Tags: Boeing | Export-Import Bank | loan | customer

Bank of Boeing Going Down

By Wednesday, 02 July 2014 08:41 AM Current | Bio | Archive

For years, no one in either political party thought much about the U.S. Export-Import Bank. It came up for reauthorization periodically and always survived without controversy.

After now-former House Majority Leader Eric Cantor, R-Va., lost his GOP primary bid last month, this once-automatic vote suddenly fell in doubt. Boeing (BA) shares weakened the day after the Cantor defeat. This should be no surprise, since more than 65 percent of the Export-Import Bank's loan guarantees go to Boeing aircraft customers.

The Export-Import Bank provides a kind of vendor financing for overseas purchasers of U.S. exports. If you are, say, the national airline of a small African country and you want to buy some Boeing jets, the Ex-Im Bank will do whatever it takes to put you in the cockpit today. Ex-Im is to Boeing what GMAC is to General Motors.

Now why, you might ask, is the U.S. government so interested in selling airplanes? In fact, the government cares very little about the customers; it cares a great deal about Boeing.

The aircraft maker is a top defense contractor as well. "Helping" politicians is a high priority for Boeing, and the politicians have always returned the favor.

Boeing's influence is bipartisan. It has Republican and Democratic friends. Presidents of both parties have supported it since its 1945 inception. No one ever dared to defy Boeing — until now.

The Ex-Im Bank's current authorization expires after this September. House Republicans aligned under the Tea Party think it should die. Establishment Republicans want to implement "reforms" and save the bank because, they say, it boosts exports, helps small business and saves American jobs.

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I'm with the Tea Party on this one: let the Export-Import Bank die. Those who see any economic benefit to its continued existence are either bribed or blind. They tout alleged benefits without mentioning the unseen costs.

Delta Air Lines (DAL) executives point out, correctly, that the Ex-Im Bank's loan guarantees drive up the price U.S. airlines must pay for their planes. This, in turn, drives up the price of airline tickets for everyone.

In a tiny way, the Ex-Im Bank does to the airliner market what Fannie Mae and Freddie Mac did to the housing market. We found out in 2008 that there are no free lunches from government-sponsored enterprises (GSEs). Consumers and taxpayers always end up footing the bill, one way or another. The GSEs simply cloud the picture and socialize any losses.

Boeing is certainly free to sell airliners to anyone it wants, even tiny countries that can barely afford their own airports, without U.S. government help. The company is in no financial peril. It can afford to offer its own vendor financing.

As for anyone else who may think the Export-Import Bank helps business, I suggest you think again. If your customers truly can't get a loan without the government co-signing, the market is telling you something. Your prices are too high or your product is inferior. In either case, you need to modify your business model. Do you really want to be a corporate welfare queen?

I didn't think so.

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For years, no one in either political party thought much about the U.S. Export-Import Bank. It came up for reauthorization periodically and always survived without controversy.
Boeing, Export-Import Bank, loan, customer
Wednesday, 02 July 2014 08:41 AM
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