Solyndra – Administration warned it would fail in September, 2011. And, it did
In the old “what did they know and when did they know it” game concerning Solyndra, the failed solar company backed by half a billion dollars of federally guaranteed loans, it appears the administration was warned repeatedly that it would fail.
Even after Obama took office on Jan. 20, 2009, analysts in the Energy Department and in the Office of Management and Budget were repeatedly questioning the wisdom of the loan. In one exchange, an Energy official wrote of "a major outstanding issue" — namely, that Solyndra’s numbers showed it would run out of cash in September 2011.
There was also concern about the high-risk nature of the project. Internally, the Office of Management and Budget wrote that "the risk rating for the project sponsor [Solyndra] … seems high." Outside analysts had warned for months that the company might not be a sound investment.
And the reason?
Fairly simple, really:
"It’s very difficult to perceive a company with a model that says, well, I can build something for six dollars and sell it for three dollars," Lynch said. "Those numbers don’t generally work. You don’t want to lose three dollars for every unit you make."
But apparently not enough to warn off what was something that the administration badly wanted to back – “green” jobs. The problem of course is they weren’t viable green jobs. The company failed Econ 101 analysis, yet that didn’t stop our central planners from pushing ahead with the loan guarantees.
And all the info to determine this wasn’t a good risk was there:
In 2008, Solyndra, then just three years old, pushed ahead with its application for government backing to build a new plant to produce its unique solar panels. An outside rating agency, Fitch, gave Solyndra a B+ credit rating that August. Two months earlier, in June 2008, Dun & Bradstreet issued a credit appraisal of the company. Its assessment: "Fair."
Those are not top-of-the-line scores, Fitch Ratings spokeswoman Cindy Stoller told the Center for Public Integrity’s iWatch News, which has been investigating the deal in partnership with ABC News since March. She could not discuss the Solyndra review specifically, but said of a B+ rating: "It’s a non-investment grade rating." She provided a company ratings definition, showing that B+ falls between a "highly speculative" B and "speculative" BB.
Anyone with a 5th grade education would know enough to go “not where we should sink our money”. But sink it they did.
What do we get back from the administration when questioned about all of this?
Asked about those ratings, and how significantly the department viewed the risk, Energy officials said Monday the department conducted "extensive due diligence" on the application, which included consideration of the Fitch rating.
"We believed the rating, which is used to inform our analysis of potential risks associated with the loan, was appropriate for the size, scale and innovative nature of the project and was consistent with the ratings of other innovative start-up companies," said Damien LaVera, an Energy Department spokesman.
"The Department conducted exhaustive reviews of Solyndra’s technology and business model prior to approving their loan guarantee application," LaVera said. "Sophisticated, professional private investors, who put more than $1 billion of their own money behind Solyndra, came to the same conclusion as the Department: that Solyndra was an extremely promising company with innovative technology and a very good investment."
Well, if that’s the case, then the analysts at the DoE are utterly incompetent. My guess is they came up with the analysis their bosses wanted, not that which actually told the truth about the situation.
Again, instead of letting the market do its job, the administration continued to ignore the warning signs and intrude, backing a company that was bound to fail and in the end, throwing a half billion taxpayer dollars down the drain.
And there’s this:
The White House has argued that any effort to finance start-up businesses in a relatively new field like solar energy is bound to include risky ventures that could fail. They reject the notion being pushed by Republicans that Solyndra was chosen for political reasons. One of the largest private investors in the deal, Oklahoma billionaire George Kaiser, was also a prominent fundraiser for Obama’s 2008 presidential campaign.
And, Solyndra’s CEO was a large contributor as well.
However, the big concern?
"This deal is NOT ready for prime time," one White House budget analyst wrote in a March 10, 2009 email, nine days before the administration formally announced the loan.
"If you guys think this is a bad idea, I need to unwind the W[est] W[ing] QUICKLY," wrote Ronald A. Klain, who was chief of staff to Vice President Joe Biden, in another email sent March 7, 2009. The "West Wing" is the portion of the White House complex that holds the offices of the president and his top staffers.
Yup, protect the White House. And they didn’t even have the wits to back out when they could have, instead doubling down in the face of horrific numbers. Sound familiar?
You’re in good hands, folks — can’t you just feel it?
~McQ
Twitter: @McQandO
Obama touted solar technology company files for bankruptcy
But not before sucking down over half a billion dollars in federal loan guarantees that will now be exercised.
Solyndra was touted by the Obama administration as a prime example of how green technology could deliver jobs. The President visited the facility in May of last year and said "it is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world. And you guys all represent that. "
The federal government offered $535 million in low cost loan guarantees from the Department of Energy. NBC Bay Area has contacted the White House asking for a statement.
This is what happens when government tries to pick winners and losers economically with absolutely no understanding of the market in which they intrude. What this clearly points out, unless there was true malfeasance by the company, is there is no market, at this time, for what they were selling. Either that, or they were truly incompetent.
This was a “if we build it they will buy” project that apparently either misrepresented the market or misunderstood it. Either way, it failed. And the Feds were apparently no more informed about the market potential of the product than the company. Result – over half a billion in loans guaranteed by the Federal government are now being called in. The taxpayer, as usual, is on the hook to pay off the mistake the government made.
One of the constant themes here is the government is way outside its charter when it engages in activities like this. It is an example of what those Tea Party lunatics mean when they talk about government intrusion and call for smaller government. Note, it has nothing to do with welfare reform or any other of the usual nonsense their opponents try to tag them with. It has to do with out-of-control government and out-of-control spending in areas where none of the founders ever even hinted at envisioning a Federal presence.
It’s a pity this has to be constantly pointed out to Tea Party critics bent on stereotyping members of that group as racists. But as usual, reality provides the perfect context and example to counter their baseless charges.
This is not what our government should be involved in, period. And certainly not with tax payers money, exclamation point!
~McQ
Twitter: @McQandO
Is the US bankrupt?
A good number of voices are beginning to say that technically, if not in fact, the country is bankrupt.
America is a "Mickey Mouse economy" that is technically bankrupt, according to Jochen Wermuth, the Chief Investment Officer (CIO) and managing partner at Wermuth Asset Management.
"America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy," Wermuth told CNBC.
Wermuth goes on to say that if the same IMF team that managed the 1998 Russian financial crisis in Russia were to walk into the US Treasury today, “they would withdraw support for current US policy”.
And don’t forget Mort Zuckerman who called the present policies our “economic Katrina”.
But as bad as present policies are, they aren’t solely the reason we’re in the awful economic shape we’re in. We have a history of that.
"Even before the (Troubled Asset Relief Program) and the expansion of the Fed’s balance sheet, total US public and private debt as a percentage of GDP in the US stood at 290 percent, that figure is now far higher," Wermuth added.
Laurence Kotlikof explains it in terms of a “fiscal gap”.
The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.
The IMF pointed out in its last report that the US must close this fiscal gap to “stabilize the debt to GDP ratio”. The IMF estimates ““closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”
So what does that mean in dollars?
To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.
Note the two words – “immediate” and “permanent”. In order to pay off the huge debt our “betters” in Washington DC have run up over the years, strictly from the revenue side, our taxes would have to see an “immediate” and “permanent” doubling.
Sounds like bankruptcy to me.
Kotlikof also tells us about the shady book keeping Congress has been engaged in for decades and what the books probably really look like:
Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.
But of course, “official” or “unofficial” it is still debt. Whether Congress will admit to it doesn’t change the fact that it is future debt that Congress has incurred through its profligate policies.
And what’s going to bring this all crashing down, despite the smooth and reassuring words of politicians without a clue? Promises made with no fiscal ability to keep them because, in reality, they’re Ponzi schemes:
We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.
Got that – government promised $4 trillion a year that it doesn’t have and never has had. And, thanks to Congressional Democrats, it just expanded that bill under ObamaCare. The system, much like an engine running at hight RPMs with no oil, is going to stop and stop abruptly:
The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
The result of any of those, of course, would be economically catastrophic. And the results among the citizens of this country would be horrible:
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
For years and years, politicians have claimed all is well with these programs, that we can afford them and that they’ll always be there for those who need them. None of the above is or has been true since their inception. If any private business operated as these programs have, the CEOs would be under the jail and wouldn’t see daylight until our sun exploded.
For years, the left and Democrats have made war on corporations and businesses all the while it has been government leading us to financial ruin. This debt isn’t debt run up by the private side of the economy. It is purely government’s doing. Now, given the gravity of the situation, we have very few options and the future does not look bright.
Next time you see your Congressional representative or Senator, thank him or her for the mess they’ve had a hand in creating and ask them how they are going to fix it. Don’t be surprised by the blank stare you receive in return. They haven’t a clue.
~McQ
There Is A Solution
Although many people don’t want to hear it.
Arnold Schwarzenegger on the situation in California:
“People come up to me all the time, pleading ‘governor, please don’t cut my program,’” he said. “They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice. It’s an awful feeling. But we have no choice.
“Our wallet is empty. Our bank is closed. Our credit is dried up.”
Then. Cut. Spending.
For real this time.
~McQ