Terminate The Export-Import Bank

May 22, 2014 by AFP

The Export-Import bank is the official credit agency of the United States and is up for reauthorization in September 2014. It subsidizes loans and guarantees to foreign companies to encourage them to buy American exports, which is exactly the kind of government meddling in the economy that free-market advocates should forcefully reject.
The Export-Import Bank is corporate welfare – just another way for the government to pick winners and losers in the economy.
As then-candidate Obama said on the campaign trail, the Export-Import Bank is “little more than a fund for corporate welfare.” Without a profit-motive to drive its decision-making, the bank is easily influenced by corporate and political interests. For example, in 2010, 90% of its $13 billion in loans and guarantees went to just ten large corporations. The bank also famously gave millions in generous support to Enron and Solyndra, two politically-connected companies that both went bankrupt shortly after. Taxpayers shouldn’t be in the business of providing taxpayer backing for risky loans.. AFP supports plans to terminate the Export-Import Bank because it provides an unfair advantage to a handful of foreign and domestic companies at the expense of the American taxpayer.

The Export-Import Bank puts taxpayers on the hook for risky loans to foreign borrowers.

With the smallest proportion of Americans working now than at any time since the 1970’s, it makes little sense to put American taxpayers on the hook for hundreds of billions in risky foreign loans – but that’s exactly what the Export-Import Bank enables.

Since the late 1990’s, Washington politicians have sent billions to countries like China, Russia, Venezuela and Saudi Arabia in the form of taxpayer backed loans through the Export-Import bank. In fact, many of the loans underwritten by the bank since its inception have been so risky, that the bank has already received one multi-billion dollar bailout.

American taxpayers shouldn’t be on the hook for any loans to foreign or domestic companies, let alone those that are too risky to secure private sector financing.

The Export-Import Bank has a negative impact on the economy.
Job Claims
The Export-Import Bank likes to claim that it helps the economy by boosting exports and creating jobs. In reality, the bank’s cheap loans and guarantees to foreign companies distort the marketplace by favoring large multinational corporations over their smaller counterparts. In 2013, the bank claims it helped sustain over 200,000 jobs however, their methodology is deeply flawed. The bank doesn’t actually count jobs related to its projects, but instead us projections based on a questionable formula. Furthermore they don’t specify if these jobs are full time, part-time or seasonal.

When the bank “creates” jobs in the export industry, it destroys jobs for domestic competitors. For example, the ALPA argues that the bank’s recent loans to foreign airlines eliminated over 7,500 jobs for domestic airlines.

While the Export Import Bank has professed it annually turns profits, its accounting practices are highly questionable. In the 1980’s the bank operated on a deficit of $5.3 billion. The bank also doesn’t adjust forecasts in the event of changes in the markets — changes which could affect the likelihood of future loan repayments.

Risk Models
The risk model employed by the bank is out of date therefore increasing taxpayer exposure to default. The Government Accountability Office scolded the bank in a report saying it “lacks a systematic approach to identity, measure, price and reserve for its portfolio risk.” Other flaws found in the bank’s risk analysis included a failure to conduct background checks on loan applicants, and failing to assign risk ratings for transactions. This is extremely troubling considering given that such basic vetting is standard practice for private lenders.
The Export-Import Bank is in danger of a taxpayer bailout.
Although the bank is privately run, the federal government backs all of its loans. This means that hardworking taxpayers must bail the bank out if it fails—as they did in 1987 for $3 billion. The lesson from the bank’s history, as well as the Fannie and Freddie crisis, is clear: federal credit programs inevitably cost taxpayers money.
The Ex-Im Bank currently claims it makes $800 million in profit each year. However, the Congressional Budget Office has argued that the bank’s outdated accounting methods cause it to overstate profits significantly. A recent MIT study using fair-value accounting practices found that the bank is actually losing $200 million a year – making yet another taxpayer funded bailout of the bank a likely possibility in the future.

Financing Exports should be left to the private sector.
Increasing exports may be the stated purpose of the Ex-Im Bank, but the free market would better serve this end. Firms in the private sector can step in and extend credit without burdening taxpayers, obstructing free trade, or providing financial sweetheart deals to big businesses and foreign consortiums. Private financial institutions, which already finance around 97% of America’s exports, do not engage in these transactions for a reason: the risk is too great that they will lose money. If Congress and the administration want to create conditions more favorable economic growth and job creation, they should focus on removing unnecessary barriers to investment, cutting back on excessive regulation and bureaucratic red tape, and reducing America’s crushing corporate tax rate.