of the United States in 2012, signing a bill would raise the bank’s lending limit to $140 billion by 2014. President Obama was right the first time—the Export-Import Bank should be closed because it unfairly serves corporate and political interests.
The Export-Import Bank is a private bank created and backed by the federal government in order to boost American exports. The bank provides loans, insurance, and guarantees to American exporting companies when other financial institutions in the private sector find it too risky to do so. As such, the bank’s unsafe lending practices have already come under fire from taxpayers worried about the need to bail out the bank with their hard-earned dollars. Just as troubling, however, is the bank’s cozy relationship with powerful corporate and political interests.
Although the bank claims to primarily help small businesses, a closer look at the bank’s record suggests the opposite. In 2010 the top ten companies receiving support from the Export-Import Bank accounted for over 90% of its long-term loans. That list includes the likes of corporate giants Boeing, GE, Continental Airlines, and Caterpillar. Boeing alone received $6 billion of the bank’s long-term loans in 2010—42% of all loans given out by the bank that year. And the favoritism has only gotten worse. Last year, Boeing received a staggering 82% of the bank’s loans. The ridiculousness of these practices is clear. Corporations like Boeing, which made almost $4 billion in profit last year, can stand on their own two feet without government hand-outs.
The Export-Import Bank’s political ties have also invited corporate abuse of the system. Most infamously, Enron exploited the Export-Import Bank as part of a larger corporate scandal that cost taxpayers millions. During the 1990s and early 2000s, Enron and the Export-Import Bank enjoyed an unfairly close relationship—many former employees of the energy company worked for the Export-Import Bank and vice versa. As such, the bank willingly provided cheap loans for Enron’s risky foreign projects. It also gave loans and financial guarantees to Enron’s companies abroad to buy Enron’s own exports, allowing the company to falsely claim it was making a profit while receiving cheap credit in the process. The result was disastrous. Enron unsurprisingly went bankrupt and its foreign companies owed $650 million to the Export-Import Bank. Although the bank was able to recover its funds, it allowed Enron to engage in corrupt and risky behavior, unfairly jeopardizing taxpayer dollars to help out its corporate cronies.
Political interests themselves also unduly influence the Export-Import Bank’s behavior. Due to the efforts by the Center for American Progress and the Obama administration itself, the 2010 Appropriations Act compelled the Export-Import Bank to give 10% of its loans in support of renewable energy. Shortly after, the bank helped finance the exports of First Solar—a large donor to the Center for American Progress—for $57.3 million. What’s worse is that First Solar had just laid-off 2,000 employees and posted a 12% decline in revenue, making it an obviously poor choice for investment. The bank also guaranteed a loan made to Solyndra, which had well-documented ties to the Obama administration. Under the power of politicians, it is not surprising that the Export-Import Bank has been increasingly harnessed to advance political interests.
The lesson from these corporate and political scandals is clear: as long as the government exerts some control over the export industry, special interests will seek to interfere in the industry through the political process. The best way to stop this intrusion is to abolish the Export-Import Bank and remove its crony incentives altogether.
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