The Export-Import Bank came up in last night’s Democratic debate in Flint, Michigan. Many people have probably never heard of it, but to me a vote against it is one of the most indicative votes that Sen. Sanders has taken.
First, some background on the Bank.
The Export-Import bank is a loan-making credit agency of the U.S. government. It has a narrow specialty: dollar-denominated loans to foreign buyers of American goods or services, often big-ticket items. The existence of the agency is a basic testimonial to the concept of a public good: the expertise necessary to judge the risks in large, complicated loans to foreign purchasers, particularly in regions experiencing political uncertainty, is not one that many American banks care to establish. Since the number of loans in this market is small, multiple private banks competing in this sector would experience high risk of default and competition would cut profitability, while a small number of competitors would permit price-collaboration like the airline industry experiences. If no private banks stepped up, American manufacturers would lose sales because foreign buyers need dollar-denominated credit which is hard to get from foreign banks.
Worse, many other countries have do have such banks (the agency type, of which the Ex-Im Bank is one, is generally called an export credit agency), and so unless we enter into a trade agreement with all those countries to shut down their banks as well, disbanding ours means American companies are at a disadvantage competing with other countries whose manufacturers can secure credit for their customers.
In short, the Ex-Im Bank shoulders risk private companies don’t want to take, backed by the capital cushion of the United States Treasury, developing an expertise that any individual private bank would find unlikely to be profitable, and by doing so it creates a better, more competitive environment for exporting companies all across the U.S., supporting jobs in lucrative sectors. It is quintessentially the kind of service that private corporations do badly and that governments do well.
Naturally conservatives hate it.
There isn’t much of any other reason why. The Ex-Im Bank makes loans that generally get paid back: over the past couple of decades, the Bank has returned billions in profits to the U.S. Treasury, with a default rate of less than 0.3%. Now, because mathematics is upside-down in conservative world, you can read a paper from the Cato Institute saying “it is unlikely that the bank has profited and most unlikely that it makes the annual profit that it has stated, because the bank's calculations of profit fail to make proper adjustment for risk.” Apparently actual dollars in the Treasury aren’t real profit if nebulous risk factors can be applied to make future liabilities look as bad as you want. Risk is an issue, sure — I’m all for making sure pensions are fully funded — but I’m going to call a Cato Institute eyeballing of risk figures dubious, especially placed against historical data.
There’s an environmental case to be made against the Bank’s portfolio of loans, particularly their carbon value, but after a lawsuit on this issue the Bank is now monitoring the carbon impact of its projects. More can be done, especially accounting for carbon costs in sizing the loan portfolio, but monitoring alone is more than is required of any private bank.
Last year the Export-Import Bank’s charter was allowed to lapse, causing it to be unable to make new loans. The drive to do so was spearheaded by conservative legislators in the House. Here’s the company you were keeping if you were against Ex-Im:
Since then, however, the ranks of opponents have grown. Top GOP lawmakers, including House Budget Committee Chairman Tom Price, R-Ga., Ways and Means Committee Chairman Paul Ryan, R-Wis., and House Majority Leader Kevin McCarthy, R-Calif., oppose its renewal.
Americans for Prosperity, an influential conservative activist group affiliated with billionaire GOP mega-donors Charles and David Koch, has led the outside effort to end the bank, which has become a conservative litmus test in the 2016 presidential primary.
One of the main charges opponents raised was that it is “corporate welfare” or “crony capitalism,” making loans to a few large companies. In truth, many of its largest loans do go to one company, as Bernie mentioned in the debate Saturday: Boeing, hence a derogatory nickname for the bank, “The Bank of Boeing.” But the reason for this is simple: a Boeing 747 costs $357 million. There is basically no other American company that tends to take single-item orders that large from foreign buyers on a regular basis. Those are the Bank’s biggest-ticket items, but it makes many smaller loans, many of them supporting relatively small businesses; the Bank claims that it loans support over 100,000 American jobs. Yes, companies benefit from the Bank; but considering that the Bank profits from the transactions, it seems a little difficult to call the activity “corporate welfare.”
The kernel of the exchange between Clinton and Sanders last night was the fact that Bernie voted against reauthorization of Ex-Im after its charter lapsed. Here’s Bernie in his own words from his Senate website, explaining his vote:
At a time when almost every major corporation in this country has shut down plants and outsourced millions of American jobs, we should not be providing corporate welfare to multi-national corporations through the Export-Import Bank.
Instead of providing low-interest loans to multi-national companies that are shipping jobs to China and other low-wage countries, we should be investing in small businesses and worker-owned enterprises that want to create jobs in the United States of America. If the Export-Import Bank cannot be reformed to become a vehicle for real job creation in the United States, it should be eliminated.
But that has nothing to do with whether or not the Bank itself is doing its job, at zero cost to the American taxpayer. Supporting small businesses in America is great! We should do that! But small businesses with foreign customers can get loans from the Ex-Im Bank too. Only domestic companies with strictly domestic clientele can’t, and the Bank is a null entity in that market. You think domestic corporations serving American customers should be able to get low-interest loans backed by the Treasury? Great! Let’s create an infrastructure bank! Both Democratic candidates have infrastructure banks in their plans.
But unless you just feel like punishing big corporations like Boeing, killing the Ex-Im Bank literally does nothing to further the goal of helping small businesses, in fact makes it harder by ending the Bank’s payback of profit into the Treasury, and most directly makes trouble for American jobs supported by the Bank’s loans. As soon as the Bank’s charter lapsed, stories began trickling in:
Earlier this month, Orbital ATK became the second satellite manufacturer to lose business because Congress failed to renew the Ex-Im Bank's charter. Senior director Ted McFarland has explained that his Virginia-based company lost a competition for the Azerspace-2 satellite with the government of Azerbaijan because it could not provide export credit financing during the Ex-Im Bank's lapse. A foreign competitor won the deal.
If you would like to see what kinds of projects the Ex-Im Bank supports, you can view their entire loan portfolio on their website. Here are their Michigan loans. Of course the biggest recipient is Ford Motor Company, with $850 million in credit to their customers. But there are 237 corporations on that list, with all kinds of loans attached: Mag Automotive L. P. with $27mil; Michigan Wheel Corporation, with $39,000. You go, Biopro, Inc. of Port Huron, and your $2,676 loan.
Hillary Clinton has long been a supporter of the Ex-Im Bank. Sen. Sanders’ vote against it is a troubling mark on his record. He doesn’t seem like the vengeful type to merely spite a large corporation, so I’m not sure what his real motive is; I suppose we should take his statement at face value, which doesn’t make sense to me either, unless you just don’t like helping large corporations. One way or another, to me, it bespeaks an ideological purity which is nice to hear in a primary, and good for shaping the positions of the eventual nominee, but would not bode well for the decisions a President would need to make.
I live in Michigan and tomorrow I’ll be casting my vote for Hillary Clinton in the Democratic primary. There are other reasons, but this is one of them. If supporting American jobs is something you believe a President ought to pursue, then I hope you’ll join me.