Solyndra, a Fremont solar power company that filed for bankruptcy earlier this month, demonstrates the perils of “industrial policy” where the government decides which new industries or start-up companies to support with federal money.
But it’s not like the government wasn’t warned ahead of time.
Solyndra, in a public S-1 filing at the Securities and Exchange Commission in September 2009 before a public offering that was subsequently withdrawn, offered 22 pages of reasons why it might fail.
The report included a table of historical financial and operating data from 2006 to 2009, showing six measures of gross and net losses. Not one positive number.
And still federal officials opted to give Solyndra a $535 million loan guarantee from the Federal Financing Bank, guaranteed by the Energy Department under its economic stimulus program funding for innovative clean-energy technologies.
The company, founded in 2005, had used $460 million of these loans by January to build a second factory, even though it still had excess capacity at its first plant.
By January, it was clear that the company was going to fail. Still, the Energy Department helped shore up Solyndra by allowing it to draw on another $68 million in government loans.
In addition, the Obama administration allowed $385 million in government loans to take a back seat to $75 million in new investors’ funds.
This was done because the Energy Department thought that the January deal represented the highest net benefit for the taxpayer, according to government reports. The $75 million from investors became senior to all government debt except $143 million.
The remaining $385 million in government loans have equal status to $175 million in original investor funds, and can only be recuperated after the investors get back their $75 million and the government gets back its $143 million. This reduced the value of the $385 million because the government is not the senior creditor.
Confidential emails published by the House Energy and Commerce Committee depict White House and Energy Department officials rushing to sign off on the project in 2009 so that Vice President Joe Biden could appear at the Fremont plant in September 2009 to trumpet the administration’s support for green jobs. President Barack Obama visited Solyndra in May 2010.
Solyndra’s bankruptcy has been attributed to factors beyond its control, such as falling prices for other solar panels and lower costs and pricing in China.
It wasn’t as though Solyndra’s problems were secret. On May 27, 2010, in trade journal GigaOM, reporter Katie Fehrenbacher suggested that Energy Department guarantees for Solyndra were a mistake. Solyndra’s manufacturing and capital costs far exceed those of its rivals, she wrote, and its technology was uncompetitive.
PricewaterhouseCoopers, Solyndra’s auditors, also expressed public concern. The company’s deficit, operating losses and negative cash flow raised doubts as to its viability.
Why did the government pour more funds into Solyndra and accept a subordinate status on the loan? Could it be because one of Obama’s campaign contributors, George Kaiser, was a major investor in Solyndra through Argonaut Private Equity?
Kaiser raised between $50,000 and $100,000 in donations for the president, and donated over $50,000, split between the Democratic Senatorial Campaign Committee and Obama for America, according to campaign records.
Solyndra shows that government should not try to pick industrial winners, green or otherwise. The temptation for politics to trump sound judgment and waste millions in taxpayer money is inescapable.
Examiner columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Manhattan Institute.