Is Gina a ‘crony capitalist’?

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Yesterday I served a ladle of gruel over Roy Hill but today I’m going to defend Gina Rinehart from a bitchy MSM onslaught. From John Kehoe:

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.

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.

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.

Hmmm, well, I’m no fan of crony capitalism. But sourcing a loan from a US export-financing bank does not strike me as an especially outstanding example. No evidence is offered in the piece to suggest that Ms Rinehart has benefited unduly in receipt of the loan, which is a prerequisite for this to be a case of  “crony capitalism”. There is only a quote from Heritage Action, a conservative American think tank that has also recently opposed unemployment benefits and raising the US debt ceiling:

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.

“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.

Perhaps consistent but certainly not mainstream.

Export-financing banks are not, by definition, crony capitalism. Australia’s own Export Finance and Insurance Corporation (EFIC) has served us well, sometimes lending great gobs of cash to big corporates, including recently to BHP and Rio for Escondida expansions. One has to substantiate the case of crony capitalism by proving that the loan is mis-allocated based upon elite relationships over more worthy endeavours, not just in the act of it happening.

Clearly there’s an element of Ms Rinehart being hoisted on her own petard here given her own professed libertarianism. And I don’t see Roy Hill as a great idea in the current circumstances but that does not make it corrupt. Indeed, sourcing foreign government money is quite a clever way around less enthusiastic sources of capital.

David Llewellyn-Smith
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Comments

  1. How can one blame the individual actors in a system constructed by government?

    If you were Rinehart, you would seek the cheapest source of funding whether that’s from HSBC or the US Em-Im Bank. The US gets its precious jobs in Catepillar, GE and Atlas Copco, Rinehart gets funding, Aussie government gets its taxes, employees get their pay. Everyone’s a winner baby that’s the truth.

    Although I can see why there is concern by some Americans. Why is there no other bank (except the US Ex-Im Bank) willing to loan the money and take this risk? If the project is not profitable in the long-term (e.g. if iron ore price drops) the US taxpayers take the hit.

      • If you have a better system of government than we have now, then please share. Because if you don’t, then accept the fact that political power will always be purchased. The only one I can think of is a federal government that is substantially smaller (lower taxes) and delegates more power to the states. But the majority don’t agree with that so it won’t happen.

        A good example of political power being purchased is the granting of mineral licences to the Obeid family controlled companies in NSW.

        You give power to the state, they will sell it to the highest bidder.

      • Exactly. Just like Sinodinos deserved to be paid 200 grand to sit as a figurehead of a company and then hit up everyone’s water bill to pay for him.

      • @melbourneguy I have no doubt Sinodinos is questionable. Almost everyone that was in a high level government position then goes on to use that influence in the private sector to profit.

        @migtronix Switzerland is probably the most corrupt given their bank secrecy laws and their harbouring of criminal money. You just don’t hear about it until another government gets angry about tax avoidance.

      • migtronixMEMBER

        @Capitalist: that’s not switzerlands problem!?!? How much tax evasion goes on in Schwwiss? Not much what a surprise…

    • That’s right… Not sure what all the hoo-hah is about.

      Not my taxes so whatever.

      There would have been plenty of other stories of crony capitalism to talk about….. like Murdoch for example.

      Maybe it’s the MSM’s way of saying “look we’re a crusader for the people and look how we’re exposing crony capitalism and corruption”.

      Meanwhile …. they’re almost making Sinodinos out to be an unfortunate victim of those darn sneaky Obieds and he was the innocent who was just trying to make an honest buck ($200,000 /yr).

      And … what in the WORLD happened with the RBA corruption scandal?????? I guess it got wiped from history.

    • “How can one blame the individual actors in a system constructed by government?”

      Rinehart herself appears to blame the individual actors who are working within a welfare system constructed by government.

      I wonder if her hero (Thatcher) would have supported an import-export bank providing funding to mining companies in Australia.

  2. migtronixMEMBER

    Botswana! I’m going to buy shares in Mozambique ports – lots of Chinese interest there already. Of course it’s crony capitalism! When did the export bank ever back, say, atlasian. Ffs.

  3. Setting aside for a moment the question of crony capitalism, perhaps someone can quantify for me just how much this elite deal benefits the common citizens of the nation from whence said ore will be dug up and shipped abroad; that is, as compared to the quantum of benefits accruing to the “capitalists” involved.

    Nationalise the m*****f*****r; print the AUD to finance it; all profits to the public Treasury.

    AUD fx rate weakened as a side bonus.

    • lol we solve crony capitalism by giving more power to the state? Imagine how much the unions could extract if the mines were state run. All those government employees playing politics, all those bureaucrats justifying their existence vaguely, the kickbacks for contracts and what a gravy train for all those with political connections!

      Handing over the means of production to the state is what you are calling for. Similar to Marx right?

      Get real. Opinion8red I gave you more credit than this (pardon the pun).

      • Ahhh, but did you (previously) give me that credit interest-free? 😉

        I’m no Marxist; far from it.

        Nevertheless, far better to have “our” government (ha ha ha!!) ensure that the profits from national resources accrue here, to the benefit (at least in theory) of this nation’s people, than sit back circle-jerking over the bogus, fraudulent ideological merits of “free market” capitalism as it siphons the majority of this nation’s natural wealth into the pockets of foreign (internationalist) financiers.

      • I have pointed out repeatedly that in Southern USA, local resources tend to get utilised locally in manufacturing and industry, BECAUSE land is cheap, ditto housing for workforces, workforces don’t have to be unionised but are happy because their discretionary incomes are high (after housing costs), regulations are favourable, people can do a lot more of what they like with their property, local taxes are low, etc etc etc. Oh, and energy is cheap, locally-fracked gas results in 10% lower local cost.

        I see no reason why Australia COULDN’T have chosen a similar bunch of policy settings and couldn’t have ended up doing a LOT more value-added instead of shipping the rocks overseas (not to mention the gas that is being squabbled over now).

    • The people digging it up are certainly not complaining. Kid straight out of highschool can earn over $100k working in the mines, and thats 3 hours from Sydney.

      Not sure what the going rate is out there in Roy Hill

      • Right. So, back to my question.

        Can someone please quantify …

        the total $ benefit accruing to Australian citizens

        versus

        the total $ benefit accruing to foreigners.

        Some +80% of “Australia’s” mining sector is foreign-owned.

        We, the Australian people, are getting robbed blind.

        And yet, some here applaud, because a mere few thousand of us get 6-figure salaries out of it … temporarily.

        *shakes head*

      • 1. False dilemma — who’s arguing that the choice is between gifting the bulk of profit to foreigners and leaving it in the ground? Not I.

        2. There are plenty of good arguments for leaving more of it in the ground. Be that as it may, once it’s gone — with foreigners pocketing the profits — it’s gone forever.

      • Op8, let me put it another way, by way of an analogy: you have a great business idea, but you don’t have enough capital to develop it. Do you:

        (a) sit on the idea for decades until you do have enough capital; or

        (b) seek loans or co-investors to raise the necessary capital, accepting that this means your co-investors will get a hefty chunk of the profits?

        This is essentially the choice Australia has always faced wrt development of its mineral resources. Just sitting on the resources would have left us all a lot poorer.

      • I understand where you coming from Red, but there is no one able to fund these projects in Australia.

        Please provide some evidence of local investors being pushed to the side so foreigners can gobble it all up? It’s just not true.

        Keeping it in the ground means you are making a very long term call on iron ore prices, 100 years ago people probably thought long term brick prices would go through the roof, it was the best building material around.

        Advances in materials science could push iron ore to the b-team tomorrow. It’s real easy to sit there and say “yeah it’ll be worth more in 50 years”, the reality is a lot different.

        In the meantime, wages, construction investment, royalties and federal taxes are what the average Australian gets back from all this foreign investment, to answer your original question.

      • Disarray – They say that whenever a foreign entity tries to buy agriculture businesses, “we have $1T in super, why can’t they invest?”.

        The answer is the same for both ag and mining: They don’t want to, it’s right there for the taking but they have no desire for that level of risk.

      • migtronixMEMBER

        @Alex : how poorer? Time poorer? Materials poorer? Foreign currencies poorer? Corrupted politics poorer?

        Poorer has more meaning than pecuniary.

      • mig, yes there is more than one sense to “poorer”. I meant in the sense that our standard of living would be substantially lower.

      • migtronixMEMBER

        @Alex substantially lower

        Would it though? Because the house is worth only $400k instead of $2Mil ? How is that better standard of living?

      • @mig: the majority of Australians are homeowners and have benefited from rising house prices (not that this means I support the real estate bubble). However, my comment was more directed at overall standard of living. From the perspective of someone who has lived as an adult in pre-mining boom times, I can say without any doubt that the vast majority of Australians are much better off now than Australians were then. Obviously there are exceptions.

      • migtronixMEMBER

        @Alex sure but I think it has much much much more to do with internet and cheap imports — these things were concomitant with the “mining boom”.

      • the majority of Australians are homeowners and have benefited from rising house prices

        The cost at which this ‘benefit’ has been derived is what is objectionable.

      • “…there is no one able to fund these projects in Australia.”

        Yes, there is.

        Per my original post.

        The government — Australian Treasury, to be specific — CAN “print” the f***ing money. It IS that simple.

        The only reason most can not / will not see this truth, is indoctrination.

  4. Kehoe’s comments may be unbalanced, but there is a queue of commentators in the MSM who are just as guilty. And Rinehart can sling it to the public. Any scrutiny of her own business is quite right for any possible hypocrisy, of which, there is probably quite a lot.

  5. No evidence is offered in the piece to suggest that Ms Rinehart has benefited unduly in receipt of the loan

    I wonder if there were political donations from Ms Rinehart to the Democratic Party PACs in order to influence the Obama administration to loosen the purse strings. If that is the case, then it is a clear case of Crony capitalism.

    • Nah, I think H&H has called it fairly.

      There is far too much blatant out-and-out rent-seeking in Australia today, in urban land foremost and finance associated with that, that why is it necessary to beat up on some less egregious example while letting the real biggies away scot free of criticism (I mean in the MSM).

      • migtronixMEMBER

        PB: How is owning half the Pilbra not an all out exercise in rent-seeking? To say nothing of owning the WA Senate and economy…

  6. General Disarray

    This case may not earn her the title of crony capitalist, but she’s a plutocrat, and that goes hand in glove with crony capitalism.

  7. EXIM aren’t idiots; they do a high amount of due diligence; and correct me if I’m wrong have had only one loan go south.

    Have a look at the terms they offer on and where they rank in terms of creditors.

    ECA financing is a key part of many industries; and not all Australian companies who have accessed EXIM debt are run by billionaires.

    • migtronixMEMBER

      Oh for Gods sake look at the list of Chairmen and Presidents: It a CIA operation!

      Jesse Jones
      Bill Casey
      Leo Crowley
      Phillip Merril.

      Gee wonder why they always get paid back? I bet the mafia have an awesome record on loan recovery too. FFS!

      • Yep, this is American politico-capitalism at its best. The type where they control both the public and private sides of the game. Carlyle Group is the classic template for this, and this one seems cut from the same mould. Never heard of this outfit before and that is another telling sign.

        As for Gina, well she gets all righteous about politics on the labour side of the equation (unions) but seems pretty fine with it when it’s on the capital side. Shows you her measure really

    • “Have a look at the terms they offer on and where they rank in terms of creditors. ”

      Not sure how they rank in this project, but there seems to be something unusual about the guarantees for Roy Hill.

      http://www.smh.com.au/business/lenders-sign-up-to-bankroll-gina-rineharts-roy-hill-mine-20140321-358o4.html

      “Gina Rinehart’s dream of building a $US10 billion iron ore project is set to become a reality in a way that will see its international collection of lenders assume an unusually high level of risk.

      Major international banks, including Australia’s big four, confirmed on Friday they were willing to provide the Roy Hill joint venture with $US7.2 billion ($7.9 billion) of debt financing, and do so without the joint venture offering a full completion guarantee.”

  8. Wouldn’t it have been more tax effective to lease high depreciation rate plant and equipment?

    Surely the project won’t be tax paying for the first 5 years or more.

  9. Agree its not crony capitalism. She’s doing well if she can get foreign govts to debt fund her project.
    I have a problem when an Aust govt lender (EFIC) provides a loan to BHP and Rio for a mine in Chile.

  10. If you’re looking for crony capitalism, there are far more egregious examples out there.

    • migtronixMEMBER

      You mean like this?

      THE Australian Taxation Office has been refused access to court documents in the multi-billion-dollar trust fund battle between Australia’s richest person, Gina Rinehart, and her children.

      • Actually i was thinking more of the home of crony capitalism, the US. I don’t know anything about the details of the decision you mention or the reasons for it.

  11. She may be daddies little girl but she did turn her inheritance from about $70 million into about 20 billion. Even her dad would be proud. And being Australia’s richest women she would be classed a tall poppy. If you think that she has done nothing for this country, that’s your call, but I suppose you think that ALL wealthy people do nothing for this country and its status on the world stage.

    • The turn around to $20 billion has very little to do with her exertion or talent.

      I can sit still and still have share price movement double or triple (or more) my asset values.

      She inherited the largest stake in the world or iron ore in the Pilbara from daddy, in which they leased it to Rio to extract.

      She collected royalties from this.

      Her efforts were to develop Roy Hill, and if she had talent and had been able to recognise signals, she’d be ahead of, or at the very least equal to Andrew Forrest.

      She didn’t do that.

      She gorged on investor money because it was free and easy at $130 per tonne for I/O.

      A tally poppy has a second element, it’s not just being in an ‘elite’ position of wealth and/or power, it’s displaying abilities above everyone else, which draws on the envy of said critics.

      She hasn’t, she’s shown to be a vulgar beast with the entrepreneurial agility of a super tanker. Quite fitting considering her dress size.

      She inherited daddy’s tenements, the iron ore price has done more to shift it up to $20 billion than anything she’s put her signature to.