In the swampy bowels of the government-industrial complex lurks a federally sponsored bank-like creature called PEFCO, which stands for the Private Export Funding Corporation.
PEFCO is a taxpayer-backed subsidy for banks that are already getting taxpayer backing for their financing of U.S. exports — mostly Boeing jets.
PEFCO is a partner of the Export-Import Bank, a federal agency that subsidizes Boeing and other U.S. exporters, and PEFCO may soon be reauthorized for 25 more years without any oversight or objection — either from the party that supposedly believes in government, the party that supposedly resists the big banks, or the president who supposedly wants to drain the swamp.
Veronique de Rugy of the Mercatus Center writes on PEFCO today in the New York Times.
Here’s how PEFCO works, in de Rugy’s words:
“Consider this hypothetical: Boeing wants to sell airplanes to China Air. Boeing asks the Export-Import Bank to guarantee a loan to China Air so it can purchase the aircraft. JPMorgan Chase originates what becomes a loan from the Export-Import Bank — guaranteed by taxpayers — for China Air. (The bank earns interest at no risk because, even if the borrower defaults, taxpayers will cover it.)
“Then JP Morgan Chase turns around and sells the loan to PEFCO, which buys the loan using debt raised from investors that is separately guaranteed by the Export-Import Bank (again, American taxpayers). JPMorgan Chase is also a major shareholder of PEFCO, and PEFCO can pay its shareholders dividends.
“So JPMorgan Chase makes money off these transactions while sustaining zero risk.”
The banks love it, because it’s a government guarantee and taxpayer-backed source of liquidity for their already subsidized loans. Boeing loves it, because, according to de Rugy, 86% of its purchases back Boeing exports.
Congress has the authority to curtail PEFCO’s action, abolish it, or at least provide oversight. Maybe that would be a good idea before giving this taxpayer-backed subsidy program another 25-year lease.
