September 11, 2014 12:21 PM
A vote on the Continuing Resolution, which includes the controversial Export-Import Bank reauthorization was originally scheduled for today, but has been pushed back to next week. So the combat continues over how long the Ex-Im reauthorization will last, and what other conditions might included as part of the deal. In today’s Washington Times, National Association of Manufacturers President Jay Timmons and I have dueling op-eds, with Timmons favoring reauthorizing Ex-Im, and me wanting to end it. The Wall Street Journal also weighed in with an editorial this morning, sharing my skepticism of Ex-Im.
Timmons makes three points in his piece that deserve a response. First, he argues that Ex-Im fills in gaps in private financing:
Ex-Im Bank provides financing that is critical to fill gaps when private-sector financing for small and large manufacturers is not available.
If Ex-Im makes a profit, as Timmons argues it does, then surely private banks would welcome an opportunity to make money for themselves by lending to more exporting businesses and their customers. If Ex-Im loses money, as the Congressional Budget Office convincingly argues, then there is no financing gap to be filled, and Ex-Im is financing too many insolvent projects.
Second, Timmons commits the “but other governments do it, too” fallacy:
September 9, 2014 12:29 PM
It appears Congress will decide the Export-Import Bank’s short-term fate this week. There are several bills with different reauthorization terms, and Rep. Justin Amash and Sen. Mike Lee even have a bill that would shutter the bank altogether. None of the bills have made it out of the House Financial Services Committee, which is chaired by Rep. Jeb Hensarling, who opposes the bank. What will likely happen instead is that Ex-Im reauthorization will be included in a Continuing Resolution (CR), which Congress must pass by September 30 to avoid a government shutdown.
The current battle isn’t whether Ex-Im will be reauthorized, it is how long the reauthorization will last. There are two likely options. Ex-Im opponents would prefer a reauthorization through early 2015. Ex-Im opposition is bipartisan, but the GOP has been more vocal about it, and most political observers are expecting Republicans to gain seats this November. Depending on how the numbers play out, when the new Congress convenes in January, it might be possible for Congressional Republicans to either let Ex-Im’s charter expire, or pass a bill similar to Amash and Lee’s to actively kill the bank, even if they can’t get much Democratic support.
Ex-Im’s defenders would rather keep the shutdown card in their hand; Ex-Im opponents will not risk a shutdown over a program equivalent to less than one percent of the federal budget. That’s why they want Ex-Im’s reauthorization to be the same length of any Continuing Resolution that gets passed, however long that might be. Even though that would be a shorter-term reauthorization, they can continue to renew Ex-Im with each CR that must pass going forward, knowing that it will succeed.
September 3, 2014 5:23 PM
Congress comes back from its annual August recess next week. One of the top items on its agenda is deciding the Export-Import Bank’s fate. Ex-Im subsidizes financing for U.S. exporters and their foreign customers. As I outlined here, Ex-Im subsidizes certain businesses at others’ expense. It is a pro-business policy, when what the economy needs are pro-market policies. Ex-Im will also be forced to shut its doors unless Congress reauthorizes its charter by the end of September, making for a golden reform opportunity for corporate welfare opponents.
The merits of the issue are clear enough, but politics is getting in the way. A bill to reauthorizes Ex-Im’s charter would likely pass the Senate, but would have trouble getting through the House. This would ordinarily mean that Ex-Im opponents would succeed in shuttering the agency, since Ex-Im’s expiration is automatic without reauthorization. That means Ex-Im supporters will probably pursue other means, such as tucking Ex-Im’s reauthorization into a must-pass appropriations bill. Ex-Im opponents would have no choice but to swallow that poison pill, or risk another politically costly government shutdown.
August 12, 2014 12:12 PM
One of the weakest arguments against free trade is the "unilateral disarmament" fallacy--that a country should refuse to liberalize its trade policies until other countries liberalize theirs. If your opponent uses it, you almost automatically win the debate. The Export-Import Bank's defenders must be getting desperate, because they are now having to resort to the unilateral disarmament fallacy. Here's a letter I sent to the Cleveland Plain-Dealer setting the record straight:
Editor, Cleveland Plain-Dealer:
George Landrith’s argument that the U.S. should subsidize certain businesses because other countries subsidize some of their businesses is equivalent to saying the U.S. government should stop ripping off its citizens only when foreign governments stop ripping off their own citizens (“Why keep the Ex-Im Bank? Unilateral economic disarmament is as unsound as unilateral defensive disarmament,” August 10).
The Export-Import Bank’s special favors make U.S. businesses less competitive by rewarding political connections over customer service, and have led to 74 corruption allegations during the last five years. If other countries want such problems, fine. But the U.S. can, and should, do better by closing the Ex-Im Bank this fall, regardless of what other countries do.
Fellow, Competitive Enterprise Institute
Author of the study, “Ten Reasons to Abolish the Export-Import Bank.”
August 8, 2014 11:34 AM
Over at American Banker’s BankThink blog, I have a piece making the case for closing the Export-Import Bank, mostly on corruption grounds:
The Wall Street Journal reported on June 23 that four Ex-Im employees have been removed or suspended in recent months, "amid investigations into allegations of gifts and kickbacks."
Former Ex-Im employee Johnny Gutierrez allegedly accepted cash payments from an executive of a Florida-based construction equipment manufacturer that has received Ex-Im financing on multiple occasions. In a July 28 congressional hearing, Gutierrez chose to plead the Fifth Amendment rather than deny the allegations. The other cases involve two "allegations of improperly awarding contracts to help run the agency" and another employee who accepted gifts from an Ex-Im suitor.
July 25, 2014 1:19 PM
Should we worry about a crisis in subprime auto loans? That question has been asked in the financial media lately.
My answer is yes, with caveats. While there are important differences in the auto and mortgage markets, there are similar government interventions that have the potential to fuel a bubble in car loans the same way they did for home loans.
First, the differences. So far, thankfully, there is no auto equivalent of a Fannie Mae, Freddie Mac, or other government-sponsored enterprise to inflate the car loan market. Sure, there have been lots of bailouts in the auto industry in general, but the secondary market in car loans has developed largely on its own.
And without a government backstop, it is much smaller than the mortgage market ever was. An otherwise alarmist front-page story this week by The New York Times conceded, “the size of the subprime auto loan market is a tiny fraction of what the subprime mortgage market was at its peak, and its implosion would not have the same far-reaching consequences.”
Also, unlike with mortgages, there is no expectation among the vast majority of lenders of borrowers that a car’s value will appreciate. Most folks know that a car will be “underwater” the minute it is driven off the lot, and the loans are priced with that reality in mind.
Yet, there are some striking similarities. But not the ones the NYT or other nannyists point to.
July 8, 2014 10:02 AM
Over at Rare, I have a piece on the cronyism angle of the Export-Import Bank debate. The Senate will likely vote this on month on whether or not to end the bank:
[I]f government is going to dole out corporate welfare, the most efficient way to do it is to hand out cold, hard cash. Straight subsidies don’t distort international markets or invite corruption the way export subsidies do.
But most cash gifts to corporations are political non-starters. They’re a little too obvious. So companies and allied politicians need cover stories. The Export-Import Bank fits the bill.
An official logo, sophisticated-sounding economic rhetoric, and appeals to American jobs and patriotism are designed to make people feel good about the special favors Ex-Im performs for businesses.
Read the whole thing here.
July 2, 2014 4:11 PM
If you wanted to encourage wastefully run colleges to ratchet up their tuition at taxpayer expense, you couldn’t come up with a better way than the Obama administration’s recent expansion of the Pay As You Earn program. That program limits borrowers' monthly debt payments to 10 percent of their discretionary income. The balance of their loans is then forgiven after 20 years—or just 10 years, if the borrower works for the government or a nonprofit.
It will cost taxpayers a bundle, while doing nothing for most student borrowers (who may experience tuition increases as a result), and it will favor imprudent borrowers over prudent borrowers.
Most students chose inexpensive colleges or otherwise borrowed modestly, meaning “the average graduate’s debt level of $27,000” is no more than “the price of a car.” They will not choose to participate in this program, since they would pay more, rather than less, by paying ten percent of their income for years, which could add up to much more than $27,000 over a 20-year period.
But imprudent borrowers who borrowed much more than that, for a major that does not lead to a high-paying job, will now be able to limit their payments to a fixed percentage of their discretionary income, and then have the unpaid balance remaining after 20 years (or just 10 years, if they go to work in the federal bureaucracy) written off at taxpayer expense, no matter how huge the unpaid balance is.
June 19, 2014 9:46 AM
The Export-Import Bank is up for reauthorization in September. If the vote fails in Congress, the Bank and its $140 billion portfolio will cease to exist. In an effort to appeal to free-market types who oppose Ex-Im, the Aerospace Industries Association is invoking Ronald Reagan. A page two ad in today’s Politico and an accompanying fact sheet sent to every member’s office on Capitol Hill prominently feature Reagan’s image and include quotes of the Gipper praising Ex-Im.
The fact sheet even notes that Reagan increased the cap on Ex-Im’s lending portfolio by 14 percent from 1981-86, from $8.8 billion to $12 billion. Then again—Reagan cut Ex-Im in 1983 and again in 1988. And over Reagan’s entire time in office, Ex-Im’s cap actually shrank in real terms. You can check the numbers yourself with the Minneapolis Fed’s handy inflation calculator.
June 16, 2014 4:31 PM
Defying conventional wisdom as he often does, Pulitzer prize-winning pundit George F. Will disputed the notion that in the wake of the shocking primary loss of House Majority Leader Eric Cantor (R-Va.), even less in Congress will get done.
“I’ll tell you something that may get done now because of this and that is deauthorizing – refusing to reauthorize -- the Export-Import Bank.” Will said on “Fox News Sunday” (hat tip to National Review for providing the clip.)
Will went on to state his view that “the Export-Import bank played as large a role in that election as immigration did.” Michael Barone also lists Cantor’s support of reauthorizing the Export-Import Bank as a reason for the stunning loss.
While political prognostication is admittedly not OpenMarket’s expertise, the Export-Import Bank – a government backstop for foreign businesses buying goods from large U.S. corporations -- does seem to fit the “cronyism” charges of Cantor’s victorious opponent Dave Brat. And though not an issue in the Brat-Cantor race, the Senate Banking Committee’s GSE “reform” legislation known as Johnson-Crapo would fit that bill as well.