Ex-Im Bank chief who oversaw cartel loans now chief investment officer for bailout funds

Let's turn out attention to a national subject that's slightly off topic for Grits (and perhaps a little above my pay grade), but that I've thought deserved attention ever since I noticed a particularly odd connection regarding the much-ballyhooed Wall Street bailout and a story I've written about on Grits. According to Forbes:

The U.S. Treasury on Wednesday named U.S. Export-Import Bank chairman James Lambright as the interim chief investment officer of the Treasury's new Troubled Asset Relief Program, reversing a previous appointment.

The Ex-Im Bank came onto my radar screen last year after a Dallas TV news reporter discovered they were giving loans to Mexican cartel subsidiaries which then defaulted. I haven't paid much attention to multinational banking institutions since I was an economics major in college, but when most of the agency's defaulted loans in one country went to drug-cartel affiliated figures, you don't need an accounting degree to know something's wrong. According to WFAA-TV:

The federally funded Ex-Im Bank apparently backed loans to people affiliated with both cartels and the Mexican drug trade.

Under the Freedom of Information Act, News 8 asked for all documentation related to defaulted small business loans made to Mexico from 2002 to 2005. Although there were nearly 200 bad loans, so far, information on only 34 cases has been turned over.

But the bank did give a list of the defaulted loans and the names and addresses of the people who got them in Mexico.

"They have drug connections, which is very disheartening to think that the U.S. government is lending money to documented traffickers in the drug trade that are tied into the cartels in Mexico," said Phil Jordan, the former head of the El Paso Intelligence Center for the DEA and Border Patrol in El Paso.

Jordan ran background checks of the borrowers with two federal sources and found borrowers from Juarez and Sinaloa with criminal ties to money laundering, organized crime or drugs in Mexico. Jordan said he was surprised to find that the Ex-Im Bank didn't do similar checks before guaranteeing the loans.

Reporter Byron Harris was able to show that "Out of $243 million in the medium-sized loans the Ex-Im Bank backed in Mexico from 2003 through 2005, less than $25 million was ever repaid."
That's bad enough, but what disturbs me most (given that this is a guy we're putting in charge of handing out $700 billion in borrowed money like lollipops on Wall Street) is that the Ex-Im Bank under Lambright responded to the scandal by minimizing it, making few substantive changes, and issuing voluntary due-diligence suggestions instead of requiring more rigorous background checks. As I wrote when the guidelines came out:

the due diligence non-checklist itself doesn't go far enough: Suppliers and key financiers for loan applicants should also be checked in those databases before making loans to be sure that Ex-Im Bank money isn't falling into the hands of organized crime. It's pretty easy to form a company whose top officers come up clean, but who do business with much shadier characters if the "due diligence" delved just a little deeper.

Only one arrest has been made regarding shady Ex-Im Bank loans to Mexico, and it was a San Antonio businessman, not a loan recipient in Mexico or a bank employee who gave out hundreds of millions of taxpayer money to a bunch of drug cartel thugs.

For whatever reason (perhaps the presidential campaign had captured all their attention), the MSM never picked up Harris' story more widely, and Mr. Lambright's weak-kneed reaction to the scandal turned out to be enough to placate Congress and the media, or at least deflect its attention, for a time.

Lambright may be just the right guy for the job, but now that we've elevated the Ex-Im Bank chief to lead the bailout effort, I think it's time to revisit my suggestion last February that:

I'd like to see the Government Accounting Office or some independent auditor follow up on WFAA's revelations about Ex-Im Bank loans to drug cartels. Their self policing obviously is insufficient, and my guess is that Mr. Harris has only uncovered the tip of the iceberg.

Lambright's permissive approach, especially his issuance of voluntary guidelines to prevent loans to transnational crime gangs, doesn't give me a lot of confidence that the money allocated for the Wall Street bailout will be effectively policed.

See prior, related Grits posts:

• Who are the big American drug bosses? How about the Ex-Im Bank?
• Voluntary guidelines don't ensure Ex-Im Bank won't give more loans to drug cartels
• New Ex-Im Bank guidelines won't prevent loans to drug cartels
• Ex-Im Bank stonewalling media on weak, new anti-corruption guidelines
• Ex-Im Bank scandal looks like tip of corruption iceberg
• First arrest made involving fraudulent Ex-Im Bank loans