The Obama administration and the business lobby defend the Export-Import Bank of the United States by claiming it “makes a profit” for taxpayers. But this “profit” is an accounting fiction, a top federal budget agency recently found.

Ex-Im is a federal agency that subsidizes U.S. exports through direct loans and loan guarantees to foreign countries. Ex-Im’s charter expires this fall, and conservative Republicans want to let the agency die. In its defense, officials at Ex-Im and the White House — joined by lobbyists for manufacturers and banks — typically assert that Ex-Im is free.

“The Ex-Im Bank doesn't cost the American taxpayer a dime,” the U.S. Chamber of Commerce posted on Twitter on May 20. Ex-Im “pays for itself and makes a profit,” Ex-Im President Fred Hochberg likes to say.


The Congressional Budget Office reported May 22 that if Ex-Im used proper accounting methods, it would be budgeted as a $2 billion cost to the taxpayers per decade.

The debate delves a bit into arcane accounting matters, but it’s a crucial question as the Obama administration and K Street try to persuade Congress to reauthorize Ex-Im.

Before 1990, the federal government completely obscured the costs of loan-guarantee programs, such as student-loan subsidies and Ex-Im guarantees. Under the pre-1990 rules, when Wells Fargo loaned money to Air China to buy some Boeing jets, and Ex-Im guaranteed the loan, that guarantee would be budgeted as costing zero dollars -- unless and until Air China defaulted and Ex-Im had to pay Wells Fargo.

The Federal Credit Reform Act fixed that -- kind of. The 1990 FCRA said that agencies like Ex-Im had to account for expected losses, such as foreign defaults that it would have to cover. The CBO and many other accounting experts point out that the FCRA's rules omit a crucial part of the cost of a loan guarantee: something economists call “market risk.”

Market risk is a tricky idea, but in brief, it means the risk of a big economic blowup. When things fall apart, you don’t want to have many loans or guarantees outstanding. Private banks include market risk in the price of loans and guarantees they issue. Ex-Im doesn’t, but it should, experts agree.

“The government is exposed to market risk when the economy is weak,” the CBO wrote in its recent study, “because borrowers default on their debt obligations more frequently and recoveries from borrowers are lower.”

The CBO and other experts argue that Ex-Im should switch to “fair-value accounting,” which includes market risk. In 2012, the CBO concluded that the accounting rules Ex-Im currently follows “do not provide a comprehensive measure of what federal credit programs actually cost the government and, by extension, taxpayers.”

When you use fair-value accounting, you see that Ex-Im costs taxpayers $200 million a year, the CBO found last week. That cost comes overwhelmingly from the agency’s long-term loan guarantees, which mostly go to subsidize Boeing jets.

The CBO isn't alone in calling Ex-Im's accounting method flawed. The Wharton Business School's Financial Economists Roundtable in 2012 found that the accounting process Ex-Im uses “results in the systematic understatement of the cost of federal credit programs.” The Roundtable wrote: “This deficiency occurs because of the failure to capture all of the risks associated with federal credit programs, which must ultimately be borne by taxpayers.”

This bogus federal accounting, the Roundtable wrote, has “sometimes resulted in the budgetary illusion that government credit programs reduce the government budget deficit.”

That “budgetary illusion” is the central argument for Ex-Im’s existence. Because once you point out that taxpayers are paying to subsidize Ex-Im’s patrons — Wall Street banks, foreign state-owned companies and giant U.S. corporations like Boeing and General Electric — the agency becomes difficult to defend.

During a time of giant budget deficits, while Congress is cutting spending on defense and food stamps, can the government justify keeping a program that transfers money from taxpayers to Boeing?

It’s Robin Hood in reverse.

There are plenty of other holes in Ex-Im's claims to profitability. Fannie Mae and Freddie Mac were profitable until they weren't -- then taxpayers bailed them out. If foreign airlines started running into trouble, Ex-Im would be exposed to a swath of failures.

And if any Ex-Im activities that truly are profitable (the CBO estimates a small gain from Ex-Im’s direct loans), that’s an argument to leave those activities to the private sector.

It's always hard to justify an agency that exists primarily to subsidize large corporations. When you use honest accounting, it's impossible.

Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at His column appears Sunday and Wednesday on