During the life of any government-sponsored program, elected officials are presented with ideal opportunities where circumstances align to change direction for the better … or at least, to avoid the worst. This seems especially true with federally-backed financial institutions. What if, for example, politicians had not rushed to expand deposit insurance – a move which, according to a Congressionally chartered blue-ribbon panel, was “at the heart” of the billions in taxpayer liabilities incurred from cleaning up the Savings and Loan crisis of the 1980s? Or, what if NTU’s warnings to Congress for roughly two decades about the dire need to untangle Fannie Mae and Freddie Mac from federal purse strings were heeded instead of ignored?
So it is with the Senate’s impending July 20 “deadline” to decide on whether to confirm for another term Export-Import Bank President and CEO Fred Hochberg. According to news accounts, the Senate’s failure to act on this as well as the expiring terms of two other Ex-Im officials would deprive the institution of the quorum needed to issue more loans and guarantees. Now the Ex-Im posts are part of a larger controversy over whether Senate Majority Leader Harry Reid (D-NV) will exercise the so-called nuclear option on several pending confirmations.
From a practical standpoint, taxpayers must be wondering why Washington can only seem to get worked up when one of its creations might be prevented from doling out more rather than less money. Where is the sense of urgency, for instance, in permanently filling the positions of Inspectors General at major agencies, some of which have remained in limbo for years?
But as we have argued before, even from a pure policy perspective it would be a mistake for the full Senate to green-light Hochberg’s reconfirmation the way the Senate Banking Committee already has. For one, important warnings about Ex-Im’s risk management have been coming in a steady stream from Ex-Im’s Inspector General, the Government Accountability Office, and other entities. And that could mean trouble down the road for taxpayers.
Beyond safety and soundness considerations, however, there’s the enduring question of Ex-Im’s crony capitalist behavior. Aside from making bad bets on companies like Solyndra, Ex-Im’s “safer” wagers on big businesses like General Electric and Boeing ought to raise eyebrows as well. The collateral damage caused to other parts of the economy from this game of picking winners and losers is considerable. For example, the Bank’s largesse allows Boeing to sell its planes at cut-throat rates and with preferable terms to foreign carriers, which creates a severe disadvantage for U.S. airlines.
Hochberg has not done a great deal to address these legitimate concerns, despite the fact that Congress raised them just recently when it reauthorized the Bank. As The Wall Street Journal put it in a June 27 editorial (subscription required):
Ex-Im promised stress testing but has produced no results. Mr. Hochberg resisted a chief risk officer until this month—and only under pressure from a House hearing. He has rejected portfolio limits that are de rigeur at serious financial institutions, as well as calls to empower his board. Ex-Im is also quick-marching toward its new cap, adding $10 billion in new lending in the last year.
Nor do the conditions attached to last year’s Ex-Im reauthorization – i.e., that the Treasury engage in more efforts to reduce export subsidies with trading partners – appear to be significantly slowing that “quick march.”
In essence, the few positive steps to which Hochberg has acceded, and the near-begrudging manner his leadership has conveyed in taking them, do not bode well for the imperative changes that Ex-Im reformers seek. Indeed, NTU has argued that the wisest possible course would be an orderly wind-down of the entire operation, such as that provided in the Export-Import Bank Termination Act.
Nomination fights are not normally the best venue for effecting an urgently-needed overhaul (or termination) of a program, but the federal government has inched itself further into a corner by passing up other opportunities to meaningfully hold Hochberg and Ex-Im accountable. A prudent pause in this reconfirmation process may therefore be the best hope for getting out of that corner and putting Ex-Im’s problems back into the center of the public square, where they can be properly debated.