Recent polls suggest that Americans distrust the federal government and officials in Washington, D.C. The numbers aren’t particularly surprising: given the rampant waste, fraud and inefficiencies in the national bureaucracy, it’s no wonder this is the case.
Politicians and pundits alike agree that the federal government spends far too much, making promises it can’t fulfill and writing checks it simply can’t cash. It’s squarely in this dilemma that the Export-Import Bank finds itself.
The taxpayer-backed bank is a particularly egregious example of the federal government’s tendency toward wasteful overspending and unnecessary risk-taking. It’s an institution that damages our own economy by directing billions of taxpayer-backed dollars to the pockets of politically favored actors, costing us jobs.
Each year the Ex-Im Bank puts billions of government dollars into a wide array of investments. Some marginally succeed while others fall devastatingly short, like green energy boondoggles Solyndra and Abound Solar, both of which went bankrupt after receiving millions in funding from the Ex-Im Bank.
SolarWorld, another green energy firm on which various aspects of the federal government has shown great favor, offers a similar story: after receiving a loan guarantee of $61 million from the Ex-Im Bank in 2009, the company closed its U.S. manufacturing base and laid off 186 American employees.
These are just a few results achieved by your Ex-Im Bank. These green energy are particularly distressing, but the Bank’s greatest failings are central to the airline industry.
Ex-Im invests the vast majority of its annual budget in one company—Boeing–to facilitate the purchase of American-made aircrafts across the globe. While a seemingly noble concept, these loans and guarantees directly benefit foreign competitors, necessarily penalizing American firms that cannot afford to compete with the generous terms offered by our own taxpayer-funded bank.
The Ex-Im Bank’s FY2012 budget is a perfect example of this backward policy. Of the $14.7 billion the bank spent, a staggering 84 percent was earmarked for Boeing.
Foreign airlines, benefitting from this access to U.S. funds, bought as many planes as they could to expand their routes to and from the United States, while increasing their profit margins. As a result of the Ex-Im’s Bank’s manipulation of the international market, fair-playing domestic airlines lost passengers to their well-subsidized foreign rivals.
It is conservatively estimated that Ex-Im costs the U.S. airline industry up to 7,500 jobs and over $680 million per year.
In response to these statistics, Congress finally acted last summer to prevent the Ex-Im Bank from damaging American companies further. Congressional leaders later attempted to instill greater transparency and accountability into the organization, compelling it to consider the effect of its policies on the greater U.S. economy.
Specifically, the new laws called for the Ex-Im Bank to implement “economic impact procedures,” a practice that would require the bank to be open about its loan application and loan granting process. Congress also required Ex-Im to declare whether its financing of foreign airlines would go toward entities that compete with U.S. companies.
While these reforms were in no way onerous, the Ex-Im Bank has yet to abide by any of them.
Where the bank was supposed to limit financing to foreign-based competitors, it has continued to loan and guarantee billions. Where it was supposed to be transparent in its application and awarding process, it has remained silent.
The waste and overspending practiced by the Ex-Im Bank has continued unabated.
Now, a new effort—led by Delta Airlines, Hawaiian Airlines and the Air Line Pilots Association International—is underway to reform Ex-Im more structurally. These organizations have filed a lawsuit against the Export-Import Bank for its role in damaging the U.S. economy. The suit alleges that the Ex-Im Bank is not adhering to the transparency procedures written into law when conducting economic analysis, and therefore acting illegally.
This lawsuit is the logical outcome of a scenario in which a government agency acts above the law in pursuit of an agenda that rewards well-connected businesses and lobbyists at the expense of other employers.
The Ex-Im Bank must be held accountable to the law and its shareholders—you, the taxpayer–and required to operate consistent with the law; otherwise, they will continue to threaten more American companies working to create jobs and compete in the marketplace.
Government bureaucrats seem to find all kinds of ways to extract “revenue” from citizens and, increasingly, their preferred avenues are such that they mask these big government motives. That is certainly the case behind new changes to Fannie Mae and Freddie Mac – the Government Sponsored Enterprises (GSEs) that still owe American taxpayers $142 billion.
In August, the Treasury Department announced that it was changing the fundamental structure of these entities, just as the GSEs began to report quarterly profits. No longer will the government require Fannie and Freddie to pay a 10 percent annual dividend, rather the companies owe their entire quarterly profits to the government. In times when there are no profits, nothing is owed – and that is the catch.
Instead of guaranteeing taxpayers are repaid for their loans through regular installments, the Treasury’s move does the opposite. Mark Calabria from the Cato Institute notes that the GSEs “have never had a year where their profits would have covered the dividend payments” and this change “definitely means the taxpayer’s potential recoupment is lower.” Worse yet, the Treasury has put Fannie and Freddie’s other creditors ahead of the U.S. taxpayers.
Not only does this move diminish the probability that taxpayers will ever be paid back for their generosity, it also gives the government a source of revenue that it can secretly pass on – this time to unsuspecting homeowners. Homeowners are already financing the payroll tax holiday. Now the federal regulator in charge of the GSEs is requiring them to hike some fees. And because of the earlier Treasury decision, the proceeds from those fee hikes go to the federal government. Does anyone in their right mind think the federal government will use those fee proceeds to lighten the load on American taxpayers? Of course not. Washington will spend that money as soon as they have it, if the politicians haven’t spent it already.
It’s not hard to see where this is going. Representative Spencer Baucus calls the new arrangement a “permanent, off-budget source of funding for housing that [the Administration] will control.”
This new source of revenue is dangerous for the American taxpayer and for homeowners. Fannie and Freddie control more than $5 trillion in home mortgages, which touch 31 million homeowners. That equates to 90 percent of all new residential loans.
Now that the government’s hand is in the cookie jar, it’s unlikely that there will be anything more than crumbs left for taxpayers.