The Corner

How Weird: With Ex-Im in Danger, More Export Deals Are Finding Private Financing

Last week, to tepid fanfare, the Export-Import Bank issued a press release informing us that its export credit subsidies generated $675 million in profits for taxpayers in Fiscal Year 2014. The Hill reported that bank chairman Fred Hochber “said the surplus is as another illustration of how the bank helps the economy.”

Unfortunately for Chairman Hochberg, this so-called “surplus” is just an illustration of how improper accounting can conceal government monkey-business.

Back in June, I mentioned the interesting accounting practices employed by Ex-Im, along with the Department of Education (DOE) and the Federal Housing Administration (FHA). Unlike businesses and most government agencies, these bodies employ a strange accounting method laid out by the Federal Credit Reform Act of 1990 (FCRA) to report on their respective export-credit subsidies, student loans, and single-family-mortgage insurance products.

The federal government’s nonpartisan Congressional Budget Office, along with most economists (see this piece by liberal Dean Baker, for instance) is deeply skeptical of this practice. Where Ex-Im, DOE, and the FHA projected plum profits using their own methodology, the CBO believes that the programs come at a substantial cost. Check out the chart below:

I described a bit about the methodology differences back in June:

The discrepancies between the calculations yielded through FCRA accounting and those from CBO’s fair-value accounting rest in the different interest rates that each method employs. The         Ex-Im Bank’s FCRA calculates present value using US Treasury securities rates as a guide. The CBO’s fair-value approach, on the other hand, uses market interest rates to calculate the          present value of expected future cash flows. A previous CBO report from May 2012 explains in detail how using market values can better account for the cost of the government’s risk.

(Be sure to click on the linked CBO report for a more in depth explanation of the problem.)

For these reasons, we shouldn’t jump for joy about supposed “profits” down at Ex-Im. And even ignoring the valuation differences, we can’t verify whether what Ex-Im reports is true in the first place. Many of the crucial financial records that would verify or dispute their claims are simply kept hidden.

I was a little surprised at the quiet response to the announcement — you might have expected Ex-Im defenders to be shouting from the rooftops. The Hill gives us one clue as to why:

The bank, which was reauthorized in September over the opposition of conservatives, reported a much larger profit in the last fiscal year of $1.057 billion. An Ex-Im spokesman said the bank’s revenue declined because the private market has begun to enter into some of the deals that the bank has traditionally financed.

Here’s a conundrum for Ex-Im defenders: If the market is able to handle more of the projects that Ex-Im handled in the past, then the Bank’s days might be numbered even without the growing free-market opposition. And if the private market is now doing a large number of deals Ex-Im formerly financed, the bank may be doing a significant amount of business its charter doesn’t authorize. Besides, we already know that a good bulk of Ex-Im’s portfolio consists of deals that could easily find private financing, as clients, researchers, and even Boeing executives have long admitted.

For more reasons that the “Ex-Im makes a profit” argument is nonsensical, see this June Washington Examiner article from Tim Carney or my earlier academic research on the subject.

Also, you can read this excellent piece by the Heritage Foundation Diane Katz about why Boeing, the bank’s biggest customer, will be okay without it.


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