Posted by Staff on July 15, 2014
It pays to have cronies in high places, especially at the Export-Import Bank it seems.
The Ex-Im Bank gave millions in taxpayer-backed loans for Spanish green energy company Abengoa International – while former Gov. Bill Richardson (D-NM) sat on the advisory boards for both.
Here are the deal details:
Richardson joined Ex-Im’s advisory board near the end of 2012, around the same time that two Ex-Im Bank loans benefitting Abengoa were issued. Those taxpayer-backed loans totaled around $150 million.
As one newspaper noted, “critics say Richardson’s holding a seat on both Abengoa and the Export-Import Bank’s advisory boards is just another example of cronyism at the bank.”
The Six Biggest Inaccuracies in the July 10 Bloomberg Businessweek Article Regarding the CFPB’s Building RenovationsPosted by Staff on July 15, 2014
Inaccuracy #1: “When the U.S. Consumer Financial Protection Bureau opened in 2011, the best available government office space large enough to accommodate its thousand-plus employees was a run-down concrete building on G Street near the White House that once housed the now-defunct Office of Thrift Supervision.”
It therefore appears that the CFPB conducted no due diligence before selecting 1700 G Street, so it could not possibly know whether the facility was the “best available.”
Additionally, in 2010, the Securities and Exchange Commission (SEC) had leased approximately 900,000 square feet of office space in Washington, DC at 400 Seventh Street, SW, known as Constitution Center, and, as was widely reported, soon found that it had overcommitted itself by roughly 600,000 square feet (See, e.g., https://www.sec.gov/foia/docs/oig-553.pdf). The SEC and the building owner then solicited other government agencies to sublease the newly-renovated, Class A space. Several agencies ultimately moved into the building, including the Office of the Comptroller of the Currency (OCC) and the Federal Housing Finance Agency (FHFA). Prior to February 18, 2011, the date when Elizabeth Warren announced the selection of 1700 G Street as the CFPB’s headquarters (see http://www.consumerfinance.gov/newsroom/treasury-department-announces-permanent-headquarters-of-consumer-financial-protection-bureau/), approximately 350,000 contiguous square feet was apparently still available for rent at the Constitution Center site. This amount exceeds the 312,000 rentable square feet the CFPB ultimately rented in 1700 G Street, and thus would appear to be “large enough” for the agency’s needs. Two CFPB employees toured the Constitution Center facility, but for reasons unknown, CFPB leadership agreed to rent the 1700 G Street location “as-is” (which Director Cordray has described as “a white elephant” and “a dump”) rather than pursue available space in Constitution Center. On March 21, 2014, the Committee sought documents from the OCC, SEC and CFPB that might shed light on this decision. The SEC and OCC have produced all requested records in full, whereas the CFPB has not replied or provided records at all.
So on what basis and with what support does Bloomberg Businessweek make the claim that the building on G Street was the “best available” real estate option for the CFPB?
Inaccuracy #2: “The U.S. General Services Administration is managing the project.”
“CFPB has overall responsibility and approval authority for all aspects of the renovation project, including determining requirements associated with the renovation needs, project scope, schedule and budget. Subject to the provisions of this MOU, all bridging design considerations decision-making authority (including aesthetic and artistic), shall be vested with the CFPB.”
Under normal circumstances, the GSA manages facility renovation and construction projects for federal real estate in its inventory, but in the case of the CFPB renovation, neither the CFPB nor the GSA own the building that the CFPB has decided to renovate. The 1700 G Street building is owned by the OCC. Additionally, the renovation is structured as a design-build bridging project, meaning that CFPB retains full control over the design, engineering, scope and the cost of the renovation. The CFPB hired Skidmore, Owings & Merrill as its architecture/engineering design firm, and it is this firm that has prepared the bridging design documents for the project. The CFPB controls the project, not the GSA. The GSA’s role is to procure and manage a contractor to perform the demolition and construction in accordance with the CFPB’s designs.
In a pre-proposal conference for potential construction contractors held by the GSA on March 21, 2014, Tyrone Anderson, the GSA’s project executive, said that the CFPB renovation project is “unique for us” because “we don’t own the building, and we don’t control design.” Additionally, several construction tasks fall outside the scope of the GSA’s contract with the CPFB, and thus will not be undertaken by the contractor procured by the GSA. For instance, the CFPB plans to replace the building’s data and telecommunications system and furniture, fixtures & equipment (FF&E), but these projects will be handled by the CFPB through separate procurements, not the GSA.
Inaccuracy #3: “The GOP members say their calculations show the renovation will cost $215.8 million.”
“Based on the CFPB’s assessed requirements as of June 5, 2014, we currently estimate all-in costs to total approximately $215.8 million.”
Inaccuracy #4: “The [Inspector General’s] report said the renovation covers 512,000 sq.ft.”
Her statement is supported by the bridging design documents created by Skidmore, Owings & Merrill, which show proposed floor plans for every level in the building except the two garage levels, and by the presentation slides the GSA provided to potential contractors, which also show renovation plans for every floor of the building except the two underground parking garage levels.
Additionally, the OCC has confirmed in letters sent to its ground-level retail tenants that the building’s retail space will not be renovated by the CFPB. Using square foot figures appearing in documents provided by the CFPB pursuant to Committee document requests, the actual total square footage being renovated by the CFPB appears to be 365,199 square feet, which is significantly less than the GSA’s gross figure, but tracks closely with the initial estimate of 350,000 square feet from the CFPB’s CFO.
Inaccuracy #5: “The Republican figures inflate the total price by tacking on $70.7 million for costs such as hiring movers and renting temporary offices to use during the construction.”
The Committee calculated the renovation cost per square foot by dividing the total renovation costs estimated by the Inspector General – $215.8 million – by the estimated square footage actually being renovated – 365,199 square feet. This figure amounts to approximately $590/square foot.
Inaccuracy #6: “Republicans have cast the project as a misuse of public dollars in a time of tight budgets…But the Federal Reserve is self-financed, largely with income on securities such as government bonds, so the amount Congress needs to set aside for the office redo is precisely zero.”
Bottom Line From the Inspector General’s Report: “A Sound Business Case Is Not Available to Support” the CFPB’s Renovation
The Financial Services Committee will continue to investigate why CFPB leadership decided to commit the Bureau to a quarter billion dollars in long-term lease payments without performing any due diligence, and why it has decided to spend an additional $215.8 million to renovate a building it doesn’t own, an amount that is more than $70 million higher than the building’s appraised value.
The Inspector General points out all this money is being spent by the CFPB even though it “was unable to locate any documentation of the decision to fully renovate the building” and even though it failed to comply with its procedures for obtaining internal approval for the renovation. Therefore, “a sound business case is not available to support the funding of the renovation,” the Inspector General reports.
The CFPB’s building renovation is not a wise use of public funds, and this lavish spending does nothing to support the CFPB’s core mission of protecting consumers.
Posted by Staff on July 14, 2014
Americans are increasingly alarmed about Russia’s nationalism and military aggression (just look at this week’s Pew Research poll), but the Export-Import Bank doesn’t seem to care.
Hardworking Americans taxpayers should be asking why they’re on the hook for Russian oil projects funneled to Vladimir Putin’s cronies while they’re struggling to pay for higher gas prices here at home and NATO issues warnings of further Russian aggression.
Here are the deal details:
Making it official: Ex-Im Chairman Fred Hochberg signs Ex-Im’s $1 billion deal with Herman Gref, CEO of Russia’s state-owned Sberbank
Close ties to the Kremlin: Russian President Vladimir Putin meets with
Posted by Staff on July 11, 2014
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 total assets reportedly 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)
Posted by Staff on July 11, 2014
Committee Seeks Accountability and Transparency at the Federal Reserve
On Thursday, the Financial Services Committee held a hearing to examine H.R. 5018, the Federal Reserve Accountability and Transparency Act. The proposal is the first piece of legislation to arise from the Committee’s Federal Reserve Centennial Oversight Project.
"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," Chairman Hensarling (R-TX) said.
Other members of the committee also stressed that the Fed’s independence needs to be paired with transparency and accountability, for "an independent Fed shouldn't equal an opaque Fed," said Rep. Randy Hultgren (R-IL).
Rep. Bill Huizenga (R-MI), the sponsor of H.R. 5018, said the bill “lifts this veil of secrecy by increasing accountability and transparency by limiting Fed officials ‘blackout periods’ to discuss policy with Congress, opening the rulemaking process, and requiring the Fed to provide a cost-benefit analysis for every regulation it issues. Additionally, this legislation urges the Fed to adopt a ‘rules-based’ approach to monetary policy instead of the continued improvisation strategy currently being employed. Should the Fed fail to adopt a ‘rules-based’ approach, it would trigger an audit of the Fed’s books.”
Rep. Scott Garrett (R-NJ) said, “Despite setting regulatory policies that impact millions of Americans, the Federal Reserve – by and large – operates in secret. Congress is all that stands between the central bank’s exercise of power over the financial system and the American people. So it is vital to ensure that the Fed is accountable to the people’s representatives.”
Rep. Sean Duffy | FDIC boss visits Wausau to discuss banking regulations
"We may have competing interests," said Duffy, a member of the House Financial Services Committee. "We want to make sure we have sound, stable lending. The chairman comes from a little different perspective after going through the crisis and all the stress that has been put on him and the FDIC team. Maybe they're a little more cautious than we'd like them to be right now."
Weekend Must Reads
Daily Signal | Ending Ex-Im Bank is All About Governing
Ex-Im is rife with corruption, doesn’t promote competition, costs taxpayers billions of dollars and threatens American jobs. It’s all about politically connected big businesses getting bigger with help from Uncle Sam. It’s not fair, not necessary, and shouldn’t be a hard decision for Congress.
The Wall Street Journal | Free People, Free Markets
The answer to our current slow growth and self-doubt isn't a set of magical "new ideas" or some unknown orator from the provinces. The answer is to rediscover the eternal truths that have helped America escape malaise and turmoil in the past.
Economics One | New Legislation Requires Fed to Adopt Policy Rule
A lot of research and experience shows that more predictable rules-based monetary policy leads to better economic performance. So the Federal Reserve Accountability and Transparency Act is good news.
On the Horizon
July 15, 2014 10:00 a.m.
July 16, 2014 10:00 a.m.
Monetary Policy and Trade Subcommittee Hearing
"A Legislative Proposal Entitled the ‘Bank Account Seizure of Terrorist Assets (BASTA) Act"
In the News
Wall Street Journal | House Republicans Want Fed to Adopt Policy-Making Rules
Financial Times | Lew challenged over Volcker rule impact
Holland Sentinel | Reps. Huizenga, Garrett release major fed reform legislation
New York Times: | House Republicans Resume Efforts to Reduce Fed’s Power
Posted by Staff on July 07, 2014
The House is in session Tuesday through Friday this week.
On Thursday at 10:00 a.m. the full committee will hold a hearing on legislation to reform the Federal Reserve on its 100-year anniversary.
Be sure to check back here on the Bottom Line Blog -- and sign up for our email updates -- for additional information throughout the week.
Posted by Staff on July 01, 2014
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.
Posted by Staff on June 27, 2014
WASHINGTON -- The House Financial Services Committee on Wednesday held an in-depth, day-long hearing focused on the Export-Import Bank.
Posted by Staff on June 27, 2014
On Tuesday, the full committee held an oversight hearing with Treasury Secretary Lew on the activities of the Financial Stability Oversight Council (FSOC).
Under questioning from Chairman Jeb Hensarling (R-TX), Secretary Lew admitted that he could not say the Dodd-Frank Act ended "Too Big to Fail" as Democrats promised.
"Can you tell this committee today with an honest, straight face that we have ended 'Too Big to Fail'?" Chairman Hensarling asked.
"I'm not sure we'll know the answer to that question until we have the next financial crisis," Secretary Lew responded.
At the hearing, Chairman Hensarling and other members of the committee also called for greater openness and transparency at FSOC.
"The reason transparency and accountability are so important is because FSOC can designate practically any large financial firm in our nation as a Systemically Important Financial Institution, a SIFI, and thus render effective control over it. Thus, it has the ability to render great damage to our economy and set back the dreams of tens of millions of unemployed and underemployed Americans who are counting on their capital markets to work for them," Chairman Hensarling said.
Earlier this month, the committee passed bills to make FSOC more accountable and transparent and to place a one-year "timeout" on its designations of non-bank institutions as "systemically important."
Export-Import Bank: Corporate Necessity or Corporate Welfare?
On Wednesday, the committee held a hearing to examine the role of the Export-Import Bank.
"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," said Chairman Hensarling.
Captain Lee Moak, President of the Air Line Pilots Association, noted throughout his testimony "we have lost jobs" because of "our own government policy" at Ex-Im. "It's one thing competing in the free marketplace. It's another when our government subsidizes our competitor," Captain Moak said.
In his questioning of Ex-Im Chairman Fred Hochberg, Rep. Andy Barr (R-KY) said Eastern Kentucky has lost 7,000 coal jobs as a "direct result of the regulatory assault" of the Obama Administration. "My question to you is why on earth - if you're about creating jobs - why are you aligning yourself with a job-killing agenda?"
Subcommittee Examines the SEC's Division of Trading and Markets
On Thursday, the Capital Markets and Government Sponsored Enterprises Subcommittee held a hearing to examine the SEC's Division of Trading and Markets.
"Let me provide perhaps just two specific areas that I would like to see more attention from the commission," Subcommittee Chairman Scott Garrett (R-NJ) said. "First, the world is vastly different, we all agree, from 1975, when Congress amended the Exchange Act in response to one dominant equities exchange at the time. We live in a world of demutualized exchanges, where all market centers are for-profit, providing similar functions, yet they're competing under very different regulatory umbrellas. The SEC should take the time, therefore, to thoroughly analyze the situation and eventually make changes that put their varying market participants on, as they always say, a more level playing field. Secondly, Reg NMS, as the order protection rule is a very heavy-handed rule dictating explicitly how venues and orders are supposed to interact with each other in the marketplace. Now, this has been highlighted by a number of the commentators, including some of our previous panelists here, as one of the significant factors underlying market practices and also behavior."
Rep. Mick Mulvaney | "In 32 Seconds, Mick Mulvaney Boils Down the Debate Over Ex-Im Bank"
Who do you trust—a government agency justifying its existence or a private business trying to compete? That’s the question Rep. Mick Mulvaney (R-SC) posed at Wednesday's Financial Services Committee hearing on the Export-Import Bank. In just 32 seconds, Mulvaney explains why he’s siding with the free market.
Weekend Must Reads
Washington Examiner | Examiner Editorial: Why some Democrats would like to limit congressional oversight
Democrats fear that Congress is moving in the direction of correcting the monumental mistake it made when it created CFPB in 2010 and exempted it from congressional oversight of its budget.
The Wall Street Journal | The Fed Needs to Return to Monetary Rules
As the Federal Reserve's large-scale bond purchases wind down, financial markets and policy makers now are focused on when the Fed will move to increase interest rates. There is a more fundamental question that needs to be answered: Will the central bank continue its highly interventionist and discretionary monetary policies, or will it move to a more rules-based approach?
In the News
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
Posted by Staff on June 26, 2014
June 26, 2014
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.