We still have a long way to go to get America’s economy back on track and to make the United States the world leader in clean energy technologies, but companies like Solyndra and Recovery Act investments like this one are helping drive progress across the country. -WhiteHouse.gov, 5/26/2010
Solyndra intends to file a petition for relief under Chapter 11 of the U.S. Bankruptcy Code while it evaluates options, including a sale of the business and licensing of its advanced CIGS technology and manufacturing expertise. As a result of the suspension of operations approximately 1,100 full-time and temporary employees are being laid off effective immediately. -Solyndra Press Release, 8/31/2011
The government’s losing decision to invest in Solyndra – the first company to receive a loan guarantee from the Department of Energy, to the tune of $528 million in government aid, which was followed by bankruptcy – is bringing into question several more of the their investment decisions, and rightfully so. It is long past due to question the very idea of government investing in private companies and specific technologies to benefit and please special interests. Governments, or any other uninterested third party, will never invest money as wisely as private interests will. As Michael Barone writes:
But let’s assume for the time being that there was no criminal conduct here, no violation of government procedures, no fraud. Let’s assume everyone in the administration acted with good faith.
There’s still a scandal — the scandal of the government handing out hundreds of millions of dollars to unproven and speculative businesses. Even the shrewdest venture capitalists lose money on most of their investments. But when they lose, it’s their money, not ours.
The scandal is still going on. The Energy Department has been busy handing out more loan guarantees in the past few weeks — $150 million to 1366 Technologies of Lexington, Mass. (73 percent for Obama in 2008), 80 percent of $344 million to Solar City of San Mateo, Calif. (72 percent for Obama in 2008). Will one of them be the next Solyndra?
Normally the government would lose such an investment – and simply pass those losses on to the taxpayers – but the Energy Department had the foresight to arrange the privilege of first lender. That privilege was lost when the Energy Department approved a new loan for the company.
Complicating the politics of the situation for the Obama administration, the other lender was Argonaut, the investment company backed by George Kaiser, an Oklahoma oil billionaire who is an Obama campaign contributor. Argonaut was already heavily invested in Solyndra, and provided another $69 million in cash in exchange for taking over $75 million that Solyndra was owed by its customers.
The Energy Department’s approval was required for Solyndra to borrow any new funds, because if the loan was consummated, the federal government would have to surrender its status as the most senior lender, in favor of the new lender.
If this loan is also insufficient to make Solyndra profitable, the taxpayers will not recoup their money first. The New York Times quotes one unnamed OMB staff member:
If Solyndra defaults down the road, the optics will arguably be worse later than they would be today, the staff member wrote. He suggested that the question of whether to keep helping Solyndra be taken to the energy secretary, Steven Chu, so he would be ‘fully informed and accountable for the decision.’
Steven Chu was presumably fully informed on the last investment. His knowledge neither guarantees sound investment strategy nor offers confidence to taxpayers. After all, he found a way to invest in a losing company within a winning industry.
How he will be accountable for the decision is also worth defining now. Since he cannot reasonably pick up the tab, one presumes he would be asked to resign. The optics of that might also be ugly, but investments should be made to increase productivity and growth, not to make the government look respectable in a campaign season.