Our view: The facts don't lie
A recent Congressional Budget Office report estimates the Export-Import Bank could generate $14 billion in revenue for taxpayers over 10 years. One caveat: The bank first must survive a surge of populist rage against “crony capitalism” that threatens to shut it down.
Delivering fuel to the rage is an equally credible source: the CBO, which estimates the Export-Import Bank could cost U.S. taxpayers $2 billion over the same period, fiscal years 2015-2024.
Yes, numbers can lie, or rather be used to deceive.
The CBO report, issued in May, calculates the numbers using two different accounting methods with two wildly different results.
One, projecting $14 billion in revenue for the U.S. Treasury, is the method the Ex-Im Bank actually uses, as do all government agencies, because Congress has told them they must. The other, fair value accounting, is “the practice of measuring assets and liabilities at estimates of their current value.”
This according to a helpful article from the March 2013 Harvard Business Review authored by Karthik Ramanna, an associate professor in business administration at the Harvard School of Business. His faculty profile says he has held the Henry B. Arthur Fellowship, “an appointment supporting the research and teaching of business ethics,” which might influence how readers weigh what he has to say.
But more on that later.
One might think from the revolutionary fervor of efforts to block congressional reauthorization that the Ex-Im Bank has been cooking the books to make itself look good, all the while shoveling federal dollars to well-heeled cronies at the expense of America’s evaporating middle class.
We think not, based only in part on the help it gives to small and mid-sized businesses here in Virginia in building their export trade. When Sen. Tim Kaine stopped at Bristol Compressors during a swing through Southwest Virginia last month, he noted it is one of the region’s largest employers — and put in a plug for Ex-Im.
“A huge portion of Bristol Compressors’ work is selling American-made compressors to nations on every continent except Antarctica,” he noted, according to a press release on the event. “The Ex-Im Bank helps our companies find customers overseas. . . . It’s really important that we get the bank reauthorized.” By Sept. 30.
Kaine is a Democrat, but the fight over reauthorization is not between parties. It is between the Republican Party of the Chamber of Commerce and the Republican Party of tea party libertarians.
Jim Nussle, a director of the Office of Management and Budget in the George W. Bush administration, captured the split in a nutshell in a letter to the Wall Street Journal published June 17 seeking to clarify a June 2 editorial, “Fraudulent government accounting.”
Among Nussle’s points, he noted the fair value accounting system the editorial is based on “uses prices in the private-sector market to estimate the cost of market risk even though private lenders have different administrative costs and default rates that are factored into their prices. For example, Ex-Im doesn’t have the same tax costs as a private lender . . . .
“Putting different accounting methodologies aside, the facts don’t lie: Ex-Im is self-funding and has generated income for the Treasury since 1992, including $1 billion in FY 2013.”
Ramanna was not writing about the Ex-Im controversy in his academic article, “Why ‘Fair Value’ Is the Rule.” But there might be a lesson relevant to the current controversy in his explanation of why this accounting method has gained favored in financial circles.
“The argument for fair value accounting is that it makes accounting information more relevant. However, historical cost accounting is considered more conservative and reliable. Fair value accounting was blamed for some dubious practices in the period leading up to the Wall Street crash on 1929, and was virtually banned by the U.S. Securities and Exchange Commission from the 1930s through the 1970s. The 2008 financial crisis brought it under fire again.”
Third time’s the charm?
###