Wednesday, August 19, 2009

No Matter the Spin: If It Looks Like Foreign Oil and Smells Like Foreign Oil, It Is Foreign Oil



Ben Smith at Politico has a story up with quotes from an Export-Import Bank (Ex-Im Bank) spokesman challenging Governor Palin's statement from this morning. The governor's statement questioned why America is loaning $2 billion to Petrobras, Brazil's state-owned oil company, to develop off shore oil resources, when we are not allowed to develop our own. Phil Cogan argues to Politico that Ex-Im doesn't rely on taxpayers' dollars (we'll come back to that in a moment).

Mr. Cogan also said (as paraphrased by Politico) that the bank's central purpose is, "To lend money to foreign companies for the purchase of American goods and services." Indeed, that is in the bank's charter. We could have, what would likely be, a long discussion about the fact that a government corporation is lending money to foreign companies so that they can buy American goods and services, but we'll leave that for another day. For now, well done, Mr. Cogan, you know what's stated in the charter.

Now back to the idea that the bank does not rely on tax money. Ex-Im was first created during the Great Depression, with an appropriation from the U.S. Treasury, in an attempt to increase exports. It has since been chartered as a government corporation (it was last chartered in 2006). Since 2008, it has been "self-sustaining" (much like the Post Office, I suppose).

The loans that it gives to foreign countries and corporations are backed by the American taxpayer. In fact, Fred P. Hochberg, the chairman and president of Ex-Im Bank, said that himself a few days ago in a letter to the editor:

While its financing is ultimately backed by the full faith and credit of the United States, over the past 15 years Ex-Im Bank has returned to the U.S. Treasury in excess of $4 billion more than the cost of operating the Bank. [emphasis added]

The taxpayer is the ultimate backstop. Backing by the federal government gives the bank an advantage over others in similar situations. At the end of the day, the money that the bank is lending is the taxpayers'. As Margaret Thatcher said, "There is no such thing as public money; there is only taxpayers' money."

Ex-Im Bank has, at times, had a rather interesting history lending out taxpayers' money. As Timothy Carney discussed back in 2002:

Conservative lawmakers oppose Ex-Im — a federal agency redistributing wealth from taxpayers to foreign and U.S. corporations — on principle. A few stories about Ex-Im's recent loans and loan guarantees shows clearly the lesson we all know: Any time something really screwed up happens, the government is probably behind it.

As Americans move in and out of energy crises and price spikes, the Jiangnan shipyard in Communist China will have all the juice it needs, thanks to U.S. tax dollars. In 1996, the Clinton administration skirted its way around a law preventing loans to Marxist regimes, and signed off on a $120 million low-interest loan to the China National Nuclear Power Corporation (CNNP).

For this loan to go through, President Clinton had to sign a letter saying the loan was in our national interest. His signature on that letter was interesting in the light of his administration's finding weeks before that CNNP had transferred to Pakistan nuclear-weapons materials.

This loan from taxpayers helped Americans, Ex-Im contended, because the CNNP was building the plant using the goods and services of the Bechtel Corporation, an American-based company. Bechtel, and the family that runs it, have given over $1.5 million in campaign contributions over the last six cycles, giving slightly more to Republicans than Democrats.

And WFAA in Dallas noticed a few interesting loans in 2007:

A News 8 investigation has found that a little known government agency may have unwittingly wasted taxpayers money on top of using the funds to support criminal activity.

The probe originally revealed that small business loans sponsored by the Export-Import Bank of the United States were made to non-existing companies for equipment that wasn't even real.

Now, New 8 has discovered that some of the people who got the Ex-Im Bank loans may have drug connections. The $243 million worth of bad loans were originally made to help trade with Mexico.

And a 2002 piece from, believe it or not, Bernie Sanders:

Here are a few examples of your Ex-Im taxpayer dollars at work:

The Export-Import Bank has provided an $18 million loan to help a Chinese steel mill purchase equipment to modernize its plant.This Chinese company has been accused of illegally dumping steel into the United States--exacerbating the crisis in our steel industry.

Since 1994 the Ex-Im Bank has provided $673 million in loans and loan guarantees for projects related to the Enron Corporation, leaving taxpayers exposed to $514 million.The bank approved a $300 million loan for an Enron-related project in India even though the World Bank repeatedly refused to finance it because it was "not economically viable."

The bank is subsidizing Boeing aircraft sales to the Chinese military.According to the president of Machinists' Local 751: "Boeing used to make tail sections for the 737 in Wichita, but they moved the work to a military factory in Xian, China.Is this Boeing's definition of free trade, to have American workers compete with Chinese labor making $50 a month under military discipline?"

The bank insured a $3 million loan to help General Electric build a factory where Mexican workers will make parts for appliances to export back to the United States.This project is responsible for the loss of 1,500 American jobs in Bloomington, Indiana.

And on and on it goes.The bottom line is that if the Export-Import Bank cannot be reformed so as to become a vehicle for real job creation in the United States, it should be eliminated.American citizens have better things to do with their money than support an agency that provides welfare for corporations that couldn't care less about American workers.

And early in this administration, Ex-Im Bank settled a claim accusing the bank of providing financial assistance to oil and other fossil fuel projects without first evaluating the projects' global warming impacts. In its settlement agreement, Ex-Im Bank agreed to evaluate the carbon dioxide emissions as part of its determination for qualification for a project.

We look forward to seeing that.

All of this is not to say that the loan to Petrobras is shady (though Gateway Pundit and Bret Baier both note something interesting), in fact, IBD noted a few upsides to the loan.

The larger point, however, is that the American taxpayer is now backing a $2 billion dollar loan to a foreign country to do things that we could be allowing and encouraging the private sector to do here. As IBD stated in their editorial:

[T]he question remains: Why must we go so far and spend so much taxpayer money to drill oil when we could unleash our private sector to do it here for free ?

[...]

At the center of it is energy security. If lending money to Brazil for oil is a good idea, isn't freeing our own companies to develop America's vast reserves an even better one?

You'd think, wouldn't you? But instead of helping ourselves reach energy independence by allowing off shore drilling in the United States and opening areas like ANWR for exploration, we're going to lend money to drill to Brazil.

The Obama administration would have us believe that they are stimulating the U.S. economy by loaning $2 billion to Brazil to develop their resources, while simultaneously denying companies the opportunity to develop resources in the U.S. If Obama's aim is to create wealth and jobs in America then the IBD explains why he's going about it incorrectly:

As noted in a recent study by the American Energy Alliance, an industry research group, developing our offshore energy resources would create in the coming years:
• $8.2 trillion in additional GDP.
• $2.2 trillion in total new state and federal tax revenues.
• 1.2 million new jobs at high wages.
• $70 billion in added wages to the economy each year.

All this for doing nothing other than letting oil companies do what they do best: Find and develop potential energy sources.

Add to this the potential from opening the Alaska National Wildlife Refuge's 10 billion-plus barrels of oil to potential development, and the 20 billion barrels or so in Alaska's Chukchi Sea, and there's an awful lot of easy stimulus to be had.

Whatever benefit the American economy would receive from the loan to Brazil is insignificant when compared to the direct and substantial stimulus developing U.S. resources would provide. As Governor Palin alluded to in her statement, it's hypocritical for Obama to maintain that he wants to stimulate the economy while not pursuing resource development in the United States that would create trillions of dollars in wealth and millions of jobs. Obviously the U.S. government recognizes the economic viability of resource development, otherwise they wouldn't have made the loan to Petrobras.

So, in a few years, we'll be no closer to energy independence and we'll have missed out on the economic benefits of resource development on and off our own shores, but we can buy some oil from Brazil. Fantastic.

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