Solyndra - When Politics Are Used To Allocate Resources, The Resources All End Up Being Allocated To Politics

The quote in today's title is from P.J. O'Rourke and seems particularly apt in light of two developing scandals, one involving the former solar energy panel manufacturer Solyndra and one involving a wireless communications company called LightSquared. Both illustrate how much disregard the Washington political class has for taxpayer wealth, subjugating taxpayers' welfare to the needs and desires of individuals and companies who are politically connected.

Today let's stay with Solyndra. The basic story is that the Obama administration fast tracked over half a billion dollars in Federal loan guarantees for this solar energy panel company. The company promptly went bankrupt and took 1,100 jobs and the half a billion dollars worth of taxpayer wealth with it.

However, the details are much more gruesome. The details from the past few weeks include the following, in no particular order, that were compiled from various sources including the Associated Press, Bloomberg, and the Washington Post:

- Although President Obama visited the Solyndra plant in May, 2010 and extolled that  "the promise of clean energy isn't just an article of faith," two months BEFORE his visit, the accounting firm PricewaterhouseCoopers LLP cautioned that the company, which had  received $535 million in Federal loan guarantees in September, 2009, "had financial troubles deep enough to raise substantial doubt about its ability to continue as a going concern."
- Pricewaterhouse went on to state that "the company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders' loss." In other words, experts in the field knew that Solyndra was a troubled company and had been a troubled company for years.
- The fact this was a troubled company was validated within a month after Obama visited when the company withdrew its plan to implement a $300 million initial public offering, likely because it would have failed. This validation occurred just nine months after it received the Federal loan guarantees.
- Economic and company conditions deteriorated quickly when the prices for Chinese manufactured solar panels dropped by 30% over the past year, wrecking the marketing plans and product value of Solyndra's products.
- But financial problems occurred long before the Chinese problem, with Bloomberg News reporting that, according to government documents from December, 2010, a mere three months after the loan guarantees were approved, the government knew that Solyndra was only a month away from running out of cash. This indicates that little, if any, due diligence was done if within months of giving away a half a billion dollars of taxpayer money, the company was about to fold.
- As as result of the failing financials, the Energy Department agreed to take a back seat to funds from private and new investors to keep Solyndra solvent. In other words, if the company folded, taxpayers would not be paid back until other investors got their investment returned from any bankruptcy proceedings.
- Which is where it gets really interesting since one of those private investors is George Kaiser, a major Obama campaign fundraiser. The Kaiser Family Foundation owns about 37% of Solyndra. Records show that Kaiser had made 16 visits to the President's staff since 2009. The Foundation would be one of those investors that would jump in front of the American taxpayer in retrieving whatever value is left from the Solyndra's ashes. The Foundation denies that George Kaiser had to do with the Federal loan guarantees.
- While the company was running out of cash, U.S. Senate records show that it had already spent $480,000 this year to lobby Congress. This apparently included hiring a pubic relations and lobbying firm to prep Solyndra executives before they went before Congressional hearings. Two Democratic Congress members have publicly stated that Solyndra's chairman assured them in July, 2011 that the company was in a "strong financial position."
- At a House of Representatives investigating committee session this week, Solyndra executives claimed their fifth Amendment rights and refused to testify, lest they incriminate themselves in subsequent criminal investigations.
- The Washington Post reported that employees of Solyndra stated they saw questionable spending by upper management as soon as the loan guarantees were approved including a new factory with a conference room with glass walls, walls that, with a flip of a switch, turned a smoky gray to conceal the room's occupants. State-of-the art equipment was never unwrapped and ended up being sold for pennies on the dollar.
- Solyndra engineer Lindsey Eastburn was quoted as follows: "After we got the loan guarantee, they were just spending money left and right. Because we were doing well, nobody cared. Because of that infusion of money, it made people sloppy."
- Solyndra also applied for another government loan, this one for $400 million, which, fortunately, was not approved.
- In a July 13, 2011 letter from Solyndra's CEO to the House Energy and Commerce committee, only two months ago, the CEO asserted that the company was in good shape, it's future was bright, and 2011 revenue was expected to double. This was written even though employees were noticing that finished product inventory was backing up on the loading docks and not moving out.
- Emails from the Office Of Management and Budget (OMB) show that the Obama administration pressured the OMB to hurry up its analysis of Solyndra's financial viability in order to accommodate a September, 2009 factory visit from Joe Biden. One of those emails responded that "we (OMB) would prefer to have sufficient time to do our due diligence reviews and have the approval set the date for the announcement rather than the other way around."
- The AP reports that Solyandra has spent almost $2 million during the past four years lobbying the Federal government.
- Federal Election Commission records show that two Solyandra executives, along with George Kaiser, have contributed to Obama and Democratic Party groups in the past.
- The FBI and the Energy Department's inspector general are investigating the issue in addition to the Congressional committees. The chairman of the House Judiciary Committee has called for an independent investigator to look into the entire affair.
- The AP also examined regulatory filings which show that Solyndra was losing hundreds of millions of dollars for years prior to the loan guarantee. In other words, this was not a successful company before the guarantees, a sure red flag for any investor.

Lots of facts, none of them good if you pay Federal income taxes. There appear to be three potential outcomes from this mess:

1) General Incompetence - under this scenario, half a billion dollars was lost due to general incompetence by government employees and the Washington political class. No one took the time to understand this company had never turned a profit, indicating that its market offerings may have not been viable. No one took the time to understand the dire financial condition that this company was under prior to the loan guarantees. No one took the time to understood how poorly the loan guarantee money was being spent. No one took the time to understand what the Chinese threat was likely to be.

Under this scenario, general incompetence cost the country half a billion dollars. In this case, people in the Department of Energy need to be fired for their incompetence and lack of due diligence and members of Congressional committees and subcommittees who had responsibility for this fiasco should be removed from their committee posts, as proposed by Step 34 in "Love My Country, Loathe My Government."

2) Political Incompetence - under this scenario, the Obama administration forced government resources to bypass or short circuit due diligence processes and other analyses in order to meet photo op opportunities and to demonstrate to the Democratic Party base how the administration was going "green." As a result of this shortsighted, political approach to life and reality, the American taxpayer is out half a billion dollars and those photo ops don't look like such a good idea today.

3) Incompetence, Cronyism, and Criminal Behavior - under this scenario, three nasty issues come together. There is incompetence because of forcing a failing company to live up to expectations with half a billion dollars support, failure to do adequate due diligence, failure to understand the dynamics of the market, and short cutting standards of analyses for political photo ops.

There is cronyism as we see a failing company use government support to heavily lobby that same government and to direct taxpayer dollars to political supporters.

There is possible illegal behavior if private investors were moved ahead of taxpayers in the bankruptcy proceedings, something that was deemed illegal under the conditions of the loan guarantees. This particularly repugnant if those moved ahead of taxpayers were those that had lobbied and financially contributed to political class factions.

No matter how you cut it, the whole situation reeks. I wholeheartedly support the naming of an independent special investigator to determine what firings, reforms, and criminal charges need to be forthcoming. This investigator would have full subpoena and prosecution powers. Until we as a nation get to the bottom of these shenanigans, it will continue to divert attention from the real issues facing America.

Which gets us back to the quote in our title. The American political class cannot help but end up in as failures in these types of ventures since our politicians are more interested in their own political well being, not the nation's well being.

That is why we get these disasters and why billions of dollars are wasted every year. Resources and arrangements are established for the good of the political class, not the efficient allocation of resources. "Green" jobs is just one category of bad allocation of  taxpayer resources and Solyndra is just one company of several that have turned into disasters and giant wastes of taxpayer money:

• Evergreen Solar in Massachusetts received $5.3 million in stimulus money through a state grant to install solar electric panels at 13 Massachusetts locations. The company recently filed for bankruptcy protection in order to reorganize and in an ironic twist, intends to now focus on building up its manufacturing factory in, wait for it, China.
• Spectra Watt received a half million dollar grant under the Obama economic stimulus program to improve the performance of existing solar cells in June, 2009. It has already gone out of business.
• Olsen Mills Acquisition received a $64 million government support package in January, 2010 to increase employment, buy equipment, and acquire land. Less than two years later, the company filed for bankruptcy, probably destroying the value of the government's $64 million government and taxpayer support.
• Mountain Plaza in Tennessee received $424,000 grant to reduce truck pollution at truck stops despite the fact the company had already filed for bankruptcy twice.

And in the face of all this, Obama wants to raise the taxes on subsets of Americans. Until this missallocation of taxpayer resources is resolved, no one in America should pay more taxes for this incompetence. And this misallocation will not stop until politicians realize that they cannot create jobs because 1) they are not smart enough to create jobs and 2) the market creates jobs, not government bureaucrats.

The following truth is so relevant here: If a technology is viable, it does not need any government support. If a technology is not viable, no amount of government support will make it viable. How true.

Unfortunately, the Obama administration and its Energy Department did not follow this simple fact of reality and it cost us at least half a billion dollars of wealth. Our only hope now is that all those responsible pay with their jobs, their careers, or their freedom if guilty of criminal behavior.


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