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Ex-Im Bank's Bad Rap for Crony Capitalism

Albert R. Hunt is a Bloomberg View columnist. He was the executive editor of Bloomberg News, before which he was a reporter, bureau chief and executive Washington editor at the Wall Street Journal.
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It's tempting to celebrate the demise of the U.S. Export-Import Bank, whose authority expired last week. The bank, which subsidizes the sale of U.S. goods abroad, is held up by its congressional critics as an example of crony capitalism.

Among the companies lobbying to keep it going was General Electric, whose revenue was almost $150 billion last year, with profit of $15 billion. Why, opponents ask, does it need government help?

QuickTake U.S. Export-Import Bank

Yet the odds are that the bank will rise from its death bed and be reauthorized. The politics are intense -- the political right has a lot vested in killing the bank -- and could affect future congressional leadership. The process will be messy.

The theoretical case against Ex-Im is compelling: Corporate welfare isn't among the more pressing claims for government assistance. In practice, the argument breaks down: The bank is a job creator, at no cost to the taxpayers.

Started by Franklin D. Roosevelt, it provides direct loans and loan guarantees at low interest rates to foreign entities to buy U.S. products. Many countries require this kind of support as a condition for importing U.S. goods, and in many cases these are transactions that private banks won't undertake.

Ex-Im accounts for only about 2 percent of U.S. exports, which have soared in recent years. Most other nations have export credit agencies and some, especially China, are much more aggressive about selling abroad than the U.S.

Last year, the bank returned $675 million to the Treasury, mostly from the fees and interest it charges on loans. The deals it underwrote helped create more than 160,000 jobs. The default rate was less than 1 percent.

Critics contend that a big chunk of Ex-Im's lending goes to a handful of large companies such as Boeing and GE. There is some truth to that claim, though Commerce Secretary Penny Pritzker says, "They're forgetting about the supply chains, the thousands of small and medium sized companies that benefit."

GE gets Ex-Im Bank assistance for projects such as locomotives for Angola or a water project for Cameroon, which are among the dozens of countries that require export credit funding, and where private financing wouldn't be available.

Nonetheless, killing the bank has become a cause celebre for conservative think tanks and some politicians, who oppose a government program that benefits big business and is supported by President Barack Obama.

The presidential candidate Ted Cruz and other Republican leaders are making defunding the bank a conservative litmus test. Last year, Texas Governor Rick Perry was a big booster of the bank, which he called a job creator in his state. In May of this year, as a presidential candidate, he came out against reauthorization.

The congressional politics are Byzantine. A solid majority in both houses supports the bank. In a procedural vote last month, it was backed by 65 senators, enough to overcome any filibuster; opposition came from mainly conservative Republicans and Bernie Sanders, the independent Socialist from Vermont who's running for president.

In the House, opponents, led by Financial Services Committee Chairman Jeb Hensarling, don't want a floor vote, arguing that a majority of the Republican caucus wouldn't stand with Ex-Im. 

Hensarling has leadership ambitions and, hearing his footsteps, other party leaders have flipped and now oppose defunding; House Speaker John Boehner is waffling. Associates say he doesn't relish a fight with his caucus's right wing. They say he is worried that a clash over Ex-Im would make it more difficult to win important battles on fiscal issues, such as the debt ceiling, later this year. 

Senate supporters of the bank will meet with the president this week to map strategy and determine the changes in the authorization that would be acceptable. The most likely course is to attach Ex-Im to a "must pass" bill, likely the highway authorization, and send it to the House where there are enough votes to pass it.

If that succeeds, the critics of crony capitalism can easily find new targets. The U.S. tax code is a gold mine of corporate welfare.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Albert R. Hunt at ahunt1@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net