Solyndra: less a scandal of malfeasance than one of the government meddling in the economy

I saw this blurb, or something like it — this may not be an entirely accurate quote, but the gist is right — on CNN this morning. Advertising for Fareed Zakakia GPS, was the blurb, (Someone) said America needs a new China policy. I say China needs a new China policy.

Perhaps the Chinese Communists do new a new China policy; they are running an unfree, undemocratic managed economy, where the individual is subject to the whims and control of the state, and “individual rights” is an oxymoron. What I wonder is just how many people think that “American needs a new America policy.”

A lot of conservatives seem to think that there’s a lot of political hay to be made concerning the Solyndra scandal; Michael Barone gives a reasonably detailed analysis of the scandal:

Solyndra was the first company to receive a loan guarantee from the Department of Energy as part of the 2009 stimulus package. This wasn’t small potatoes. The loan guarantee was for $535 million.

The real scandal is the “green jobs” loan guarantee program itself. And the ones getting scammed are American taxpayers.

It was, Vice President Biden said, “exactly what the Recovery Act was all about.” Energy Secretary Steven Chu, a Nobel Prize winner, said it would help “spark a new revolution that will put Americans to work.” It was part of the Obama administration’s program to create so-called “green jobs,” which we were told were the key to future economic growth.

The beauty part is that a loan guarantee doesn’t require the federal government to shell out cash unless and until the recipient defaults on the loan. If the company’s business plan works out, the loan costs the government virtually nothing.

Obama paid a visit to Solyndra on a trip to California in May 2010. “It is here that companies like Solyndra are leading the way toward a brighter, more prosperous future,” he said. Hailing the green jobs loan guarantee program, he went on, “We can see the positive impacts right here at Solyndra.”

The White House even prepared a video about the company. The Solyndra personnel sound articulate and intelligent and seem to be really nice guys.

Unfortunately, there were other things going on at Solyndra for those with eyes to see. As my Washington Examiner colleague David Freddoso reported, an audit of the company performed by PriceWaterhouseCoopers two months before Obama’s visit noted that the firm had accumulated losses of $558 million in its five years of existence.

The auditor noted that Solyndra “has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raises substantial doubt about its ability to continue as a going concern.”

One of the original investors in Solyndra was Oklahoma billionaire George Kaiser, who was also a major contributor to Obama’s 2008 campaign. In early 2011 Kaiser and other investors provided an additional $75 million in financing to Solyndra. They did so on condition, approved by the Energy Department, that they receive priority over previous creditors, including the government.

More at the link. Steven Chu, the Secretary of Energy, has had to try to defend the Administration’s actions concerning Solyndra, and Glenn Kessler of The Washington Post checked Dr Chu’s statements about Solyndra for accuracy, and the result wasn’t particularly flattering to the Secretary. Dr Chu, in particular, tried to excuse the Solyndra failure by saying that:

When the bottom of a market falls out and the price of solar decreases by 70 percent in two and a half years, that was totally unexpected, not only by us — if you look at the range of predictions that were being made by financial analysts from the last quarter of 2008, 2009, they — the average — there are some outliers. But the average of those were not expecting these prices to plummet. And so fundamentally this company [Solyndra] and several others got caught in a very, very bad tsunami, if you will.

Perhaps the economists who never expected the price of solar panels to plummet were the same ones who claimed that the President’s 2009 stimulus package would hold unemployment to a maximum of 8%.

The Washington Post noted:

(T)he shakiness in the market was readily apparent at the time DOE pressed the White House budget office to sign off on the Solyndra loan. Note the Aug. 31, 2009 e-mail below, from an Office of Management and Budget official to a DOE official, asking that an announcement of the loan be postponed.

The e-mail includes links to articles with headlines like “As Prices Slump, Solar Industry Suffers.”

Email on Solyndra from OMB official to DOE official, August 31, 2009

One article mentioned in the e-mail noted that prices had already dropped 40 percent since the middle of the previous year, and “many experts expect panel prices to fall further, though not by another 40 percent.” (It did.)

 Another article cited in the e-mail noted both the spurt in Chinese production and the softening of demand in Europe. As it happened, those are two factors that Chu cited in his testimony as causing the unexpected price decline: “There was a large production ramping up, namely in China,” he said. “And secondly there was a softening of the market in Europe.”

Dr Chu is telling us, basically, that the Administration based its decisions and its claims on the information it wanted to hear, and ignoring the information it didn’t like. Then, as Mr Kessler noted, the Energy Department made claims for jobs it created or saved at Ford Motor Company for “green” project transformation that Ford said were already in the works and jobs which would have existed even without the loan guarantees.

Inflated claims when things go well and pathetic excuses when they don’t are simply par for the course among politicians; there’s really no surprise there. No one is ever willing to say, “You know, we just plain fouled up,” or “We’re glad that this happened, but we really didn’t have anything to do with it.” But Dr Chu and the Solyndra scandal, such as it is, are the result less of malfeasance than of the notion that the federal government somehow controls the economy and can wisely direct it. Ford was already planning the changes for which the Energy Department claimed credit:

In an interview on CNBC on June 23, 2009, the day the loan was announced, Ford chief executive Alan Mulally in fact played down the notion that the money would be mainly used for retooling factories. “The essence of this investment will be the enabling technologies and the vehicles in themselves,” he said.

Mark Oline, managing director Fitch Ratings, at the time also told the Detroit News that Ford did not need an incentive to invest in green technologies: “Ford was going to do all of that regardless of whether it received the federal loans, meaning it can now use the money budgeted for these programs for other things.”

So, what do we have? We have Solyndra and Ford getting loan guarantees from Uncle Sam. Both were planning these things before the Obama Administration came into office. It turned out that the Solyndra model was a bad bet, and the taxpayers will have to borrow another half billion from China to make up for the bad bet. Ford, on the other hand, seems to be on track with its program, so the loan guarantee cost the taxpayers nothing, but the program could have failed; the federal government, in effect, assumed Ford’s risk for something on which Ford was already willing to take the risk. There was no potential gain for the taxpayers in the assumption of the risk, since the potential gain would have been realized — assuming it is realized; the project is ongoing — even without the loan guarantee.

If the government came to the conservative notion that these kinds of attempts at directing the economy have no place in a free and free market society, we’d be a lot better off. If solar energy and solar panels are a good idea, an idea which makes economic sense, someone will make the investment to build them, and the public will take a series of individual decisions, which will result in a collective judgement, on whether to buy, or not buy, the products in sufficient volume to have made the investments worthwhile. It really should not be the federal government’s place to try to take these decisions for us, and the government has already proved that it is wholly incompetent to do so.

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