Cantor’s Loss a Warning Shot to Supporters of Ex-Im Bank and Johnson-Crapo
CEI Research Associate John Breeden contributed to this post.
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.
On the stump in Mechanicsville, Va., Brat proclaimed: ”I’m not against business. I’m against big business in bed with big government.” (Hat tip to Lee Fang at the left-leaning Republic Report for finding this and other good Brat quotes on the topic of business-government collusion, though Fang wrongly conflates cronyism with deregulatory polices in general.)
The key phrase from Brat is “big business in bed with big government.” Any politician supporting direct or indirect government subsidies or favoritism to certain businesses – rather than free-market policies that benefit all firms – is vulnerable to charges of cronyism that this primary shows many voters take seriously.
That Boeing’s stock price tumbled 2.3 percent the day after Cantor’s loss showed how close the big manufacturer is tied to the Export-Import Bank and how close the prospects of the Export-Import Bank were tied to Cantor. Will referred to the government agency as “Boeing’s bank” and others have made similar observations about big firms being the major recipients of the Export-Import Bank’s largesse.
The Heritage Foundation’s Diane Katz notes that “multinational corporations attract the largest proportion of Ex–Im financing, including the construction and engineering firm of Bechtel, ranked by Forbes as the fourth-largest privately held company by revenue, and Lockheed Martin, valued in excess of $50 billion.” And as my colleague Iain Murray has shown, the bulk of this financing also goes to export purchasers in wealthy European countries.
This is why more and more lawmakers and policy groups have called for an end to the Export-Import Bank. CEI is proud to be one of 30 organizations that signed a letter urging members of Congress to oppose reauthorization. The letter states, “By paying foreign companies to buy American exports, the Export-Import Bank tilts the playing field away from mid-sized and small businesses in favor of large, politically connected corporations.” The letter also notes that the Bank understates its risks to taxpayers by relying on “obsolete accounting methods that significantly overstate its profits.”
Efforts to deauthorize the Export-Import Bank have received a strong boost from House Financial Services Committee Chairman Jeb Hensarling (R-Texas). In a May speech at the Heritage Foundation, Hensarling proclaimed: “There is probably no better poster child of the Washington insider economy and corporate welfare than the Export-Import Bank. Its demise would clearly be one of the few achievable victories for the Main Street competitive economy left in this Congress.”
Yet Cantor, who had cut a deal in 2012 with House Minority Whip Steny Hoyer (D-Md.) to bring reauthorization to the floor, reportedly still stood with Export-Import Bank. Now Cantor won’t be standing on the House floor at all for much longer. As Washington Examiner cronyism chronicler (and former CEI Warren T. Brookes Journalism Fellow) Timothy P. Carney writes, “Sounds like free-market populism has some teeth — and it's already drawn some blood.”
And the next place this populism could bite is on the collective rear of supporters of Johnson-Crapo, the pseudo-reform of Fannie Mae and Freddie Mac that actually expands the government’s role in housing and would serve as a direct backstop to Wall Street banks securitizing mortgages. As I have written here, under the bill, these banks will get government protection for “90 percent of losses from mortgage instruments insured by the new Federal Mortgage Insurance Corporation (Feddie Mic).”
CEI coordinated a letter opposing Johnson-Crapo, which narrowly passed the Senate Banking Committee last month, signed by 26 conservative and free-market leaders. But cronyism was also part of the critique of opponents of Johnson-Crapo on the left. David Dayen wrote at Salon that “all Johnson-Crapo would do is eliminate Wall Street’s competition, allowing them to corner a lucrative market while only carrying a sliver of the risk.”
While pro-market does not mean pro-business, it doesn’t mean anti-business either, or even anti-big business. At the same time Hensarling is pushing to wean big manufacturers away from the teat of the Export-Import Bank, he is pushing legislation that will benefit them – as well as consumers, employees, and the economy as a whole – by rolling back Dodd-Frank’s strangling red tape on the use of derivatives to hedge export risks of currency fluctuation and inflation.
Pairing the trimming of subsidies and regulation is also consistent with David Brat’s stump speech attacking “the burdensome regulations of FinReg (Obama’s financial reform bill) and Obamacare.”
So the events of last week hold promise that Congress may “get more done” in its most important duty: curbing Washington’s assault on “Main Street” from its souped-up subsidies to its meddling mandates.
Disclosure: Berlau owns shares in Boeing.