The Corner

Joe Nocera Mounts the Worst Defense of the Ex-Im Bank Ever

Sometimes, I spend so much time berating anti-market and cronyist forces on the right that I forget that they are plenty common on the left, too. So today, I turn my attention to the New York Times’ Joe Nocera who is the author of a piece about “the fate of a most useful government agency” that’s become “the latest tea-party pinata.”

That agency? The Ex-Im Bank. His article, which to my knowledge wasn’t trying to be funny but turns out to be, is really a good example of how terrible defenses of the Export-Import Bank can get.

To Nocera, government-backed projects and programs like Solyndra (which, by the way, received financial assistance from the Export-Import Bank in addition to its Department of Energy loans), Fannie Mae, and bailouts for Wall Street (also big players in Ex-Im assistance) and Big Auto companies (more big Ex-Im beneficiaries!) are not shameful corporatist ploys that threaten the integrity of our democracy, but politicized tea-party bugaboos that ostensibly-anti-corporatist progressives can safely ignore. The Export-Import Bank is merely the latest unfair victim of small government antagonism, in other words.

How does make this case? With canned talking points, debunked statistics, and tilting at the windmills of the scary tea-party menace.

Let’s take his claims one by one.

First, Nocera claims that the bank “promotes exports.” Well, yes, but barely: Perhaps Nocera should take a look at Ex-Im’s own records, which show that the $37.4 billion in bank backing for FY 2013 constitutes only 1.6 percent of the $2.28 trillion in total export value reported by the Census for 2013.

Nocera himself acknowledges, but downplays, the fact that much of this assistance goes to mega-corporations like Boeing, who received roughly 66 percent of the Bank’s entire portfolio of loan guarantees in 2013. He conveniently neglects to mention that the fact that Ex-Im’s own leader, Fred Hochberg, has publicly admitted that these firms can “arrange their own financing” without the bank’s help.

Next, Nocera claims that the bank “promotes American jobs.” To bolster his case, he points to Ex-Im’s claims that it “created or maintained” 205,000 jobs last year and 1.2 million jobs since 2009. If Nocera’s Google skills were up to date, he would have found a recent report from the Government Accountability Office (truly a fine government body) that finds the bank’s calculation method for these jobs numbers leaving much to be desired.

The May 2013 GAO report criticized the bank for concealing the many methodological weaknesses that underlie its attractive “205,000 jobs” numberEx-Im does not distinguish between full-time, part-time, and seasonal employment, thus painting a much rosier, but inaccurate, picture. Additionally, Ex-Im does not control for selection effects wherein Ex-Im-supported firms or industries may differ from the “average” firms or industries that the bank purports to similarly benefit. Finally, and most critically, GAO criticized the bank for not considering the unseen counterfactual of how many jobs would have existed without any intervention at all. After considering these weaknesses together, the Bank’s pretty “205,000 jobs” number is shown to be more a questionable PR claim tool than a piece of of sound economic analysis.

The GAO report concludes, “Because of a lack of reporting on the assumptions and limitations of its methodology and data, Congressional and public stakeholders may not fully understand what the jobs number that Ex-Im reports represents and the extent to which Ex-Im’s financing may have affected U.S. employment.” In other words . . . Nocera is among the public stakeholders the GAO was trying to warn.

Nocera also points out that “sometimes the loans are small,” as Ex-Im fans inevitably do when challenged by the obvious cronyism riddling the bank’s portfolio — they turn to the press releases and success stories of a few “small business” poster children to distract from the bank’s real beneficiaries, mega-manufacturers.

The bank itself provides a dishonest picture of its small-business portfolio: Its FY 2013 Annual Report vaunts that “the Bank approved a record 3,413 transactions, or 89 percent, for small businesses.”

This statement is curiously incomplete. It is true that 89 percent of the total number of deals involved firms that fit the bank’s definition of a “small business.” However, when you look at the total amounts that the bank distributes, the picture is decidedly different. During FY 2013, for instance, only $5.2 billion of the $27.3 billion in total authorization amounts, or 19 percent, was designated as “small business” activity on the Ex-Im Bank’s annual report.  (Meanwhile, the bank’s own charter mandates that no less than 20 percent of total authority for each fiscal year be directly made available to small-business concerns.)

Interestingly, small businesses themselves aren’t so hot about the Ex-Im Bank. A small-business survey collected by the bank itself reports that a paltry 55 percent of respondents either “strongly agreed or agreed” (this was the only affirmative response available) that they would not have accessed as many export opportunities without Ex-Im. Hardly the resounding success of a “most useful government agency.”

The most embarrassing part of his argument, however, is Nocera’s insistence that the Export-Import Bank “costs the taxpayers nothing,” “regularly sends money to the Treasury to reduce the debt,” and that its “default rate is negligible.” Nocera appears to only read Ex-Im propaganda and skip over the critical reports that flow from the nonpartisan GAO, Congressional Budget Office (CBO), and the Bank’s own frazzled Office of the Inspector General (OIG). Nocera can be forgiven for forgetting the faraway history of the $3 billion bailout that the “most useful” Export-Import Bank may have required in 1987, but there is no excuse for ignoring recent research.

A CBO report released only a few weeks ago soundly debunks the myth of Ex-Im “profits.” While the bank’s flawed accounting methods projected budget surpluses of $14 billion over the next decade, the CBO’s more accurate fair-value accounting method shows that the bank is slated to cost taxpayers $2 billion by 2014.

What’s more, the bank’s default rate and risk reporting have been soundly criticized for years now by the GAO and the bank’s OIG. To begin with, OIG warns that Ex-Im employs an unjustifiably narrow definition of “default,” which only includes unpaid past-due loans and claims paid to privately insured transactions, saying that Ex-Im lacks a systemic approach to identify, measure, price, and reward” its many portfolio risks.” The Inspector General points out that the bank doesn’t even have access to the proper empirical data on the impaired assets in its portfolio, much less employ the right modeling techniques to measure these assets. What’s more, the GAO found that the bank did not even use its own default data to calculate program costs and exposure! The bank doesn’t stress-test its portfolio, yet here is Nocera trumpeting its healthy default rate. (Here’s a hint, Joe: Fannie Mae and Freddie Mac’s default rates were “negligible” for a few years also.)

Nocera then uses Ex-Im chairman Fred Hochberg’s words to argue that the bank supports “jobs . . . facing off against foreign competition.” Wrong again. The bank’s own FY 2013 report shows that less than one-third of the estimated export value of the Bank’s portfolio is intended to actually counteract competitive disadvantages wrought by foreign export credit agencies. (Of that share, 66 percent is directed to the Boeing Corporation, whose own financial director publicly admitted that they could “find alternative funding sources” without the Export-Import Bank.)

What’s more, the U.S. is far from a victim in the international world of export credit subsidies — it’s a leader. A new CRS report entitled “Export-Import Bank: Overview and Reauthorization Issues” that was released on June 3, 2014, provides data on the total export assistance that each G7 nation provided through government export credits in 2012. The U.S. is the biggest offender, providing $31.3 billion in assistance, or 42.4 percent of the $73.9 billion for all G7 nations. The U.K. and Canada, hardly shrinking violets in international trade, were able to get by with a meager $2.9 billion and $1.7 billion, respectively, at the same time.

Finally, after providing an example of government picking winners (Boeing) at the expense of losers (Delta), Nocera contradicts himself and says . . . the Ex-Im Bank doesn’t pick winners and losers. He disputes claims about corporate welfare by arguing that poor little Boeing needs the funds or else financing would go to Airbus instead. As mentioned earlier, both the director of the Export-Import Bank and the finance director at Boeing have publicly disputed these claims.

No matter, though: Nocera’s goal was never to truthfully weigh the issues, but to take cheap shots at those rascally “tea partiers,” the Koch brothers, and one of the only truly brave men in Congress fighting on the side of taxpayers and free-market forces and against Ex-Im and its cronies, Chairman Jeb Hensarling. 


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