The combination of two simple words—"loan guarantee" – now invokes a Pavlovian reaction, a near Tourette's-like urge to mention Solyndra. This is probably a good thing: How many Americans knew they existed or how widespread they were before the solar company's bankruptcy?
But as last night's convention speeches showed, the Unbama Party is really mostly concerned about bad loan guarantees, as in those that go to constituencies that are not theirs.
South Carolina Gov. Nikki Haley caused an eyebrow or two to shoot up in my household when she invoked Boeing as a job creator that had to fight the twin evils of Barack Obama and the National Labor Relations Board to see its way to the Palmetto State: "Boeing started a new line for their 787 dreamliner, creating a thousand jobs in South Carolina, giving our state a shot in the arm when we truly needed it." She talked about how South Carolina fought back against the unions, won, and celebrated when the first "mack daddy" planes rolled out on the tarmac.
How nice for them. For the rest of us, well, there's a problem: Boeing's airplane sales are propped up by loan guarantees from the Export-Import Bank of the United States. And with the airline industry in a terrible state, taxpayers are on the hook for the costs if those who purchase Boeing's planes go under.
Timothy Carney at The Examiner explained the details earlier in August:
The popping of the airplane bubble could be the next tremor to hit the U.S. economy, as economically unstable commercial airlines around the world buy up fleets of jets that they cannot afford. But if airlines can't pay their bills to jet-makers, you get the tab, thanks to a U.S. government agency—the Export-Import Bank of the United States—that has dedicated three-fourths of its loan-guarantee dollars to backstopping sales for the Boeing Company. It's yet another pitfall of the Bush-Obama approach to economic policy. Just as President Bush and his predecessors favored housing with subsidies and regulatory tweaks, President Obama has lathered favors on manufacturing, specifically exports. Subsidies naturally flow to the big players, and you don't get much bigger than a jumbo jet-maker like Boeing.
Carney goes on to show how this disaster is building:
Air India, for instance, has used more than $3 billion in U.S. Ex-Im loan guarantees to buy dozens of Boeing jets. "This support," Air India Chairman Arvind Jadhav gushed after pocketing the latest $1.1 billion guarantee in 2010, "has enabled Air India to raise finances for acquiring these latest state-of-the-art technology aircraft at competitive rates of interest as compared to commercial financing." But India's comptroller and auditor general called the buying spree "a recipe for disaster." Air India has defaulted on payments due employees and vendors, according to the Financial Express. When the airline sought permission to borrow more in order to pay these debts, the Indian government said no. Air India hasn't made a profit since 2005, and in 2009-2010, every last one of its international routes lost money, according to a September 2011 audit by India's government.
A full $27 billion of loan guarantees have gone to subsidize Boeing plane sales over the past three fiscal years. That's a lot of Solyndras.
And none of that is even getting into Boeing's revenue from defense contracts (but, of course, defense contracts don't count as wasteful government subsidies to most Republicans). Haley didn't exactly pick a good industry to prop up the convention's "We built it!" motto. I wonder how many jets sold from that South Carolina facility will actually be backed by the Obama administration's own program?
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