Australian press is buzzing over the strange nexus between the country's richest person and American taxpayers. The headline in The Australian Financial Review even invokes the phrase "welfare queen."
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.
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.
Why are American taxpayers subsidizing a financial transaction involving an Australian billionaire's iron ore project?
The Australian Financial Review explained "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" because "Commercial banks and bond investors were reluctant to shoulder all the risk."
When announcing the deal, U.S. Ex-Im Bank downplayed the risk, instead touting the "$694.4 million loan to Roy Hill Holdings of Australia [was] contingent upon the purchase of U.S. mining and rail equipment from Caterpillar Inc., GE, and Atlas Copco."
So taxpayers have two plausible, though not mutually exclusive explanations for guaranteeing a $700 million financial deal with a woman reportedly worth $17.7 billion.
- Commercial banks wouldn't take the risk; or
- U.S. companies worth hundreds of billions of dollars combined required taxpayer help.
The Australian Financial Review reminds us:
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.
As Congress considers whether to reauthorize the Ex-Im Bank later this year, lawmakers should ask a simple question: do they agree with then-Senator Obama?