Posted on 10/11/2015 2:13:48 PM PDT by E. Pluribus Unum
A few years ago the Boeing backlog was valued at $441B. That may be a tough nut to finance by your local savings and loan.
In case YOU don’t know it, DIMWIT, the US government is US.
The reason the US government is involved in export finance is the same reason France is involved, Britain is involved, Japan is involved, all up and down the line. There is no way there is never an agreement on sovereign debt without both governments’ involvement.
A US company does not want to deal with a South African bank to get paid, the South Africans don’t want to have to go to the US is the US company defaults. The export guarantees offer a way that responsibility can be underwritten to the benefit of buyer and seller - and taxpayers.
This BS about subsidies is bull. There is no subsidy, there is only an interest rate that reflects lower risk to the bank.
I have never read more crap on a single subject than I have about export financing. We can do without it, and maybe we will, but folks getting on their high horse over this as a matter of principle are off base. This is nothing more than remaining a competitive exporter in the modern world, that’s all.
Boeing is NOT the borrower. Comair is - a South African company. See the risk to the bank here?
In this event, the US has recourse via sovereign debt to the government of the borrower’s country. Are you saying that the US would simply write it off? I don’t think so.
The definition of crony capitalism. Boeing should have spent more on buying politicians. Now they have to use their own money and figure out how to run a business without the welfare. If they can’t compete it doesn’t say much for their top management and/or the trade deals negotiated by the idiots in Washington.
you are wrong, completely
they face competition that will have government guarantees for payment of customer bills in bad economy.
American banks can not take that risk absent the government back up
the actual payout by governments on the insurance is near 0 but the risks are large for the banks. The actual payout on ExIM insurance is miniscule
they face competition that will have government guarantees for payment of customer bills in bad economy.
Is that available for all US businesses or just the ones that line the pockets of the politicians? ie crony capitalism
God forbid banks would have to take a risk versus guarateed bailouts on the back of our grand children.
So you do agree that the US is the final guarantor of the debt? Do you understand the term “Sovereign Debt” and the implications of it? It simply means the debt is issued by the “Sovereign” and there is no recourse other than the Sovereign. So if say Sudan cannot or will not make good on a default by the Sudanese National Carrier then there is nothing to be done. Do you think the US going to somehow “collect” this debt? Go see all the fun and games at the IMF.
It is crony based capitalism and will end like all other government guaranteed loans.
“Boeing is NOT the borrower. Comair is - a South African company. See the risk to the bank here?”
If the risk is too great for Boeing, banks or bank syndicates to provide the money, why is it acceptable for the taxpayer? This is corporate welfare.
——Is that available for all US businesses——
Yes and no
It is available to what I would describe as qualified exporters that have export transactions with political and “country specific” risks. Qualified means they have experience and expertise
In all the arguments, I have never seen a number for $$ actually lost by the American taxpayers
“A few years ago the Boeing backlog was valued at $441B. That may be a tough nut to finance by your local savings and loan.”
Boeing does not rely on the Import/Export Bank to fund 100% of its sales. Currently 15% of Boeing’s sales are funded by the Import/Export Bank. Plus the $441 billion backlog is spread over 7-8 years.
From 2007 to 2014, $40.5 billion of Import Export Bank financing went to airlines (slightly less than $6 billion per year). Of this amount $19.5 billion nearly half (48%) went to government controlled foreign airlines such as Air China.
82% of total Import/Export Bank lending goes to Boeing.
Boeing’s public report on the outlook for aircraft financing states: “Funding for Boeing deliveries in 2015 is expected to mirror that of the broader industry, with unprecedented liquidity driving strength and diversity in major sources of financing. Continued deleveraging and resilient airline profitability are expected to support relatively high levels of cash equity, with funding for 2015deliveries projected to be roughly balanced between cash, commercial bank debt, and capital markets. Reflecting the current strength of commercial markets, export credit usage should be at historically low levels. As with the broader industry, lessors are expected to play a significant role in supporting Boeing deliveries.”
The private sector global aircraft finance market is not suffering from a lack of liquidity. The facts suggest the Import Export bank is financing the “high risk” and foreign government segment of Boeing’s business the private sector is unwilling to finance at below market rates. Non unlike the government guarantees of subprime mortgage loans ten years ago.
Effectively the Import/Export bank is a vehicle for subsidizing the Boeing’s sales of aircraft outside the US. Pure corporate welfare.
Why are you harping on the taxpayer? What’s the risk to the taxpayer? Any such Ex-Im guaranteed loan would be guaranteed by the South African Government to the US government as sovereign debt.
The way you and other critics seem to think the system works assumes that everyone but you is rock bottom stupid. No. They understand how the system works You don’t.
You are correct that if “Sudan” fails to honor its sovereign debt, there would be little the US could do about it, and in such a case the US would be stuck.
But don’t jump to the conclusion that this is the usual outcome. It is not. And if a country’s debt is doubtful, the Ex-Im is not likely to approve the guarantee, even with the sovereign cross-guarantee.
Truly, I have never seen such inventive duplicity and distortion as with this argument over the Ex-Im bank. Approve it or not approve it, but at least address the issue honestly.
Very inventive. But where exactly does the Ex-Im bank book the subsidy on their balance sheet? LOL!
Honesty starts with explaining why the US government needs to guarantee Boeing, GE, and the like that they will be paid for any losses they may occur when making a sale to a foreign customer.
Your explanation that if Sudan is at risk of not paying then they will not get guarantee is puzzling. If they are at no risk of defaulting then why do big US companies need an Uncle Sugar guarantee?
The answer is really very basic. The crony capitalist get to extend financing for these deals at rates lower than a normal financer would require on a risk adjusted basis. This increases their sales and their profit margins.
Most people don’t realize that our government is guaranteeing a loan made by a US crony capitalist to a foreign owned company. They also do not balance the equation by adjust for risk or by offsetting the damage down to domestic companies. When Boeing extends cheap credit, via Uncle Sugar, to a foreign carrier it hurts all of the US based carriers.
“Very inventive. But where exactly does the Ex-Im bank book the subsidy on their balance sheet? LOL!”
If the US government is backing the loan, it becomes a subsidy when the borrower defaults and the taxpayers, not Boeing, incurs the liability.
It is also a subsidy to the borrower because the the backing of the US government allows the borrower to realize a below market interest rate. The difference between the IM/Ex bank rate and the rate the borrower would realize in the private market is in effect a subsidy. If the borrower is unable to finance in the private market, the US government has no business backing the loan. I say the same thing with respect to mortgages and student loans.
Wow. You really don’t get it, do you? The US government guarantees NOTHING to GE, Boeing, etc. That’s NOT how it works.
The guarantees are to the LENDER, not just to obtain a “below market rate”. It is to ensure that the loan gets made at all, by facilitating a "government to government" guarantee that NO private lender would have the power or the right to negotiate even if all parties were in agreement.
I’m done trying to educate the uneducatable.
I applaud your principled stand. If only there were some principle behind it.
I would welcome a private sector solution to the problem that export financing guarantees were developed to address. That problem was not and is not a mechanism to provide subsidized interest. That isn’t part of the program - it doesn’t work that way.
Ex-Im financing guarantees are intended to facilitate exports by bridging gaps in jurisdictional authority so that banks can lend money with a relative degree of security in circumstances where that might not otherwise be possible.
Having explained this one again, I have to retire. For the same reason banks won’t loan money without guarantees to borrowers who might be unreachable in case of default, I have found myself unable to talk reason to the recalcitrant.
I’m outta here.
And many times the lender is GE or Boeing because they finance many of their own deals. For many companies there are no loans involved at all except for the extension of terms which ExIm also guarantees.
Even when they are not the lender their sale is facilitated and subsidized by the otherwise below market loan rate made possible by Uncle Sugar’s guarantee.
You don’t get it do you?
If there wasn’t inordinate risk which required high loan rates to offset the risk their would be no need for a guarantee. If the government charged insurance premiums commesierate the risk it would prvde no benefit over a cmmercal lender.
GE and Boeing have plenty of capital. And you still have t explained why they cannot make these loans (or their customers cannot get loans elsewhere) without US government assistance.
To this extent I agree: if a company is self-financing a deal, I see no need for the Ex-Im bank. The loan and its terms then become a purely internal business decision.
Having negotiated deals with GE (and having failed to reach agreement with them sometimes) I can tell you that their position will be that GE jet engines and GE financing are totally independent operating units. I have never bought that argument, and I refuse to be whipsawed. So when I have run into this, as often as not the deal craters. Depends on whether I can get unitary responsibility in the deal. Or not.
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