In the little time she’s been in Congress, Sen. Elizabeth Warren has made a name for herself as a populist who talks tough about Wall Street and other large corporations. But is she going to do more than just talk about it?
Recently, Warren confirmed that she is renewing her support for the Export-Import Bank — an agency that lends money to foreign companies to buy U.S. goods and services. This may sound good on paper; however, Warren’s endorsement of the Ex-Im Bank is inconsistent with her otherwise populist stand.
The biggest Ex-Im Bank beneficiaries are giant corporations like Boeing, General Electric, Caterpillar and their very wealthy foreign buyers. These companies don’t need the bank, but they love it. It increases their profits and transfers onto taxpayers the risk that the companies should be shouldering since they pocket the benefits.
The foreign companies love it, too. While most of them do have access to capital without the bank, Ex-Im Bank loans are much cheaper, giving them a U.S. government-sponsored edge over their competitors — including American competitors.
Take the wealthy state-owned Emirates Air. In June 2012, it received some Ex-Im Bank financing to buy two Boeing planes. The company could have bought them without Ex-Im Bank, since around that time it also bought four French Airbus planes without any export subsidies whatsoever. This dispels the myth that Ex-Im Bank fills a gap in financing from the private sector.
Ex-Im Bank loans were a great financial deal since the interest rates were almost half that of the market at the time, and it let the company put less money down than with a regular loan.
According to experts, Ex-Im Bank loans saved Emirates about $20 million in finance charges per plane. But that savings came at the cost of many U.S. jobs. Thanks to the money saved through Ex-Im Bank financing, Emirates can lower its price, open new routes (like it did between New York’s JFK Airport and Milan) and stick it to its U.S. competition. Estimates show that roughly 7,500 jobs in the U.S. airlines industries were lost because our government subsidizes foreign airlines.
Meanwhile, the mega-banks that Warren always complains about are some of the biggest beneficiaries of the Ex-Im Bank. Companies like J.P Morgan and Citibank get to extend billions of dollars in loans — and collect large fees and interest rates — without shouldering most of the risk involved. U.S. taxpayers on the other hand will be left footing the bill if any loans default. This is exactly the kind of favoritism for Wall Street she says she opposes.
Moreover, workers in unsubsidized companies may find their hours reduced, raises dampened, or jobs threatened because of the competition they face from Ex-Im Bank-subsidized companies. Business owners in Massachusetts have to compete with other firms that receive some working capital from the Ex-Im Bank. Massachusetts workers can lose their jobs or see their wages stagnate as a result.
Warren often explains her support for the Ex-Im Bank based on the misleading claim that it focuses on helping American small businesses. However, only 19 percent of the bank’s activities benefit small businesses. What’s more, in 2007 (the most recent year data is available), only 0.3 percent of all small business export jobs were supported by the bank.
Also, assuming that each of Ex-Im Bank’s small-business transactions went to a unique small business (even though they didn’t), only 0.04 percent of all small businesses were supported by the bank that year. That’s right; most small exporters export without an Ex-Im Bank handout, but they have to compete with Ex-Im Bank’s beneficiaries nonetheless.
The bottom line is that Ex-Im isn’t for the little guys. The Export-Import Bank is a subsidy for big businesses and wealthy private lenders.