Hardworking American taxpayers, who are paying more for gas (“Gasoline prices at six-year high – AAA”) and “more for almost everything this year” (CNBC), might be wondering why President Obama refuses to approve the Keystone Pipeline but is using their tax dollars to finance foreign corporate welfare -- like the nearly $5 billion in direct loans to help build a venture developed by Saudi Aramco, Saudi Arabia’s state-owned oil company.
This is the same Saudi Aramco, by the way, that one report this week said is “pulling the rug out from under the U.S. gas industry” and has announced plans to spend its money to build 11 45,000-seat capacity stadiums by order of King Abdullah.
Here are the deal details:In 2012, the Ex-Im Bank provided a record-breaking $4.975 billion in direct loans to help build Sadara Chemical Company, developed by the Saudi Arabian Oil Company (Saudi Aramco). Saudi Aramco, the state-owned oil company of Saudi Arabia, is the world’s biggest oil company, with a market capitalization counted in the trillions. – (Sources: Export-Import Bank press release, 4/4/13: “Sadara Chemical Company Transaction is Awarded Ex-Im Bank Deal of the Year”; Saudi Aramco; Forbes; University of Texas)
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When this Committee first embarked on the Federal Reserve Centennial Oversight Project last year, we promised a thorough review of America’s central bank. Today’s hearing is this Committee’s 11th hearing on the Federal Reserve in the 113th Congress. Certainly our understanding of the Federal Reserve has been enriched through discussion and debate among our colleagues and complimented by the knowledge and perspective of many distinguished witnesses and scholars, including those who are here today.
As the hearing schedule for the 113th Congress begins to wind down, I do wish to thank all of our colleagues and witnesses for their contributions to this project and the risks they undertook to provide such. I say “risk” because I’m reminded that Senator Nelson Aldrich, one of the legislators behind the Federal Reserve Act, noted that “the study of monetary questions is one of the great causes of insanity.” Hopefully, we can avoid that fate. Regardless, we do expect to issue a full report on our findings from the Centennial Oversight Project in the fall.
Today we consider the first piece of legislation to arise from this process; legislation to begin to reinvigorate the Federal Reserve with the type of accountability to the Congress and the people that the founders expected of all federal agencies when they drafted the Constitution. I, again, say the first piece of legislation because reforming an institution as old, entrenched, important and powerful as the Federal Reserve will be a work in progress. But it is work we must not ignore. There are many excellent, capable public servants at the Fed who have served our nation well and are currently serving our nation well.
But I believe a critical examination of the last 100 years of the Fed’s actions reveals a mixed bag at best. And most recently, we have seen a radical departure from the historic norms of monetary policy conduct. From an unprecedented use of 13(3) exigent powers to select intervention in distinct credit markets, to the facilitation of our unsustainable national debt, to a blurring of the lines between fiscal and monetary policy -- all of which presents large and unwarranted risk to our economy.
Clearly our work must be thoughtful, it must be careful and it must be deliberate, but much is at stake so we cannot ignore it. Thus, I fully expect the legislative effort to continue in this Congress and the next.
A reoccurring theme throughout our hearings has been that monetary policy is at its best in maintaining stable, healthy economic growth when it follows a clear predictable rule or path free from political micro-management, as it did during the Great Moderation of 1987-2002.
Earlier in her career, Chair Yellen said at an FOMC meeting that following one type of rule, specifically the Taylor rule, is “what sensible central banks do” – and I agree.
Let me make one thing clear at the outset. We do not suggest for a moment that Congress, much less the White House or Treasury, should conduct monetary policy operations. We continue to respect the Federal Reserve’s independence in monetary policy. But that independence and discretion must be paired with appropriate transparency and accountability. What we require today in this legislation is that the Fed use a clear map of its own choosing to set the course for monetary policy and share that map with the rest of us.
Additionally, the case for Federal Reserve independence when it sets monetary policy does not hold up when we consider the Fed’s new powers under Dodd-Frank to regulate an ever-increasing share of the American economy. The Fed should not be permitted to hide its prudential regulatory actions behind its monetary policy independence cloak.
So today we consider a statutory requirement, among others, that the Federal Reserve conduct cost-benefit analysis as it adopts new regulations. Even President Obama has issued two Executive Orders reaffirming the importance of thorough cost-benefit analysis by both executive and independent regulatory agencies. Today’s legislation includes a number of other additional transparency and accountability provisions which are badly needed for the Federal Reserve. It is clearly time to hold the Fed to the same openness and transparency that we demand of other federal agencies.
In closing, two final points. I want to thank Chairman Campbell and his committee for all the great work they have done and will continue to do on the Federal Reserve Centennial Oversight Project. I want to thank Chairman Garrett, whose ideas have formed the bulk of the bill that will be before us today. And I want to thank Vice-Chairman Huizenga for his work on carrying this bill as well.
Secondly, I want to emphasize again that I expect further pieces of legislation to follow. For example, we continue to examine the Fed’s 13(3) powers as modified by Dodd-Frank. Also, many in the public have inquired about H.R. 24, the Audit the Fed bill. Counterintuitively, that bill falls under the jurisdiction of the House Oversight Committee, not our own, and we look forward to Chairman Issa bringing that bill to the floor. And I would note that today’s bill contains a provision requiring the GAO to ensure that the Fed complies with our statute by auditing the monetary rule they submit to the Congress, and thus compliments the Audit the Fed bill.
Again, our goal today is to begin the process of developing legislation that will ultimately strengthen the Federal Reserve in fulfilling its mission to maintain stable prices and job growth and ensure that the Fed’s rulemaking process is transparent and predictable. I appreciate our panel today for coming to the hearing.
The cost of renovating the CFPB’s rented headquarters has spiraled to more than $215 million – $65 million more than the agency’s estimate just six months ago and $120 million more than last year’s estimate, according to the Federal Reserve’s Inspector General.
It also equals more than $590 per square foot being renovated at the CFPB’s rented headquarters. That means the CFPB is spending much more per square foot than it cost to build the Trump World Tower ($334/square foot), the Bellagio Hotel and Casino ($330/square foot) and the Burj Khalifa in Dubai ($450/square foot).
The renovation project has been mired in controversy. For more than a year, members of the House Financial Services Committee have questioned CFPB officials about its rising cost, about why an agency that is renting a building is paying for renovations in the first place, and the extravagance of such features as a four-story glass staircase, two-story waterfall and sunken garden.
“When they passed the Dodd-Frank Act, Democrats in Congress and the White House made the CFPB unaccountable to taxpayers and to Congress. We’re seeing the results of this dangerous unaccountability today in a Washington bureaucracy that is running amok, spending as much as it wants on whatever it wants. It’s outrageous,” said Financial Services Committee Chairman Jeb Hensarling (R-TX).
In addition to reporting on the project’s increasing cost, the Inspector General also notes:
Rep. Patrick McHenry, Chairman of the Financial Services Oversight and Investigations Subcommittee who requested the Inspector General’s report on the CFPB renovations, said: "The findings of the Inspector General's investigation are deeply troubling and lead to even more questions about the unaccountable design of the CFPB. The continuously growing price tag is a tremendous waste of funds and, amazingly, there is still no assurance the $216 million price tag won't grow higher. Now we learn the Bureau, presumably taking a page out of the IRS' playbook, has lost the documentation showing who actually gave final approval for this massive waste. Coupled with recent accusations of discrimination and retaliation of employees by agency leaders, it has become abundantly clear that it's not 1700 G Street that needs an overhaul, but rather the entire structure of the CFPB."
While the Inspector General reports the current estimated cost of CFPB’s building renovation is $215.8 million, the building was appraised in 2011 for just $153.7 million, according to an audit report released by the Treasury Department’s Office of Inspector General in December 2013.
1. The Ex-Im Bank doesn’t create jobs.
2. The Ex-Im Bank doesn’t return money to the taxpayers.
3. The Ex-Im Bank fails to help small businesses, even though it is required by law to do so.
4. The Ex-Im Bank uses American taxpayers’ money to help foreign corporations, including businesses that are owned by the governments of China, Russia, Saudi Arabia, and the United Arab Emirates.
5. The Ex-Im Bank financed only 1.6% of total U.S. exports in 2013.
WASHINGTON -- The House Financial Services Committee on Wednesday held an in-depth, day-long hearing focused on the Export-Import Bank.
|The Washington Post - Fred Hochberg, chairman of the “embattled” Export-Import Bank, “refused to answer repeated questions” about whether he was aware of a criminal investigation being conducted into bank officials who are accused of corruption and taking kickbacks. The allegations “turned a harsher light on the agency – and fueled the arguments of the bank’s long-standing critics.”|
|The Daily Caller - There is “a history of reforms being ignored” at the Bank. “Strong questions about Ex-Im’s accountability were also raised” at the hearing. While Ex-Im claims it supports jobs and returns money to the taxpayers, “none of these arguments withstand scrutiny,” a witness countered.|
|The Guardian - The last time Congress reauthorized Ex-Im in 2012, “Congress insisted on reforms that, critics argue, were not fully implemented.” The CEO of Delta Air Lines pointed out that “state-run airlines owned by rich foreign governments” are being subsidized by U.S. taxpayers through Ex-Im.|
|Salon - Liberals like President Obama used to condemn Ex-Im “as a slush fund that allows the government to fund a series of nasty activities." Now “Democrats have rushed to Ex-Im’s aid,” ignoring their earlier criticisms, for example, of “how Enron…benefitted from $675 million in Ex-Im loans.”|
|Washington Examiner - Victims of Ex-Im include “domestic competitors of the very few U.S. businesses to get subsidy exports,” including U.S. semiconductor makers who compete against foreign semiconductor makers “who get Ex-Im subsidies.”|
|NPR - Committee members noted Ex-Im “sends taxpayer dollars to economic competitors of the U.S., that its loan guarantees amount to crony capitalism and that its biggest beneficiaries are some of the biggest multinational companies” in the world.|
|Reuters - Ex-Im’s future was cast into doubt after it was held up as “an example of corporate cronyism that benefits multi-nationals at the expense of taxpayers and many small companies.” Also discussed at the hearing was a report that four Ex-Im officials “had been suspended or removed” after investigators began looking “into charges of improper gifts and kickbacks.”|
|AP - Wednesday’s hearing began with criticism that Ex-Im gives foreign airlines “a competitive advantage,” unfarily using the “full faith and credit of the United States” to “the detriment of U.S. companies and their employees.”|
The Washington Post | U.S. Export-Import Bank chief faces heat from Republicans in House hearing
NPR | Conservative Critics Lobby For An Early End To Export-Import Bank
Reuters | Conservative attacks mount on U.S. export lender, put future at risk
Hot Air | Consumer Financial Protection Bureau already sinking into scandal
House Financial Services Committee Chairman Jeb Hensarling (R-TX) issued the following statement today after the United States Supreme Court – in a 9-0 vote – ruled that President Obama exceeded his Constitutional authority when he filled vacancies on the National Labor Relations Board in 2012.
“President Obama appointed Richard Cordray to head the CFPB at the same time and in the exact same manner as these unconstitutional NLRB appointees. Clearly and unquestionably, President Obama exceeded his authority when he appointed Director Cordray, just as he exceeded his authority when he made these NLRB appointments. Today’s unanimous judgment from the highest court in the land reaffirms and validates our committee’s decision not to hear testimony from Director Cordray on the CFPB’s semi-annual report until he was validly and legally serving in his position.
“By the time the Senate confirmed Mr. Cordray in July 2013, he had served as Director for 18 months without legal authority. This fact calls into question the legality of the official actions he took during this time period and may represent a legal risk for the CFPB.”Read More
June 26, 2014
By Charles Lane
Of all the purposes for which you might put U.S. taxpayer dollars at risk, helping wealthy petro-states borrow millions to buy Boeing jets would not rank among the most urgent.
Yet that is what the Export-Import Bank does: In fiscal 2013, Ex-Im backed$8.3 billion in aircraft and related sales, including a $117.5 million loan guarantee to support Boeing 737 purchases by Dubai — a typical transaction for an agency that has, over the years, earned the sobriquet “Bank of Boeing,” though it does also support Caterpillar and General Electric, among others.
Now Ex-Im suddenly faces extinction: Its charter expires Sept. 30, and the agency’s best friend in the House Republican leadership, former majority leader Eric Cantor (Va.), who shepherded a bipartisan reauthorization bill in 2012, lost his GOP primary this month. Ex-Im must contend instead with free-market Republicans such as Jeb Hensarling (Tex.), chairman of the committee that oversees Ex-Im, and a new majority leader, Kevin McCarthy (R-Calif.), who has abandoned his past support for Ex-Im in deference to the tea party.
Say what you want about the tea party, its critique of Ex-Im Bank as “crony capitalism” has a lot going for it; President Obama himself singled out Ex-Im as an example of “corporate welfare” when he was running for president in 2008 — although his administration, and most congressional Democrats, support it now.
Ex-Im defenders from the International Association of Machinists union to the U.S. Chamber of Commerce are bombarding Congress and the media with the message that Ex-Im is a realistic instrument of national policy, without which Boeing and other U.S. firms could not compete against heavily subsidized European companies, such as Airbus.
Hundreds of thousands of U.S. jobs depend on these exports, the argument goes, and Ex-Im made $1 billion last year from fees for loan guarantees and the like, so the U.S. economy gets all those benefits and it doesn’t cost taxpayers a dime.
Has Ex-Im finally discovered the elusive free lunch? Suppose it’s true, as the bank reports, that 205,000 U.S. workers owed their employment to Ex-Im-supported exports in fiscal 2013. This is not evidence of job creation; it’s evidence of governmentally-assisted job allocation. Resources that Ex-Im helped steer to Boeing, et al., might have created the same number of jobs, or more, at other firms.
Indeed, the first crack in a formerly united front of business support for Ex-Im appeared when Delta Airlines complained — plausibly — that Ex-Im-backed sales of Boeing jets to state-owned competitors abroad put Delta and its workers at a competitive disadvantage.
To fight the “bank of Boeing” stigma, Congress has required Ex-Im to allocate more of its portfolio (up to $140 billion under current law) to small business and “green” exports. No doubt these quotas spread Ex-Im largesse among more businesses — and congressional districts — thus broadening its political base.
Economically, though, nothing changes. Government is still picking winners and losers; it’s just picking more of them, in more markets, with more opportunities for bureaucratic decision-making, lobbying and, now and then, corruption — like the alleged bribery of an Ex-Im official by a construction-equipment exporter that the Ex-Im inspector general is investigating.
The no-cost-to-the-taxpayer argument is overblown, too. If Ex-Im backs loans that the private sector would not otherwise make, then, by definition, its portfolio is risky. Yet under existing law the federal budget accounts for Ex-Im’s loans as if they were as safe as Treasury debt. According to the Congressional Budget Office, a more accurate measure known as “fair value accounting,” which factors in foreseeable business cycle downturns, would show that Ex-Im adds $2 billion to the deficit over the next decade, rather than reducing it by $14 billion, as currently claimed.
The strongest argument for Ex-Im is that the United States can’t unilaterally disarm in a world where both buyers and sellers expect government intervention — not only from Europe, but also China and Japan — in the market for big-ticket items such as planes, nuclear reactors and locomotives.
It is an undeniably realistic contention, if not a principled one — all the more reason it might yet prevail. The Senate leans pro-Ex-Im. Forty-one House Republicans have signed a letter promising to back a bill if GOP leaders bring it to the floor, and most House Democrats are already on board.
Even if abolition is impossible, Ex-Im’s critics might have leverage to win real reforms, starting with fair-value risk accounting in the budget and an end to quotas for small business and green energy.Ultimately, the best hope may be to negotiate tougher international rules against export subsidies, so every country’s companies can compete on their merits — and no country’s taxpayers are on the hook.
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Today we will examine the Obama Administration’s request to re-authorize the Export-Import Bank.
First, we should examine where the money comes from to finance Ex-Im. Whose money is it? Obviously, it’s taxpayers’ money. The cashier at the corner grocery store, the cop on the beat, your children’s teachers, the small business owner struggling to keep the doors open in a tough economy.
Where does the money go?
It goes to foreign countries and foreign companies in the way of direct loans and credit guarantees.
The taxpayer money goes overseas to China and Russia – nations that openly challenge our economic and security interests.
The taxpayer money goes to oil rich countries like Saudi Arabia and the United Arab Emirates.
The taxpayer money even goes to countries with a demonstrated history of atrocious human rights abuses like the Congo and the Sudan.
So who benefits? Overwhelmingly – and indisputably – it’s some of the largest, richest, most politically-connected corporations in the world – like Boeing, General Electric, Bechtel and Caterpillar. In fact, in 2013 over half of Ex-Im’s financing went to a handful of Fortune 500 companies.
And big Wall Street banks apparently benefit as well. As reported in the press recently, one former JP Morgan and Citigroup banker said of Ex-Im’s credit guarantees, “it’s free money.”
So if you’re a politically-connected bank or company that benefits from Ex-Im, no doubt you would like it to continue. After all, it’s a sweetheart deal for you. Taxpayers shoulder the risk and you get the reward.
But if you work at a small business or other American company competing in the global marketplace, it’s unfair. Ex-Im effectively taxes you while subsidizing your foreign competitors.
We hear a lot from powerful voices on K Street and Wall Street about the Bank, but we should also listen carefully to some voices from Main Street like Hal Richards of Terrell, Texas in my district.
“As a small business owner who exports, I think it’s outrageous that my own government puts my business and other small businesses at a competitive disadvantage through the Export-Import Bank. How is it fair?”
Ex-Im tells us sending taxpayer money to foreign interests supports jobs for Americans. But the government’s chief auditor reported that programs like Ex-Im “largely shift production among sectors within the economy rather than raise the overall level of employment in the economy.”
Delta Airlines, who’s CEO will testify shortly, points out that Ex-Im’s loans to foreign airlines have killed as many as 7,500 domestic airline jobs because the Bank will subsidize Delta’s foreign competitors.
Caterpillar was a recent beneficiary of Ex-Im’s taxpayer financing that went to an iron ore mining project controlled by Australia’s richest citizen.
And an American iron ore company called Cliff’s Natural Resources said it will no longer be able to effectively compete with its Australian competitors due to the subsidy and they are now having to now cut employee’s hours.
Another American competitor feeling the sting of Ex-Im is Valero Energy in my native Texas. Ex-Im is lending $641 million to a Turkish company to build a new petroleum refinery. Valero’s CEO stated that Ex-Im’s actions “jeopardize U.S. refining jobs and undermine the strength of the U.S. refining infrastructure.”
Professor Donald Boudreaux of George Mason University has summed it up neatly when he stated “… at best the Ex-Im Bank creates jobs in export industries by destroying jobs in non-export industries.”
The Bank tells us it is essential to U.S. exports. But over 98% of all U.S. exports occur without risking taxpayer dollars; again, over 98%. Most of the others who take advantage of Ex-Im? Certainly they could do it without taxpayer support.
Even Boeing – the Bank’s biggest beneficiary – has admitted it doesn’t really need Ex-Im and could “arrange alternative financing” without it.
The Bank has also told us it doesn’t cost taxpayers a dime. The Congressional Budget Office respectfully disagrees. It tells us that if the Bank were to use fair value accounting, the accepted accounting method for almost every bank and private company in America, Ex-Im’s ledger would actually show a net loss to taxpayers in the neighborhood of $200 million per year.
That’s the difference between Washington accounting and Main Street accounting.
Perhaps what is most disturbing about the Ex-Im Bank is its ideological and crony-based lending practices. It has a “green” energy quota. It permits no assistance for coal projects. It has a mandate to specifically support exports going to sub-Saharan Africa.
Last year more than 60 percent of Ex-Im’s financing benefitted just 10 mega corporations that clearly have a strong political and lobbying presence in this town.
Recently, a Spanish multi-national corporation received a $33 million Ex-Im loan while former Energy Secretary Bill Richardson simultaneously sat on its advisory board and on Ex-Im’s as well.
And Ex-Im guaranteed $10 million in loans to benefit the politically-favored Solyndra, which clearly did not favor taxpayers.
And just yesterday, we woke up to the report in the Wall Street Journal, “The U.S. Export-Import Bank has suspended or removed four officials in recent months amid investigations into allegations of gifts and kickbacks, as well as attempts to steer federal contracts to favored companies.”
Ex-Im may not just be guilty of cronyism; it may be guilty of corruption as well. Now I will admit that Republicans may disagree on whether Ex-Im should be reformed or allowed to expire, and I certainly hope this hearing will help illuminate that decision. But we are united in believing we cannot reauthorize the status quo. And we are also united in believing that the smarter and fairer way to promote American exports is by: fundamental tax reform; strong trade agreements; a regulatory freeze with the exception of health and safety and greater American energy independence with projects like the Keystone pipeline.Read More
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