Tuesday, April 18, 2017


Well, just two banks: good ol' Goldman Sachs and the Export Import Bank of the United States.

The DOW fell 114 today and a lot of it had to do with Goldman which was down at one point 5%.  There brand new, freshly minted CFO declared that a lot of the Big Miss had to do with the. State of flux in markets which caused a reduction in customer activity which caused a reduction which caused the miss.  Yeah, sure.  Goldie screwed the pooch and simply got the bonds wrong which I suggested might happen a couple of weeks ago.  Now, certainly one would hope for the company to say something like, " Hey guys, we got caught short and couldn't cover because nobody was dealing but we'll make it back, no worries!"  Problem is you can't say that because dealing for your own account is a no-no these days because of Dodd/Frank (to be honest no one would have admitted that in the old days either).  Anyway, a little humor along the way never hurt anybody and that announcement was a big yuk.  Now for EXIM.

EXIM was the big winner last week as The Donald appears to have changed his pre-election on the bank's future as well.  Frankly, I think that was a good decision on his part.  Here's why.

EXIM has been around a lot longer than most people realize; around 70 years to be exact.  I was designed for one thing and one thing alone; to support the export of U.S. Goods and services worldwide but especially in areas where financing would be required either through direct lending or various guarantee programs which have grown in size and scope over the passage of time.  I won't waste time going into the details of EXIM's programs; the bank's web site is highly informative and quite descriptive but rather, I would simply like to touch on a couple of the arguments for and against the institution and in addition, reveal a few not-so-obvious reasons as to why it's not a bad institution to have around..

For the purists, EXIM represents the worst of corporate welfare as the biggest users--by far--of the bank's programs are the Giants of American industry led by the Boeing company. Why, goes the argument, should the American taxpayer subsidize the business of Boeing whose access to credit is enormous?  Fair comment.  Think Airbus.  The hottest, most brutal competition in the world of business is, and has been, for the sale of airplanes.  There are but two major players; it's pretty much a zero sum game.

Not to long ago the mantra from airline pilots was,"If it ain't Boeing, I ain't going."  Boeing probably still, across the board, makes the best airplanes, but there is very little in it.   The difference in quality /safety doesn't sell airplanes anymore; performance and financing does.  Selling airplanes is a big, big business for the U.S. And an even bigger, more important business for the EU with enormous political ramifications as well.  Often, the financing available to a potential buyer seals the deal.  International accords have been put in place to control what can and cannot be done in the official sector, but do not for a moment think that the game ends there.  It is better now I am sure but financial compensation to political decision makers has been known to occur.  Such was the case in India some years ago brought to light by the investigation into the horrific crash of a brand new Airbus in the Bay of Bengal, rushed into service before proper pilot training in order to assist in the cover--up of a multi- million dollar bribe to a family member of the ruling party.  In a ghoulish description of the accident, the investigating commission details all the pilot did wrong concluding that, as a result, "The aircraft attained negative ground clearance." It might have been funny had not over 100 people died. Moral of the story?  The more one can keep these massive amounts of financing in the public sector, open and subject to international scrutiny, the better off are we all.

The second big criticism of EXIM  is that it a drain on the Treasury and therefore, the taxpayer.  Not so says the bank; it has made a profit in practically every year.  Nay sayeth the nay Sayers, the only reason it makes a profit is because the accounting for the risk is incorrect.  Here we have a situation when everyone can be right.  If you choose to mark and EXIM portfolio to market I suppose one could make the argument--successfully I might add--that everything isn't exactly AAA, therefore the P & L should take a hit.  OK.  What market?  What exposures?  Better argument I would think is to look at the expense side of the bank.  Don't know what that looks like now, but when I was hanging around 15th. Street, Whew!  But of course expense in D.C. Is deemed to be part of the Wonderous Experience of government employment.  At the end of the day, I think the profit makers wonderous it...at least from the standpoint that even at a small loss the benefit  to the country as a whole is far greater and let us not forget that to certain small exporters who never make the front pages the bank and its various financing programs is their live blood.

Then, there is the political aspect of the existence of the institution, some of which are not readily apparent as I have mentioned.  But that is a tale for another day.  Come back tomorrow.

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