Corruption Washington Style: "D.C. insiders can reap fortunes from federal programs for small businesses"

This is a pretty outrageous example of government corruption.

For years as a lawyer in Washington, Paralee White had helped small and disadvantaged firms break into the federal contracting market.

Then she decided to help herself.

She started a business and was soon making more than $500,000 a year through a contracting program intended to help poor Alaska natives, even though she isn’t an Alaska native.

White also helped her family. She hired her sister and brother, paying them as much as $280,000 a year. She helped her sister’s boyfriend set up his own firm in partnership with Alaska natives. He made more than $500,000 a year.

White’s story offers a look at how Washington insiders can make fortunes from government programs intended to benefit small, disadvantaged and minority entrepreneurs. It also illustrates how government officials who are supposed to keep tabs on these programs often fail to do so.

White’s native partners eventually accused her and her siblings of fraud and self-dealing, saying they were paid more than the rules allowed and hid the transactions from the government. The allegations spilled out in a civil lawsuit in Alaska, and the case was quickly settled. . . .

Over several years, White and her associates landed more than $500 million in construction contracts for the Navy and other Pentagon departments, nearly all of them through an SBA program aimed at boosting Alaska native corporations. But less than 1 percent of that money made it back to the native-owned corporations, a Washington Post investigation found. . . .

UPDATE: Tim Carney has a related discussion here for other businesses.

Here's a typical example of how Ex-Im works: Luxembourg's CargoLux (an air cargo carrier) is looking to buy Boeing jets with General Electric engines. The companies have lined up JP Morgan to finance the deal. Ex-Im is considering offering a loan guarantee.

The Ex-Im guarantee lowers the interest rate JP Morgan charges, thus lowering the effective price CargoLux would pay. This helps Boeing beat out heavily subsidized European jetmaker Airbus.

Boeing, GE and Ex-Im will all say this isn't a taxpayer subsidy or corporate welfare because it comes "at no cost to the taxpayer": Congress recently moved Ex-Im's subsidies off-budget so that new loans and guarantees are covered by fees and the repayments of old loans and guarantees.

So, Ex-Im claims to be "profitable" and not reliant on taxpayers in its work to grease the wheels of commerce through financing. If you lived through the housing crisis, this probably sounds familiar.

Ex-Im is the Fannie Mae and Freddie Mac of the export industry. But where Fannie and Freddie's guarantee was only implicit, Ex-Im is explicitly backed by the full faith and credit of the United States. In other words, if CargoLux doesn't pay, Ex-Im cuts a check to JP Morgan. . . . .



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