NYT Opinion: EXIM and Corporate Welfare Cronyism

(New York Times, Fairfax, 4 September 2020) In 1971 at the urging of banking lobbyists, the U.S. Export-Import Bank created the Private Export Funding Corporation (PEFCO), a private entity owned by over two dozen banks and a handful of big corporations. It has operated under consecutive 25-year mandates with an exclusive arrangement, under special terms, to acquire EXIM loans from commercial lenders. Because these loans are fully backed by taxpayers, they impart no risk for the banks that issue them. PEFCO’s current authorization expires at the end of December, but its cozy dealings with big banks and corporations deserve far greater scrutiny. Consider this hypothetical scenario: Boeing wants to sell airplanes to China Air. Boeing asks EXIM to guarantee a loan to China Air so it can purchase the aircraft. JPMorgan Chase originates what becomes a loan from EXIM -  guaranteed by taxpayers -  for China Air. (The bank earns interest at no risk because, even if the borrower defaults, taxpayers will cover it.) Then JP Morgan Chase turns around and sells the loan to PEFCO, which buys the loan using debt raised from investors that is separately guaranteed by EXIM (again, American taxpayers). JPMorgan Chase is also a major shareholder of PEFCO, and PEFCO can pay its shareholders dividends. PEFCO’s shareholders include the same large corporate exporters that account for a large portion of EXIM financing, like Boeing and General Electric. The extensive dealings between Boeing and EXIM - in 2014, for instance, Boeing benefited from 40% of the bank’s activities - explains why critics refer to “the Bank of Boeing.” PEFCO takes that cronyism to a new level. Of EXIM's guaranteed loans that PEFCO acquires, 86% are in the aircraft sector. What’s more, Boeing’s senior vice president for finance and treasurer is on PEFCO’s board of directors.  Nearly every proponent claims that PEFCO plays a crucial role in supporting loans to small businesses. Yet as that unit’s own public reporting shows, less than 4% of the portfolio involves small-business lending — a far cry from the current 25% mandated by EXIM's charter (that will rise to 30% in 2021).