Political Footballers Are Seeking To Kick Ex-Im Bank To The Sidelines, Yet Again

Although The Wall Street Journal is one of my absolutely favorite dailies, sometimes certain materials it publishes in its Opinion section force me to raise my eyebrows and shake my head.  Such was the case on Friday when I read an opinion letter titled  A Corporate Welfare Test, which called for a political attack on the US Ex-Im Bank and specifically for sabotage of its Chairman’s upcoming nomination.  Of course the author has a right to his/her opinion, but the fact that the piece does not contain accurate facts, is full of material omissions and is unsigned by the author, make it read more like a venomous political smut, rather than a balanced con argument it should have been.

Immediately my thoughts went to May of last year when a bloody, dirty and very public smear campaign was waged in the media to derail the Bank’s congressional reauthorization.

Following , are excerpts from the last year’s post, which very much apply to today’s situation,  “…  We have extensively covered this issue over the last few months on the pages of this blog, but it again boiled to the surface couple of days ago, as the House passed Ex-Im’s reauthorization, but it once again stalled in the Senate, where it was expected to pass without hinderance.
Yes, Ex-Im Bank, like 99.9% of our Federal Agencies could use improvement in the ways it does business (it is the most difficult Export Credit Agency to deal with out of all OECD countries); yes, it is highly political and it is justly and commonly referred to as “The Bank of Boeing”.
Yet, the Bank is an absolute contributor to the Federal Treasury.  It makes money for the taxpayers and funds over $30 billion of U.S. exports per year, supporting tens of thousands of American jobs and allowing businesses to take risks and sell abroad where they would not ordinarily do so. Losses on the portfolio of loans guaranteed by the bank are around 1.5% – completely in line with sound commercial banking practices.  These are indisputable facts and all those commenting bellow to the contrary are simply ignorant, or are using the issue for their political gain.  What is also indisputable is that until such time as all other nations decide to do away with their respective Export Credit Agencies, doing away with Ex-Im bank in the U.S. will cause great economic harm to our nation and will put our companies into a severe disadvantage as they try to compete on the increasingly competitive global arena.  To my knowledge, only U.S. lawmakers have been trying to advance the idea of elimination of ECAs in other countries and the idea has zero support in the international community.
Thus far we aired dirty laundry, embarrassed our country, spend untold taxpayers money debating the issue, but there is a silver lining that we could hold on to and improve the Ex-Im Bank and our national export policy.  So what positive things do I think should  happen as result of this issue being forced to the forefront of our Nation’s debate
I sincerely hope that some of our airline union leaders (especially Delta Airlines) really rethink their position, stop pointing fingers and instead try to address their problem of bloated inefficiencies from within in order to become more competitive globally
I do believe the Bank would benefit more from having people with business experience decide its fate, not politicians who use it as a football. Congress should appoint a non-partisan oversight board, which would be composed of different industry exporters and would be able to develop meaningful policies based on sound business principles and international experience exporting.  Something like this exists now in an informal corporate influence network, which exists around the bank. Why not formalize it, bring it to the surface and let the business help run the bank.
We also should look at other countries’ ECAs and adopt some of their lending practices.  The bank should become more nimble, its arcane content report policies should be completely reformed to reflect today’s reality.  It also should be given authority to expand its 400 or so staff by at least 50%.
Most importantly, the Senate should quickly and smoothly reauthorize the bank, and get this issue off the front pages of the newspapers. This way, we shall stop embarrassing ourselves to the world with half-baked ill supported arguments and insular protectionists views of some of our less informed political and media players. Our opponents relish when America suffers and debates like this play directly into their hands. Let’s stop the circus of Ex-Im proportions and get back to business of financing exports….” Fluent In Foreign May, 2012

A Corporate Welfare Test

The Ex-Im Bank has resisted reform. Will Republicans roll over?

Is there anyone who hasn’t heard Congressional Republicans promise to protect taxpayers from wasting more money subsidizing Uncle Sam’s various “government sponsored entities”? Well, it’s showtime. Their chance to redeem that promise has arrived with the reconfirmation vote on Fred Hochberg, chairman of the Export-Import Bank. And it looks as if Republicans may let this vote pass without demanding some answers from the Obama Administration about Ex-Im’s future.

A hold on the Hochberg nomination is the least the GOP can do after it dropped the Ex-Im ball last year. The bank provides taxpayer-backed loans, loan guarantees and insurance to clients of some of America’s plumpest corporations. When its reauthorization came up last year, Republicans merely needed to sit still to kill this relic of New Deal-era market intervention.

image

Agence France-Presse/Getty Images
US Export-Import Bank Chairman and President Fred Hochberg

Instead, the House leadership cut a deal with Democrats to reauthorize the bank and extend its lending cap by 40%—to $140 billion. In the Senate, South Carolina’s Lindsey Graham argued the U.S. couldn’t “unilaterally disarm” in the handout war, given that the Europeans still subsidize their businesses. What he meant was that BoeingBA -0.69%which has been the beneficiary of nearly half of Ex-Im’s largesse and makes planes in South Carolina, could count on more gravy.

Congress’s critics of Ex-Im (yes, they exist) got steamrolled, though not before inserting a provision telling the Treasury Secretary to start discussions with the Europeans to reduce—and eliminate—export subsidies. Treasury has since done nothing of note.

The bank is also belligerent about accepting oversight of its ballooning risk. Ex-Im’s inspector general issued a tough report in September on the bank’s poor management and its growing portfolio concentration in the airline industry. The IG’s sensible recommendations include that Ex-Im undergo stress testing, create a chief risk officer, impose some soft limits on its loan concentration and give its board more oversight authority.

Ex-Im promised stress testing but has produced no results. Mr. Hochberg resisted a chief risk officer until this month—and only under pressure from a House hearing. He has rejected portfolio limits that are de rigeur at serious financial institutions, as well as calls to empower his board. Ex-Im is also quick-marching toward its new cap, adding $10 billion in new lending in the last year.

Congress’s subsidy crew loves the Hochberg regime, and they are rushing to get him reconfirmed before his term expires July 20. The Senate Banking Committee rubber-stamped him in June; only two Republicans—Tom Coburn (Okla.) and Pat Toomey (Pa.)—had the grit to vote no. Mr. Hochberg’s supporters will resist any delay, since the terms of two other board members also expire in July. That would deny Ex-Im the quorum required to approve transactions.

Such a pause is exactly what’s needed. Before taxpayers are put further on the hook subsidizing the likes of Boeing and General ElectricGE -0.56% Mr. Hochberg needs to agree to more oversight and limits on the bank’s operations. And the Obama Administration needs to follow the law and put forth a credible strategy for ending export subsidies.

READ MORE IN: CIRCUS OF Ex-Im PROPORTIONS

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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