Time for Ex-Im to Ex-it
You would think by now that policymakers in Washington would have learned their lesson. You would think the last thing they’d do is increase the credit limit of another quasi-governmental lending agency that obligates the American taxpayer behind every loan they make.
But you’d be wrong.
The Export Import Bank (Ex-Im) was started by executive order in 1934 by Franklin Roosevelt in order to facilitate loans to the Soviet Union. Today it offers loans to foreign companies so that they can purchase the exported products of U.S. companies. We want people to buy our products, don’t we? So giving a quasi-governmental agency power to offer them financing is good too, right?
Dig a little deeper. More recently, Ex-Im has financed loans to Enron and Solyndra. General Electric, which earned $150 billion in profits in 2010, benefitted from over $1 billion in Ex-Im loans that same year, according to Senator Jim DeMint.
But it gets even worse. According to Timothy Carney, the Ex-Im Bank loaned $455 million to a company named First Solar to sell solar panels to . . . itself.
It’s even possible that Ex-Im loaned $243 million to Mexican drug cartels, which was never repaid, of course.
That’s quite a track record to chuckle about, but this is typical of quasi-government agencies endowed with the power to award enormous sums of money to the well-connected. It’s a breeding ground for corruption, to say nothing of simple incompetence and scandal.
Proponents argue that the Export-Import Bank promotes trade, and that anyone who claims to be in favor of free-trade (like IPI) should support the Bank.
But think what else Ex-Im loans do. They offer subsidized loans to companies that compete against U.S. companies. How is that in America’s best interest?
For instance, Delta Airlines, an American company, points out that the Ex-Im Bank subsidizes loans to foreign airlines to finance purchases from Boeing. So, in the name of promoting trade, Ex-Im helps Boeing but disadvantages Delta.
This is an example of moral hazard, and the law of unintended consequences. But even worse, any quasi-governmental organization backed by the full faith and credit of the United States is another bailout waiting to happen.
Ex-Im, of course, says that’s nonsense. But for decades Fannie Mae and Freddie Mac insisted that they would never need to tap the American taxpayer for a bailout, even while paying millions to Clinton administration cronies Franklin Raines and Jamie Gorelick. And we haven’t even begun to solve the Fannie Mae recapitalization problem.
Meanwhile Ex-Im is asking for not just reauthorization but a 40 percent increase in its $100 billion lending cap. It’s as if Congress is incapable of learning anything.
The best thing Congress could do to promote American exports would be to move to a border-adjustable, territorial corporate tax system, as we’ve often advocated.
In the meantime, take no comfort from yesterday’s Senate vote against reauthorizing the Ex-Im Bank. That was simply a procedural move to advance the Jobs Act. It will take political courage, but the Ex-Im Bank should be phased out rather than given a credit increase, and as quickly as possible.