Understanding the Export-Import Bank and Calls to Abolish It

MS. DIANE REHM

10:06:53
Thanks for joining us. I'm Diane Rehm. On Sept. 30, the Export-Import Bank's charter will expire if Congress fails to reauthorize it. Tea Party Republicans and even some liberals say the bank should be abolished. They say giving discounted loans to large corporations amounts to corporate welfare. Supporters argue the Bank boosts exports and helps American companies, including small businesses, compete abroad.

MS. DIANE REHM

10:07:28
Joining me to explain the Export-Import Bank and the fight over reauthorization: Norman Ornstein of the American Enterprise Institute, Damian Paletta of The Wall Street Journal, and Dean Baker of the Center for Economic and Policy Research. We'll welcome your questions, comments. Join us on 800-433-8850. Send an email to drshow@wamu.org. Follow us on Facebook or Twitter. Norm, Damian, Dean, welcome.

MR. NORMAN ORNSTEIN

10:08:06
Thanks for having me on.

MR. DEAN BAKER

10:08:07
Thank you.

MR. DAMIAN PALETTA

10:08:07
Thank you.

REHM

10:08:07
You know, we're doing this program today because I need a primer on Ex-Im Bank. And, Damian, I want to start with you. What exactly does it do?

PALETTA

10:08:23
Sure. It's a federal agency that was created by FDR 80 years ago. And essentially it provides financing, loans, and credit insurance to help U.S. companies export their goods all over the world. So, for example, let's say I own a tractor factor in Toledo, and I have 500 employees. And I want to sell some tractors to Mexico. The company in Mexico that wants to buy my tractors can't get a loan without some sort of guarantee.

PALETTA

10:08:51
So the U.S. government, through the Export-Import Bank, is going to guarantee that the loan will be paid off. I get to export my tractors, and, you know, the employees get to keep making tractors. So there's lots of different ways that the Ex-Im Bank, as it's called, you know, arranges financing around the world. But that's one example, and it does it quite frequently.

REHM

10:09:10
And what about other countries around the world? Do they have similar setups?

PALETTA

10:09:15
Yes. I mean the Export-Import Bank is one of about 60 of these. They're called export credit agencies. It was one of the first created in the world, but now there are 60 countries that do this, including -- you know, countries in Europe obviously have these, and we're seeing a lot more activity in places like China and Brazil.

PALETTA

10:09:35
And so one of the arguments we hear from a lot of Export-Import Bank supporters is that if the U.S. wants to compete on this global playing field, U.S. companies need to have the same sort of government support that foreign companies have, or they're not going to be able to match the same prices.

REHM

10:09:48
And who are the bank's biggest customers?

PALETTA

10:09:52
The biggest customer, clearly, is Boeing, the big, you know, company that manufacturers aircraft, based in Washington, but also General Electric, Caterpillar. Big manufacturers tend to have a lot of support. But there's also hundreds of smaller companies that also use Ex-Im Bank to -- you know, popcorn -- companies that export popcorn, kayaks, things like that, they also use Ex-Im support to manufacture -- to ship their goods overseas.

REHM

10:10:20
I've read that 90 percent of the Ex-Im Bank's loans are to small companies. But, in dollar amounts, what happens?

PALETTA

10:10:32
In dollar amounts, I think 80 percent or more goes to large companies. I mean Boeing alone might get about half of all Ex-Im support because of, you know, the planes that it ships are very expensive, and it's the largest U.S. exporter. So Boeing obviously has a keen interest in how this plays out, but General Electric, Caterpillar, John Deere, other companies like that have a lot of involvement as well.

REHM

10:10:56
OK. So, Dean Baker, what's wrong with this picture?

BAKER

10:11:01
Well, this is a classic case of crony capitalism. You know, it just brings back the memories of the TARP bailout, you know, where we had, you know, the world was going to end if we didn't get all the money to the banks as quickly as possible, no strings attached. Then when it came time to help the homeowners who were underwater in their mortgages, we said, well, what can you do?

BAKER

10:11:18
I mean, I read Timothy Geithner's autobiography. And it's just kind of fascinating in this because he made fun of people like me who questioned the TARP. He called us Old Testament types. Then when it came to the homeowners, he's going, well, you know, a lot of people bought too big a home, they paid too much, you know. So it's a classic double standard here, that, you know, when Boeing's at stake, you know, Caterpillar, the world's going to end if we don't give them subsidized loans.

BAKER

10:11:39
The reality is it's simply a boost to their profit. Boeing is still going to sell planes. They'll just make a little less money at it. They know how to provide credit. They go, oh, our customers couldn't get credit. There was a piece -- Joe Nocera had a piece in The New York Times yesterday. It's about the customers. They can't get credit.

BAKER

10:11:53
Boeing knows how to do trade credit. This goes back to probably the 19th century, maybe even longer. They could provide credit to their customers. So it's simply a question. It would take somewhat of a hit on profit. And, you know, to my mind, the government doesn't have a -- the taxpayer doesn't have an interest in insuring high profits for Boeing.

REHM

10:12:07
A hit on profits, Norm?

ORNSTEIN

10:12:10
Undoubtedly it would be a hit on profits, but it would also be a big hit on jobs right now at a very, very difficult time. And, you know, at the same time, if you look at competition around the world, the fact is not only do you have other big plane manufacturers in Europe, in Canada, in Brazil, that are getting enormous leverage from their own countries or regions, but we also have China and Russia that operate completely with -- outside the framework that other countries have in terms of even the rules that apply in these cases.

ORNSTEIN

10:12:40
The OECD has a regimen, a framework that most countries participate in. Russia and China don't. So it would really tilt the playing field in a significant way that would damage -- certainly in the short run. If we had a world -- an ideal world where nobody did this, then we would have no difficulty competing. This would be a tilt against us at a bad time.

REHM

10:13:09
What about that, Dean Baker? If other countries have their own versions of this, doesn't that create an unfair playing field for us?

BAKER

10:13:21
Well, there's many, many issues in trade. And I think this is basically a very, very small one. The one that I think is far more important that I'd love to have us be talking about is an overvalued dollar. And this is an issue that, you know, other countries…

REHM

10:13:31
Another program.

BAKER

10:13:32
No, no, no, no. But it comes up directly here because we're talking about jobs. We're losing millions of jobs every year because we have a $500 billion trade deficit. What's supposed to happen in a system of floating exchange rates, like what we have in principle, dollar -- a country like the United States with a trade deficit, we see the value of our currency, the dollar fall.

BAKER

10:13:51
That doesn't happen because we have many countries -- China being the most important, but many other countries that deliberately keep down the value of their currency against the dollar. Now, if we could make some headway on getting the -- down the dollar against these other currencies, that would swamp anything we could imagine in terms of, you know, the Export-Import Bank creating some jobs. So, by all means, we should be thinking about jobs. But there's so much more at stake than the nickel and dime stuff you have with the Export-Import Bank.

REHM

10:14:15
Damian?

PALETTA

10:14:15
You know, the politics of this is very interesting as well. We have -- President Obama, when he was a senator, spoke out against the Export-Import Banks, calling it crony capitalism. And we have a number of conservative governors from around the country who are in support of the Export-Import Bank because of the number of jobs that it creates in their states.

PALETTA

10:14:33
Like, for example, the governor of South Carolina, Nikki Haley -- General Electric is big in South Carolina -- and she's a supporter of this. The governor of Arizona, as well as the governor of Oklahoma, are also -- the governor of Texas, Rick Perry, big supporters of this as well. The politics of this are pretty complicated, but Norm raised a really good point.

PALETTA

10:14:50
With the way the economy is going, you know, we have this kind of fragile recovery. I think there's a lot of anxiety about what would happen if we sort of took the training wheels off and allowed U.S. exporters to do this sort of stuff without government assistance. Maybe it would work great. Maybe it's the kind of, you know, readjustment that the country needs. Or maybe it would kind of a disaster and set the country back.

REHM

10:15:10
Norm?

ORNSTEIN

10:15:11
Well, you know, the politics of this, as Damian said, are fascinating. You have opposing the bank really the populist left and the Tea Party right. And the crony capitalism charge resonates with a lot of those. At the same time, you have a very different coalition of people supporting it. You know, the governors that Damian mentioned -- and they're joined by people like…

REHM

10:15:33
Thirty-one sent a letter.

ORNSTEIN

10:15:34
Yeah, well, 31, plus three others, including Rick Perry, sent individual letters. Paul LePage, who may be the most radically right governor from Maine, is also a supporter. A lot of that because small businesses may not get as much money, but they are even more affected by having the Ex-Im Bank.

REHM

10:15:54
And more dependent on?

ORNSTEIN

10:15:55
Very much dependent because they don't have the capacity to say, we'll take a little bit less in profits and provide the credit ourselves.

REHM

10:16:01
All right. Stop right there. What about that, Dean Baker?

BAKER

10:16:04
Well, a couple points. First off, some perspective here. According to Export-Import Bank's own numbers, they support around 30 billion in exports a year. That's about 1.5 percent of our exports. And, again, that doesn't go to zero. Maybe it falls back 10, 20 percent. So that's what we're talking about, real nickel and dime stuff.

BAKER

10:16:19
The other point, again, looking on their own website, 700 businesses a year get -- small businesses a year get support through the Export-Import Bank. This is not a big thing for small businesses. It doesn't surprise me that the Boeings, the Caterpillars -- there are big forces in Washington and also big forces in, you know, Washington State and, you know, the places where they're located. So they get their governors to run to Washington and say, hey, we need reauthorization. That's not a surprise.

ORNSTEIN

10:16:43
What you see is, even though there are 700 businesses a year, cumulatively over a period of time, that's a whole lot of businesses because this isn't just support that comes in one year. And the credit that businesses have, the ability to continue to operate small businesses, it's usually on a very tight timeframe. You take this away, and those businesses are going to be in big trouble.

PALETTA

10:17:05
You know, the business industry, the corporate industry, the corporate voice has been very unified mostly in this with the U.S. Chamber of Commerce and National Association of Manufacturers really pushing for reauthorization. But Delta Airlines has sort of complicated things.

PALETTA

10:17:18
And they've been very outspoken by saying that their competitors, specifically in kind of the Middle East, are allowed to buy these Boeing jets at deep discounts, and that gives them a competitive advantage over Delta who doesn't get the same kind of deal. So they're lobbying aggressively to have the whole thing changed. And that's making the corporate voice a little more complicated.

REHM

10:17:38
So aren't they trying to -- isn't Boeing getting that deal for planes to India?

PALETTA

10:17:44
India, yes, but also the United Arab Emirates and some other Middle Eastern countries. And I think Delta's argument is these are not companies that are going to -- that are, you know, almost bankrupt. These are very wealthy countries where the financing should be there. The planes -- they should be able to make this transaction without government assistance.

PALETTA

10:17:59
Like Dean said, this is a -- about 2 percent or less of U.S. exports are affected by Ex-Im Bank. And so how come -- how come we can send 98 percent of these other exports outside the world without the support? Why is this so necessary?

REHM

10:18:13
Damian Paletta of The Wall Street Journal, Norman Ornstein of the American Enterprise Institute, Dean Baker of the Center for Economic and Policy Research, short break here. We'll talk further, take your calls. Stay with us.

REHM

10:20:02
And welcome back. We're talking about the Ex-Im Bank in this hour. There's a threat of lack of reauthorization when it comes up. Sept. 30 is the deadline. Norm, what do you think is going to happen?

ORNSTEIN

10:20:22
Well, first a little bit of history, Diane. This was a topic of controversy a couple of years ago. And then Majority Leader Eric Cantor cut a deal with the Democratic leader Steny Hoyer to extend the bank two years to this Sept. 30. There was some discussion that when Cantor lost in his primary, this was one of the issues that was raised.

ORNSTEIN

10:20:44
Now, there were multiple issues raised, but interestingly, when Cantor came back after his defeat and Kevin McCarthy was set to move in as the new majority leader, he switched his position. And basically he said he would now oppose the Ex-Im Bank. It was a pretty clear signal that the populist Tea Party right had risen up. And you've also had very strong opposition from the chairman of the House financial services committee Jeb Hensarling.

ORNSTEIN

10:21:13
So, for Speaker Boehner, there is a real dilemma here. He's got a lot of pressure from the business community. He's got pressure from some small businesses in Ohio. We've got all these governors, including powerful Republican governors, pushing for this. But he has to take on a lot of forces within his own party and create a division at a time where he really doesn't want to do that. So I think there's a real danger here that they simply won't bring up a reauthorization because it would pass very likely but with more Democrats than Republicans.

REHM

10:21:47
Damian.

PALETTA

10:21:47
You know, this is a much easier trophy for the conservatives to get because if you wanted to repeal Obamacare for example, you need to pass it through the House through the Democratic-controlled Senate and then somehow get Obama to sign it, which would never happen. To get the Ex-Im Bank to no longer be able to make loans, they can just do nothing, right? I mean, they have to vote to continue the Ex-Im Bank. So if they do nothing, they win. That makes the dynamics much easier...

REHM

10:22:09
And what would happen if they didn't vote on it and Sept. 30 passes?

PALETTA

10:22:17
Presumably, on Oct. 1, the Ex-Im Bank would -- it sounds like they would lock the place down.

REHM

10:22:22
Right.

PALETTA

10:22:22
It would still be in operation. They would still be managing the loans and credits that they've already extended...

REHM

10:22:27
Right.

PALETTA

10:22:27
...but they would not be able to authorize new loans or guarantees.

REHM

10:22:30
And that would make you happy. Dean, what would you put into its place?

BAKER

10:22:35
Well, you know, I think the government certainly can play a useful role in promoting business. I don't think the Export-Import Bank does that. And, you know, what I would say was an interesting model -- obviously not fully successful -- what the Obama Administration did with the stimulus in trying to promote clean energies. You know, there actually were a lot of dividends. Everyone talks about Solyndra. The fact was most of the companies were not Solyndra. There was Tesla. There were many other companies that paid off those loans and actually helped develop new technologies.

BAKER

10:23:01
So I think it'd be perfectly reasonable to say, OK, we're going to have the Export-Import-type bank. Whether you call that where it's focused exclusively on exports and imports, I don't really care, but you'd say, OK, here's its mission. It's going to focus on new technologies, you know, environmental technologies, whatever you put on the list. I mean, we would obviously talk about that. But I think that would make sense. I think what you have now is essentially classic crony capitalism. Who's big and powerful, they get most of the money.

ORNSTEIN

10:23:24
I actually think if this happens, we're going to see a blow to the economy, and it'll happen pretty quickly. And we're going to see some layoffs. Boeing can provide some credit, but I can almost guarantee you that Air Bus and Bombardier and Embraer are going to see this as an enormous opportunity. And they're probably going to double down and offer even more incentives to companies -- to countries to buy more planes.

ORNSTEIN

10:23:48
A lot of small businesses that are operating at the margins are going to either shut down or have to cut dramatically back on what they do. And that's -- this is a bad time to be doing something like this.

REHM

10:23:59
Dean, you talked earlier about the trade imbalance. Wouldn't closing down the Ex-Im Bank affect negatively our trade imbalance?

BAKER

10:24:12
Well, a couple points, just to deal with Norm's point, which actually deals with your question as well. Again, we have to remember we're talking about a relatively small amount of money here, so we're talking about 30 billion in exports that they say are supported by the Export-Import Bank. Again, that doesn't go to zero. So say it falls back by 20 percent. We lose 20 percent of that 30 billion. That's $6 billion. That's about less than 1 -- it's about a quarter -- I'm sorry, it's about two-hundredths of 1 percent of the U.S. economy. So that's not a big deal. We're not going to see massive layoffs because of that.

BAKER

10:24:42
Now, in terms of the trade, you know, again, we could easily swamp that with very small changes in the dollar. And guess what? The dollar goes up and down all the time. No one even talks about that. So if we were to have the dollar fall by, say, 3 or 4 percent over the second half of 2014, that would have probably about 20 times more impact in creating jobs than anything possibly at stake with the Export-Import Bank.

REHM

10:25:04
Norm.

ORNSTEIN

10:25:04
Well, one other element of this is the Ex-Im Bank actually makes some money at the moment. It brings in about $2 billion a year more than it spends. And, you know, this is not handing money to companies. It's basically finding leverage with financing so that they're more favorable rates. They get fees for this. So we're going to add to our deficit a little bit as well. But I actually think the impact is going to be more significant than Dean does. It's not just that it's going to drop by 20 percent. You're going to see a ripple effect through an awful lot of businesses that are going to be undercut by this departure.

BAKER

10:25:37
We're in the middle of a kind of slow and steady economic recovery here in the United States. A lot of other countries are not. And so they're not having this debate about whether to, you know, get rid of their export credit agency. They're trying to ramp up the amount of government assistance so they can export more goods to places like America to bring in -- to take more money and bring in more revenue for their own country. So that's, you know, a dynamic that plays into this as well.

REHM

10:26:02
But, Norm, how do you respond to Dean's point that it unfairly benefits the well-funded corporations?

ORNSTEIN

10:26:12
There's no doubt that 80 percent of the money does go to those big companies. And I'm not a great fan of Boeing, which has its own problems with labor practices, for example. But you're talking about 150,000 jobs directly and a lot more indirectly involved here that come in fierce competition with Europe, with Air Bus, which is a huge part of their economy.

REHM

10:26:36
And why would there be layoffs?

ORNSTEIN

10:26:40
They're going to end up losing business. They're not going to have -- you know, remember these planes are done over a long period of time. And very likely we're going to see the next tranche of purchases of airplanes by countries, and it's mostly done by countries or by airlines abroad, that are going to go to others.

ORNSTEIN

10:27:01
And they're going to have to start planning for what will be a ramp down in that business. But it's even more true, I think, for the small businesses. You know, to me the most important point is this is a slow steady recovery. You don't want to do anything that turns it into an unsteady recovery.

REHM

10:27:18
What about that Dean?

BAKER

10:27:19
Well, a couple things. I mean, state and local governments are making cutbacks all the time. Those have more impact on the economy than anything we do with the Export-Import Bank. If, you know, the State of New York, State of California, if they cut spending by three, $4 billion, that has more impact to the economy. We don't have a big show, oh my god, the world's going to end because of this.

BAKER

10:27:34
So, you know, again, putting this in some perspective, it's going to be a very gradual process, and so far as you see any job loss. And again, this is favoring businesses. If you didn't give money to these businesses, let's envision at some point down the road we might be somewhere near full employment again, you might see it go to other businesses. They would be creating jobs. Also the other point with the dollar, part of the story, again, if we're exporting -- if these companies are exporting, that's helping to keep the dollar higher. If they don't export and so far as they export less we would expect the dollar to fall.

BAKER

10:28:03
One other point I'll just say quickly in terms of loans, this is just arbitrary. It's just the same thing about saying we made money on the TARP. The government's the lowest cost borrower in the world. So any -- there's a big difference between what Boeing or anyone else has to pay by lending costs versus what the government pays. That's going to be a guaranteed profit. We don't typically do that.

REHM

10:28:19
Damian.

PALETTA

10:28:20
I spoke recently with someone at a company in North Carolina that makes and exports kayaks, a small company, 50 or 60 employees. And they ship their kayaks to about 10 countries, including places like Korea and Australia. And they said that in order to -- for it to have a foreign company buy their kayaks, their banker wants to know that they're going to get paid back by that foreign company because they can't be on the hook for 60 or $80,000 in case the payment goes bad.

PALETTA

10:28:48
And so what the U.S. Export-Import Bank does is ensures essentially that they're going to -- that that creditor, you know, the counterparty's going to make the payment. So the U.S. company pays a fee to the Ex-Im Bank, and in return they get some sort of insurance to give to their bank that this money's going to be recouped.

REHM

10:29:03
And how often do you see defaults on those loans?

PALETTA

10:29:07
Very rarely, but the problem is that the Ex-Im Bank isn't that transparent about who's defaulting. So that's something that we're trying to look into.

REHM

10:29:14
And here's an email on that very point. It says, "The problem with Ex-Im is that while it offers a useful but limited benefit, it's opaque. The bank releases modest information, since 2005 when the House Small Business Committee really jumped on it, has had little in the way of an open door." Norm.

ORNSTEIN

10:29:42
And I'm all for doing some reform. The GAO, the General Accountability -- Government Accountability Office said -- given a bunch of recommendations for what the bank ought to do to become more transparent, and they're moving much in that direction. Reform the process. I'm very happy with that. I'm very happy with a reform that would tilt it more in terms of dollars towards small businesses, which need it as well. But to eliminate the whole thing is, I think, a very, very dangerous thing.

REHM

10:30:10
Would that help in your view, Damian?

PALETTA

10:30:13
Well, I'd see a step in the right direction, but again, I always worry. You write down you're going to reform, and then, you know, two years later, three years later, you go, where was the reform? So I'm not terribly confident that if you say, OK, we'll reauthorize but there have to be reforms that we're going to see very much by way of reform.

REHM

10:30:28
So House Republicans were supposed to meet yesterday on this. What happened?

BAKER

10:30:35
That's right. The meeting was postponed. Jeb Hensarling, the chairman of the House Financial Services Committee, wanted to brief other Republicans about why he opposes reauthorizing the bank. And the meeting was held at the exact -- was going to be held at the exact same time as a vote on the House floor about highway trust money. So they postponed the meeting, and they're going to have it today.

BAKER

10:30:53
Now the question is, is this going to be an opportunity for Congressman Hensarling and the opponent of the bank to try to persuade other conservatives who maybe are on the fence? Or is he going to get an earful possibly from people who support the bank saying, come on, you can't do this to us? This puts us in a really tough position.

REHM

10:31:10
Norm, how are the highway trust fund and the Ex-Im Bank connected?

ORNSTEIN

10:31:15
Well, we had a vote in the House that was an overwhelming support for a fix in the highway trust fund. Frankly, it's a terrible fix. It's one that basically raids pension funds to take this through the next several months so at least we don't have another hit in the economy in the peak construction season. But it was something that was opposed fiercely by the Club for Growth Heritage Action and other right wing organizations. And they were rebuffed.

ORNSTEIN

10:31:41
Now one question is, will House Republicans be willing to go against them again because they're fierce opponents of the Ex-Im Bank as well? So it actually adds, I think, to the pressure on Boehner to try to avoid another slap in the face of some of these activist groups that give money or participate very actively in the campaign.

REHM

10:32:02
Is this all part of the bigger conservative picture to shrink government, Dean?

BAKER

10:32:12
Absolutely, no doubt about it. And I think they see this -- this isn't Medicare, right? This is a small program that is no doubt -- there's no doubt about it that it's government intervention and private, you know, capital markets. And so they see this as a winnable thing. I mean, if they want to reform Medicare, if they want to really take on the entitlement programs, this is a kind of probably a stepping stone where they can figure out, you know, strategy and that sort of thing.

BAKER

10:32:36
Now the question is, is this -- this isn't just an exercise, right? I mean, this is a real thing that would have real consequences. And so if they fail at doing this, then it's going to be much harder for them to try to mobilize and take on more difficult jobs.

REHM

10:32:47
And you're listening to "The Diane Rehm Show." Going to open the phones now, 800-433-8850. Let's go first to Charlottesville, Va. Hi, Paul. You're on the air.

PAUL

10:33:06
Hi, everyone. Thanks for having me on.

REHM

10:33:08
Sure.

PAUL

10:33:09
It's a very interesting conversation. I've learned a lot just waiting in line here.

REHM

10:33:13
Me too.

PAUL

10:33:15
But what got me most is listening to the fact that GE gets loans considering they're almost by themselves a bank. And you guys have talked about maybe having a restriction on, you know, larger companies versus smaller companies, which the smaller companies seem to work really well. But given the climate that you talk about in D.C., might it not be better just to deauthorize it all and then rebuild it from zero?

REHM

10:33:38
What do you think, Damian?

PALETTA

10:33:39
That's definitely one thing that could be done. I mean, so there's a number of Republicans who are uncomfortable with ending the agency, but they know that they have to have a plan B. And so we have right now Congressman John Campbell from California and Congressman Fincher, both Republicans, who are working on reforms to the agency.

PALETTA

10:33:57
Now we don't know exactly what the reform package is going to look like, but it does sound like it's going to be scaling back the government exposure, the taxpayer exposure in case these loans go bad, and also making the Export-Import Bank being like a bank of last resort, essentially trying to force companies to try to get loans from banks -- rather credit agencies before you can rely on the Export-Import Bank.

REHM

10:34:19
So if a country goes down and doesn't pay back its loan, who's paying for that loan, the American taxpayer?

PALETTA

10:34:32
Well, it's not a country. It's a company, right?

REHM

10:34:33
A company.

PALETTA

10:34:34
Right. Essentially, yes, it would be the U.S. taxpayer. And like Norm said, the Export-Import Bank actually brings in more money in fees than it pays out in, you know, guarantee reimbursements. So right now it's actually returning money to the Treasury. But if, you know, things went south around the world or in a part of the world, presumably the agency could be paying out more money than it's bringing in. And, yes, that would be taxpayer money.

REHM

10:34:55
All right.

ORNSTEIN

10:34:55
Diane, let me...

REHM

10:34:56
Sure.

ORNSTEIN

10:34:56
...I just want to make one point even about the large companies. If you talk to anybody who's been around in Africa, for example, China has moved in in an enormous way. And they are getting the big projects. These are the kinds of projects that GE or Caterpillar would do. And they're doing it by offering staggering terms that companies...

REHM

10:35:16
Very favorable.

ORNSTEIN

10:35:17
...and these countries will take.

REHM

10:35:19
Yeah.

ORNSTEIN

10:35:20
And, you know, in effect, we're just providing a little bit of additional protection for our companies to be able to compete. And this has implications that go beyond economic ones. They have major foreign policy implications down the road as well. So, you know, doing away with this may have consequences that we haven't even thought through.

REHM

10:35:40
Dean.

BAKER

10:35:40
Yeah, a couple things. First off, I'm having enormous fun on this debate because I've often been on the other side of people who call themselves free traders. And every argument that is being made for the Export-Import Bank I can make for every, you know, piece of protectionist legislation that's come down the pike over the last five decades.

BAKER

10:35:55
I think back to 2002 when there were steel tariffs. The Bush Administration put steel tariffs on -- again, politics being a factor. President Bush wanted to win Pennsylvania and Ohio in his re-election campaign. But the steel industry was literally on its back. And those tariffs were widely condemned by free traders. It turned out they were very effective policy. We have a steel industry -- a traditional steel industry in the U.S. today because of the temporary tariffs put in place there.

BAKER

10:36:19
Now, I'm not going to say you could never have effective subsidies, but I just don't think the Export-Import Bank is the way of doing that. Now if we want to say we're going to have strategic loans, fine, write that into it. Let's see if we're making a loan to this company because they have a project in Congo or Zimbabwe. Let's have that down for that so we understand that's the motivation. And make sure that's the point -- well, that's why we're giving out the money.

REHM

10:36:40
But what about the foreign policy issue that Norm raises regarding China? China, we know, is growing. It's a huge economic force.

BAKER

10:36:52
Well, this is such nickel and dime stuff. So, again, I hate to be a one-- you know, one-horse pony -- one-horse show or whatever -- one-pony show -- I'll get my analogy right here. But, you know, the currency swamps everything. And, you know, I would be so happy to say, OK, you know, with China...

REHM

10:37:07
But it's not going to happen.

BAKER

10:37:08
No, it will happen. China actually has lowered the value of its -- raised the value of its currency, I'm sorry, and their trade deficit has fallen. So the point is you negotiate these things. It's not like we're against the brick wall in China. You know, we can get them to negotiate on this.

REHM

10:37:20
All right. And short break here. More of your calls, your email when we come back. Stay with us.

REHM

10:40:02
And welcome back. An email from Robert: "Your stated objective of this show is to clear up how the bank works. But I am so confused as to why Congress wants to close it." Damian.

PALETTA

10:40:21
Well, that's a great question. I think one of the arguments that we hear from opponents of the bank is that, you know, U.S. trade should be based on the quality and competitiveness of U.S. companies. So companies should be rewarded for making superior products, and they should be able to export, you know, the best cars, the best tractors, the best airplanes based on the quality of their products. They should not be exporting things based on the quality of the government assistance that they're getting. And so that's one of the arguments that we're hearing from conservatives.

REHM

10:40:52
But the underlying question may be political.

ORNSTEIN

10:40:58
Oh, of course, it is. And I think what you have here is a mixture of motives. And Damian got to some of them earlier that Tea Party conservatives want a trophy. They can't get a big trophy now. This is a small trophy. They want to get it. They're able to find and cobble together a coalition that includes some on the left who have a visceral reaction against any break that would go to a big company. That's a significant part of it. There is a broader economic case that can be made here.

ORNSTEIN

10:41:25
It's the same case that you would make for free trade, in fact. But in this case, even more than in the trade world, you've got a real world reality which is that you have other countries, almost all of which have their own agencies just like this, and others, like China and Russia that have even more ways, including bribes in some cases, to gain advantage. And so we've moved past, I think, the economic arguments even at this point to a larger political one.

REHM

10:41:52
Mm hmm.

ORNSTEIN

10:41:54
And, you know, this is coming in September basically six weeks before the election. And for the Republicans in Congress especially, what is really motivating them as much as anything is, don't make waves, don't divide our coalition, we're on a roll here, we can win big, and anything that is going to create that kind of a division is tough for them to take on. And this is one of those issues.

REHM

10:42:20
All right. Here's a tweet from Jake: "Can't this bank simply be replaced by conventional insurance?" Dean.

BAKER

10:42:31
Well, again, to a very large extent, it can. So, again, this is one of these things where we're sort of presented, like, this all or nothing. You know, here we're exporting 30 billion a year with loans from the, you know, Export-Import Bank that somehow that goes to zero. No. We export somewhat less. So what would happen if, you know, the companies that are now getting loans from the bank don't have the bank to turn to, could they get conventional insurance?

BAKER

10:42:50
Well, in most cases, they could. In some cases, they couldn't. Certainly would cost them more 'cause it's not being subsidized by the taxpayer. So, again, what we're talking about is mostly something that's at the margin. To some extent, we're going to see somewhat lower profits by the recipients of these loans. On the other hand, no doubt, they will lose some business.

REHM

10:43:05
All right. To Harry in Yreka, Calif. Hi. You're on the air.

HARRY

10:43:11
Thank you very much, Diane.

REHM

10:43:13
Sure.

HARRY

10:43:15
My comment is the fact that the Tea Party seems to want to eliminate any excess government activities, and this one is one of those that actually helps a lot of people, just like many of the social activities. And that's all I can say. Yeah.

REHM

10:43:33
OK. Thanks for calling. Dean.

BAKER

10:43:36
Well, I don't go in with the Tea Party in terms of wanting to eliminate Social Security, which I think's a fantastic program, Medicare. I mean, I'd go down a long list with you. But in this case, I see this as primarily helping people who don't need the help, the people who have been the big winners in the economy. And, again, I won't want to keep hitting on this, but you go back to the bailouts at Wall Street, you know, five years ago, six years ago. The people got us into this mess, almost without exception, all came out of it just fine. The rest of the country did not. And I'm really not anxious to see the government do more to help those on top.

ORNSTEIN

10:44:05
There's no doubt that there has been a visceral reaction on the left and the right to the bailouts and the fact that big financial institutions and the people behind them have done just fine, in fact, better than just fine, while others suffered. But I think that's a red herring in this case as well. There's a larger set of issues here. In the short run, what do we do that's going to help or hurt the economy? In a larger sense, where we know that commercial banks -- and they're a part of the problem here -- are sitting on tons of money and refusing to put it into loans.

ORNSTEIN

10:44:40
And the loans that they're most reluctant to make are ones for companies investing abroad. There's a greater risk for them there. What the government has done is to change the risk premium. It doesn't appear to me as if we're going to see commercial banks step in to fill that vacuum. And I think that's the larger issue here. I don't have any problem with using big financial institutions or big companies as whipping boys. But I think we have to step back and look at this in a more pragmatic way in what it means for the country and the economy.

REHM

10:45:11
Damian.

PALETTA

10:45:12
One of the challenges here obviously is that the world is a big complicated place, right? I mean, Boeing could probably export their jets to Japan without government assistance, right? The money is there to make the purchase. Can they export their jets to Mongolia? Maybe not, right? And so are we essentially going to be in a situation where rich wealthy countries can -- U.S. companies can only export their goods to places where the money is? Or is there going to be -- I mean, you know, this agency was created 80 years ago with the sole purpose of helping companies ship their stuff around the world. So it's, you know, it's very blatant about what it's trying to do.

REHM

10:45:45
Several times today, Norm, Dean Baker has made the comparison to the TARP bailout. How do you view that comparison?

ORNSTEIN

10:45:56
Well, I actually, you know, much as I didn't like the TARP bailout, I think if we had not done it, we would be going through something that would make the Great Depression look mild by comparison. It had to be done at that point. And you had people across the board recognize that. Now, I wish we had, at that point, cracked down much more on financial institutions, push them to -- since they were being bailed out -- to, for example, put a large amount of the money that they had back into the economy right at that point to get things moving.

ORNSTEIN

10:46:33
There were things we could have done. But I think this is an apples to oranges comparison. This is a very different element. It's a smaller scale. It's actually more than 30 billion. I think last year it was 37 billion. It would go up to probably 40 billion this time. That may still be small, but it's something that does have an impact on jobs and our competitiveness around the world.

REHM

10:46:54
All right. To Randy in Hot Springs, Ark. You're on the air.

RANDY

10:46:59
Yes. Thanks for having me.

REHM

10:47:01
Sure.

RANDY

10:47:02
I'm -- our company -- I've heard a lot, you know, so far in your program, you know, talking about Boeing and GE and, you know, the larger corporations. But our company is a small company, four employees. We're lumber exporters. And we've -- we have a commercial bank, a large U.S. commercial bank that we have our working capital line of credit with. And Ex-Im, you know, stands behind our large commercial bank because all of our accounts receivable are all foreign receivables.

RANDY

10:47:41
So if you go -- as a small business, if you go to a commercial bank and say, you know, I want to export to, let's say, Germany, as soon as your accounts receivable, your invoice to your customer in Germany, they won't cover it because it's, you know, it's outside the U.S. jurisdiction of courts and so forth. So that's where, you know, for us, where Ex-Im comes into play.

RANDY

10:48:09
We're under, you know, one of the programs that they have called the working capital guarantee program, which hasn't been mentioned so far on the program. So they're not loaning -- Ex-Im is not loaning money to our customers. They're backing our large U.S. commercial bank, so we can have a line of credit. So we can operate our business. We're lumber exporters, so we can buy products from U.S. manufacturers that -- and then we handle those exports of about $10 million a year.

REHM

10:48:41
All right, sir. Thanks for calling. Damian.

PALETTA

10:48:44
There's a lot of companies that do it -- use this program exactly the way this gentlemen described. And, you know, I talked to a company in Idaho that exports chickpeas to Spain and Peru, exact same arrangement as this gentlemen from the lumber company in Hot Springs. The question is -- I mean, and clearly these companies rely a lot on this kind of Ex-Im assistance 'cause otherwise the banks won't finance their shipment of these products overseas.

PALETTA

10:49:09
The question is, if you take this government assistance away, maybe these companies have to shrink. You know, maybe it's 700 or a thousand companies. Will that have that big of an impact on the economy? Certainly will have a big impact on this company in possibly even Hot Springs, Ark.

REHM

10:49:22
Exactly. And to Leonard in Upper Marlboro, Md. Hi. You're on the air.

LEONARD

10:49:29
Hello, Diane. Thank you for taking my call.

REHM

10:49:31
Certainly.

LEONARD

10:49:32
I have two quick comments and one quick question. The first comment is the reason that Ex-Im is so valued by small businesses is that the commercial financial market is slog. And Ex-Im reduces the premium of risk for a lot of these sales. Were Ex-Im not to participate in the market, the cost would go up so much, it would kill a lot of (word?). Two, one of your speakers mentioned that the Ex-Im extends loan to companies who only constitute 1.5 percent of U.S. exports. But quite often that loan means 100 percent of their business.

LEONARD

10:50:11
So we have to be careful how we use these numbers. And my question to your speakers is this: If indeed, where is crony capitalism -- and I don't agree that there is a problem with crony capitalism. But if there were, why aren't those who object to it trying to correct that? They limit the size of loans so that companies like Boeing or Caterpillar or GE won't get large loans, but a lot of the small businesses will continue to receive them. It seems to me that they want to not only throw out the baby in the bathwater. They want to throw out the bathtub, too.

REHM

10:50:43
All right.

LEONARD

10:50:44
I'm not sure why they're taking that approach.

REHM

10:50:46
Thanks for calling, sir. Dean Baker.

BAKER

10:50:48
OK. A few things. First, you know, I'm sure there are a number of businesses that do benefit from the Export-Import Bank, no doubt about it. In some cases, some of those business would go under. But, again, some sense of proportion is needed here. The Export-Import Bank says they've helped 4,900 small businesses over the last seven years, 700 a year. We have 14 million small businesses in the country.

BAKER

10:51:08
I'm not that impressed by that. Thirty-four billion and now making 37 billion in exports gets supported by the Export-Import Bank. That's a little more than two-tenths of 1 percent of the economy. We need to put this in perspective. And, again, that doesn't go to zero. Maybe that falls back 10 percent, 20 percent. That's not going to zero. So, again, you know, we aren't talking about something that's big for the whole economy.

BAKER

10:51:28
Could you restructure it and limit loans? Well, certainly. I think that would be great. But, again, this is a classic case where you always have the big companies. It's always the small guy. We're going to have the Great Depression. I'm sorry, Norm. I have to disagree. We learned a lot over the last 70 years. I know how to get out of that. I'm not that much smarter than the people running the economy. So that was (unintelligible).

REHM

10:51:44
All right. I want to take another caller in Indianapolis. Hi, Kenny.

KENNY

10:51:52
Hi. We have a small solar company, and we've already started exporting to Africa. In fact, most of our business over the last five years has been to Africa. We're just starting to open up business in the United States. But for this business in Africa, we would not have survived the last five years. And we're looking forward, just in initial stages of discussions with the Export-Import Bank, to expand that. Our competition is China, so it has nothing to do with quality.

KENNY

10:52:22
Our clients acknowledge that our quality's much better, but China and some of these other countries that are competing with us have much better programs to support our clients overseas. And so the gentleman who just described his relationship -- the lumber company I think described it really clearly, so I won't go into all of that. But I tell you, it gets to be very tiresome and exhausting to hear commentators on the right, who say that they support business, make the kind of comments that your gentleman on the program today makes.

KENNY

10:53:00
He says, well, if a certain number of businesses go under, it doesn't really matter. This is just -- this is outrageous that they're willing to bring in -- to initiate policies that would bring this about because it does hurt the economy. It hurts the individual companies. And it makes us look ineffective around the world. And it's just I don't even understand how these people become -- became legitimate over the last few years.

REHM

10:53:25
All right, Kenny. Thanks for calling. And you're listening to "The Diane Rehm Show." Damian, that was a passionate statement from a small business owner.

PALETTA

10:53:39
Absolutely. And so one thing to remember, to put this in perspective, during and after the financial crisis, the world shuddered. And financial markets did not recover for years and years, and still really haven't fully recovered. And so, in 2009, 2010, it was a -- it would be impossible for a company in Indiana that makes, you know, solar equipment to export things to China and get any kind of bank assistance.

PALETTA

10:54:02
So there was -- I think there was a sense -- and the Export-Import Bank did ramp up a lot of its assistance then because there was so little global demand that the government felt like in the Obama Administration wanted to increase exports. And they were doing everything they could to try to get more assistance to companies.

PALETTA

10:54:16
Now, the question is, has a financial system recovered enough so that the Ex-Im Bank should be backing away and letting -- and the Ex-Im Bank says it is slightly -- but to replace a lot of this government assistance. In other words, should the financial system work in a way now that a company in Indiana can export solar equipment or solar panels to Africa through the normal process without government assistance? And that's the question, I think, is hard to answer when there's still this government assistance that's out there.

REHM

10:54:40
It's the tipping point that you're talking about. Norm?

ORNSTEIN

10:54:44
You know, I think there is a zeal to stick it to Boeing and stick it to GE and stick it to some of these big companies. And I think what these callers have shown us is that there are real human costs to this. It may be only a small number of small businesses out of the larger number that exist, but these are real people who are going to lose their companies or lose their jobs.

ORNSTEIN

10:55:03
In small communities, in many cases, like in Arkansas, you're talking about something that would have an enormous ripple effect. And, you know, I think that the phrase to throwing the baby out with the bathwater, instead of finding a way to reform and create a different balance in this process, that's a reflection to me of the dysfunction that we have in our policy right now. We're not looking at this...

REHM

10:55:21
And he was also -- he was also talking about throwing out the bathtub with it. Now, here's the other question though. If, in fact, the Ex-Im Bank charter is not renewed Sept. 30, will the banks begin to step up and do their due diligence instead of holding on to all this cash?

BAKER

10:55:47
Sure. Some of this will be replaced by the private sector.

REHM

10:55:49
Some. We don't know how much.

BAKER

10:55:50
So it -- it's not going to be 100 percent.

REHM

10:55:52
Yeah.

BAKER

10:55:52
And, again, you know, I'm sympathetic with the caller. If I were running a business and are facing loss, that would be horrible.

REHM

10:55:56
You bet.

BAKER

10:55:56
But we do that all the time. I'm sorry. We do it all the time. We had huge cuts in the budget. We had massive austerity. That cost us millions of jobs, so I'm a little -- you know, this is a little hard to get me too upset. And if we want to talk Norm's point about real business, ripple effects, tariffs in 2002 on steel, all the people arguing for the Export-Import Bank were on the other side. And they were completely wrong. So I'm sorry. I don't let you change your argument (unintelligible) day of the week.

PALETTA

10:56:18
And one thing to keep in mind here is the Ex-Im Bank is not the extent of government assistance to companies, right? We have the Small Business Administration that extends a tremendous amount of credit to all sorts of companies around...

REHM

10:56:28
So you're saying they'd have some other options.

PALETTA

10:56:32
That's right. Well, and also you have corporate tax breaks. I mean, the government's very involved in trying to help companies -- you know, some argue too involved, some argue not enough -- but in trying to help companies grow their businesses.

REHM

10:56:44
All right. We'll have to leave it there. I'll be waiting on tenterhooks to see what the Congress does by Sept. 30. Damian Paletta of The Wall Street Journal, Norman Ornstein of the American Enterprise Institute, Dean Baker, co-director of the Center for Economic and Policy Research, you guys were great. I learned so much.

ORNSTEIN

10:57:14
Thanks, Diane.

REHM

10:57:14
Thank you.

PALETTA

10:57:14
Thanks, Diane.

BAKER

10:57:15
Thanks, Diane.

REHM

10:57:15
And thanks for listening, all. I'm Diane Rehm.

ANNOUNCER

10:57:20
"The Diane Rehm Show" is produced by Sandra Pinkard, Denise Couture, Susan Casey, Rebecca Kaufman, Lisa Dunn, Danielle Knight, and Alison Brody. The engineer is Timothy Olmstead. Natalie Yuravlivker answers the phones.
Transcripts of WAMU programs are available for personal use. Transcripts are provided "As Is" without warranties of any kind, either express or implied. WAMU does not warrant that the transcript is error-free. For all WAMU programs, the broadcast audio should be considered the authoritative version. Transcripts are owned by WAMU 88.5 FM American University Radio and are protected by laws in both the United States and international law. You may not sell or modify transcripts or reproduce, display, distribute, or otherwise use the transcript, in whole or in part, in any way for any public or commercial purpose without the express written permission of WAMU. All requests for uses beyond personal and noncommercial use should be referred to (202) 885-1200.

Our address has changed!

The Diane Rehm Show is produced by member-supported WAMU 88.5 in Washington DC.