Curdog and the EX IM Bank - 07/28/15
A man would think that my eighth grade education would preclude any knowledge of high finance. For the most part, that's a correct assessment. But the things I DO know, about any subject, I learned from direct observation rather than theory.
I started to title this thread,"How the Beancounters have ruined manufacturing", but the Ex IM Bank is just one of many avenues they go down to accomplish that. Here is why it is important:
Let's say John builds high dollar tractors... a million bucks a copy. A guy in South America knows that if he could get one, he would gain an advantage over his competitors.
But his country's currency is shaky, and the banks in his country won't loan him the money. And John has hired a new Beancounter.[henceforth known as B C]
B C makes a deal with Wells Fargo [henceforth known as W F] to loan the customer the money to buy a tractor provided that B C will get the loan insured and agree to "service the loan". That means that B C is responsible for collecting the installments on the loan and re-poing the tractor in case of default.
EX IM BANK is in the business of insuring loans. So. B C helps the guy with his application for financing. [he probably has to fluff it up a little] and B C makes a note to the Customer. But holds onto the tractor.
EX IM BANK insures the loan with [THIS IS THE IMPORTANT PART] a 10 % deductible. And W F agrees to buy the note from B C.
Now, since the life of the note is five years, John is on the hook to W F for 100k until the note is retired. He can put the money for the deductible in an escrow account [not really an option considering how much of his working capital is gonna be tied up] or W F agrees to take his inventory as collateral for the deductible.
Now, W F has a vested interest in how John does business. Every bit of the material he buys to build tractors is mortgaged to W F.
But... W F has no interest in operating a tractor factory, so they leave him pretty much alone as long as - on paper - his inventory is worth more than the amount of the deductibles on the loans he is making. Remember, that 100 grand is never reduced until the note is paid down to that amount.
But....... what happens between John and W F if EX IM's insurance policies were to be cancelled? Or, if EX IM goes out of business?
Nobody knows, because for 87 years it's authority to do business has been a rubber stamp item for both houses of Congress.
However it shakes out, you know the only one at risk is...... John.
I started to title this thread,"How the Beancounters have ruined manufacturing", but the Ex IM Bank is just one of many avenues they go down to accomplish that. Here is why it is important:
Let's say John builds high dollar tractors... a million bucks a copy. A guy in South America knows that if he could get one, he would gain an advantage over his competitors.
But his country's currency is shaky, and the banks in his country won't loan him the money. And John has hired a new Beancounter.[henceforth known as B C]
B C makes a deal with Wells Fargo [henceforth known as W F] to loan the customer the money to buy a tractor provided that B C will get the loan insured and agree to "service the loan". That means that B C is responsible for collecting the installments on the loan and re-poing the tractor in case of default.
EX IM BANK is in the business of insuring loans. So. B C helps the guy with his application for financing. [he probably has to fluff it up a little] and B C makes a note to the Customer. But holds onto the tractor.
EX IM BANK insures the loan with [THIS IS THE IMPORTANT PART] a 10 % deductible. And W F agrees to buy the note from B C.
Now, since the life of the note is five years, John is on the hook to W F for 100k until the note is retired. He can put the money for the deductible in an escrow account [not really an option considering how much of his working capital is gonna be tied up] or W F agrees to take his inventory as collateral for the deductible.
Now, W F has a vested interest in how John does business. Every bit of the material he buys to build tractors is mortgaged to W F.
But... W F has no interest in operating a tractor factory, so they leave him pretty much alone as long as - on paper - his inventory is worth more than the amount of the deductibles on the loans he is making. Remember, that 100 grand is never reduced until the note is paid down to that amount.
But....... what happens between John and W F if EX IM's insurance policies were to be cancelled? Or, if EX IM goes out of business?
Nobody knows, because for 87 years it's authority to do business has been a rubber stamp item for both houses of Congress.
However it shakes out, you know the only one at risk is...... John.