Australia’s richest person Gina Rinehart receives welfare loan from US taxpayers

How Australia’s richest person, mining heiress Gina Rinehart, secured a $US694 million ($764 million) loan from American taxpayers is surely one of the great ironies of the capitalist system, reports The Australian Financial Review.

The case is the latest example of a flaw in the United States political economy: what some see as crony capitalism.

Rinehart’s mining group, Hancock Prospecting, last week signed off on a $US7.2 billion debt package for her highly anticipated Roy Hill iron ore project in Western Australia’s Pilbara region.

There are 19 international lenders, including Australia’s big four banks, in the syndicate. Government export credit agencies including the Ex-Im Bank in the US, as well as Japan and Korea, were crucial in helping the massive debt-funding deal over the line.

Commercial banks and bond investors were reluctant to shoulder all the risk.

Gina Rinehart

The US Ex-Im Bank says it “assumes credit and country risks that the private sector is unable or unwilling to accept”.

In return for the US government loan, Hancock Prospecting will purchase American mining and rail equipment from Caterpillar, General Electric and Atlas Copco. The Export-Import Bank says their involvement will “support” 3400 US jobs.

US conservatives have deep misgivings about the “corporate welfare” the Ex-Im Bank is dishing out, including to Rinehart.

Republicans against corporate welfare

Some Republicans in Congress, including Mike Lee, Jeb Hensarling and Justin Amash, are agitating to abolish the government bank and insurer when the agency’s current charter expires on September 30.

A report last week that Caterpillar was being investigated by the US Senate for avoiding US taxes may add to debate about the firm benefiting from Ex-Im Bank.

Free-market political action groups such as Heritage Action are outraged that taxpayers have subsidised a loan for Australia’s richest person and are propping up America’s largest companies.

What would Ayn Rand think? Inspiration to free market capitalist thinkers and favourite writer of Gina Rinehart.

“Why are taxpayers subsidising a business deal between an Australian billionaire and titans of American industry?” Heritage’s Dan Holler asks.

“If you have some sway in Washington DC, you can get financial terms that are backed up by taxpayers who will be ‘on the hook’ if something goes wrong,” he adds.

In 2008, an upstart senator named Barack Obama campaigning for president labelled the Ex-Im Bank “little more than a fund for corporate welfare”. Remarkably, the Obama administration now regards the agency as an important part of its drive to increase exports.

There has been a furious lobbying effort on Capitol Hill to retain the government bank, including by Caterpillar and aircraft company Boeing, its biggest beneficiary.

Proponents of Ex-Im Bank argue that without its existence, American firms would miss out on export opportunities and that projects, such as Roy Hill, would find it more difficult to secure finance.

This is code for the fact that some ventures may be sub-economic or too risky for private enterprises to support.

Ex-Im Bank also runs at a profit, supporters say. But that is beside the point. It creates an unnecessary distortion in capital markets by picking special winners.

Gina Rinehart

Crony capitalism

The Ex-Im Bank’s loan to an Australian billionaire, who is worth $22 billion according to the 2013 BRW Rich 200 list, is symptomatic of a broader malaise in the US system. American policymakers and lawmakers appear captured by big business rent seekers, lobbyists and political donations.

Hancock Prospecting is not the only Australian company to benefit from America’s, at times, peculiar capitalism.

QBE Insurance, the second-largest crop insurer in the US, has been a big recipient of federal crop insurance subsidies, which have tripled to about $US9 billion a year for the industry over the past decade. President Obama unsuccessfully tried to cut the insurances subsidies, which Paul Ryan, the Republican vice-presidential nominee in 2012, called “crony capitalism”. For every $US2 the government spends on crop insurance, $US1 goes to the insurance industry, former US Department of Agriculture official Bruce Babcock estimates.

Similarly, Wall Street’s big banks have also been caught with their paws in the government honey pot.

Their excessive risk-taking forced the government to step in with a $US700 billion rescue package during the 2008 financial crisis. They remain “too big to fail” and underwritten by taxpayers.

Mike Mayo, the high-profile and outspoken American bank analyst, says an important global export of the US, capitalism, is being tainted.

Destructive capitalism

“I think we need a better version of capitalism,” Mayo writes in his book Exile on Wall Street. “While it has the potential to raise people’s standard of living and reallocate capital more effectively than any other economic system, it also has a lot of room for improvement.”

Democrats and some Republicans want to retain Ex-Im Bank. A majority recently supported increasing crop insurance subsidies by $US6 billion over the next decade.

At the same time Republicans are voting to cut food stamps for the poor and unemployment insurance. There may be valid policy grounds for winding back these personal entitlements, but the hypocrisy beggars belief. It smacks of personal welfare being bad, but corporate welfare being excusable.

The irony is that Rinehart, the largest shareholder in Fairfax Media, which publishes The Australian Financial Review, has been one of the biggest critics of government intervention. She sensibly argued last month for Australia to cut its “age of entitlement” mentality, invoking the free market reforms by former British prime minister Margaret Thatcher. It’s highly doubtful Thatcher would have supported a government bank for billionaires. If we really are to end the age of entitlement around the world, corporate welfare must be on the agenda.

SEE ALSO: Australians should be willing to work for less than $2 a day – World’s richest woman Gina Rinehart

Source: http://www.smh.com.au/business/mining-and-resources/gina-rinehart-the-corporate-welfare-queen-20140325-35eq3.html

9 comments

  1. U.S. taxpayers do not subsidize Ex IM Bank. The bank is in fact profitable. The egregious thing Ex Im does is violate the spirit of environmental rules, guidelines and even laws It has financed a liquefied natural gas project in the Great Barrier Reef against strong opposition. See link:
    http://www.biologicaldiversity.org/news/press_releases/2012/export-import-bank-12-13-2012.html

    • “The problem with [the claim that the bank is profitable] – which lawmakers to date have not focused in on – is that the Ex-Im bank’s profits are almost surely an accounting illusion. The non-partisan Congressional Budget Office has cautioned policymakers that the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im bank.

      These rules – mandated in the Federal Credit Reform Act of 1990 (FCRA) – understate the cost government loan programs impose on taxpayers by excluding, or not factoring in, the cost for market risk. The current rules require that budget estimates discount expected loan performance using the interest rates on risk-free U.S. Treasury debt rather than a rate that matches the riskiness of the loan itself. That flaw makes it appear as if the government can offer far more favorable loan terms than what a purely private entity would charge without imposing a cost on taxpayers. The government’s advantage disappears, however, when budget estimates account for market risk – the risk that losses on the loans could be higher during a weak economy when defaults will be more frequent and costly.”
      http://economics21.org/commentary/critics-export-import-bank-have-new-weapon-their-disposal-fair-value-accounting

  2. Talk about irony, Jeb Hensarling and Heritage don’t seem to have a problem with billions in welfare for their bank buddies. Most likely, the only protest they have is that this is a non-predatory loan given to someone who will pay it back, In the US, these fine corrupt-to-the-bone legislators approve of loans that reap huge profits far exceeding the original “loan” amount. (as if the bank loaned anything) They also favor the seizing of assets, insurance payouts, obscene creditor friendly laws and Government backstops. Come to think of it, if Australia wants Jeb they can have him and Heritage. Valid policy includes starving the unemployed? Yes, Jeb would be welcome in parts of the AU.

  3. USA loaned 7.2 billion and gets roughly 3400 jobs? Why not just pay those 3400 American’s the 2.1 million dollar share they should each receive.

  4. Of all the shameful things America now does…we also feed The Thing That Ate Queensland???

  5. This is is the same fat cow who demanded that Australians should work for 2 bucks an hour just like Asian workers do.

  6. 22 billion worth of fat…capitalism will be one of those oh fk moments in human history that’s if we survive it?

  7. Ugly, fat, bloated pig of a woman. She’s not so great looking too.

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