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Posts Tagged ‘Solyndra’

The Department of Energy announced last week its 80% guarantee for a $168.9 million loan for Granite Reliable Power Wind Project in New Hampshire.  The joint venture is 75% owned by a firm created by a Canadian subsidiary of Brookfield Asset Management of New York,  Brookfield Renewable Power Fund.

Why would a subsidiary of a (very) profitable company that’s backed by a $2.7 billion private fund need federal loan guarantees?  The New Hampshire Union Leader asks:

Granite Reliable’s wind farm is not proven, and Granite Reliable is a limited liability company, which provides broad investor protection if the company goes down. If the wind farm flops, and investors cut their losses, the taxpayers stand to lose $135 million. What is the justification for risking $135 million in public money, especially on a company with access to so much private cash?

By the way, another subsidiary of Brookfield Asset Management, Brookfield Office Properties, is the owner of One Liberty Plaza in New York, along with the adjacent Zuccotti Park (unofficial home of Occupy Wall Street).

And as Business Insider reports, Mayor Michael Bloomberg’s longtime domestic partner Diana Taylor is on the Board of Directors at Brookfield Office Properties along with John E. Zuccotti himself.

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So says John Stossel:

I guess Obama doesn’t know that the Transcontinental Railroad was a Solyndra-like Big Government scandal. The railroad didn’t make economic sense at the time, so the government subsidized construction and gave the companies huge quantities of the best land on the continent.

As we should expect, without market discipline — profit and loss — contractors ripped off the taxpayers. After all, if you get paid by the amount of track you lay, you’ll lay more track than necessary.

Credit Mobilier, the first rail construction company, made enormous profits by overcharging for its work. To keep the subsidies flowing, it made big contributions to congressmen.

Where have we heard that recently?

The transcontinental railroad lost tons of money. The government never covered its costs, and most rail lines that used the tracks went bankrupt or continued to be subsidized by taxpayers.

The Union Pacific and Northern Pacific — all those rail lines we learned about in history class — milked the taxpayer and then went broke.

One line worked. The Great Northern never went bankrupt. It was the railroad that got no subsidies.

Read the whole thing.

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Eric Lipton and John M. Broder pen a story for The New York Times about the Solyndra debacle, calling it “one of the administration’s most costly fumbles.”  Some new details are uncovered by the duo:

  • There was intense pressure on senior Energy Department staff to rush stimulus spending out the door and Secretary Steven Chu was personally reviewing loan applications and urging faster action.
  • While Solyndra spent nearly $1.8 million on Washington lobbyists, employing six firms, none of the other three solar panel manufacturers that eventually got federal loan guarantees spent a dime on lobbyists.
  • Tim Harris, the chief executive of Solopower, which got a $197 million loan guarantee last month to build solar panels in San Jose, Calif., said his company had never considered employing a Washington lobbyist to grease the application. “It was made clear to us early in the process that was clearly verboten,” Mr. Harris said. “We were told that it was not only not helpful but it was not acceptable.”
  • The Bush administration, according to the authors, had started the review of the Solyndra application in May 2008 and were anxious to approve the deal, because members of Congress were complaining that the loan guarantee program, signed into law in 2005, still had not given out its first award.

The article continues, focusing largely on intense and expensive lobbyist efforts and misplaced zeal on the part of the administration.

The authors characterize the bankruptcy of Solyndra — and the likely loss to taxpayers — as merely a failure of execution.  If only the administration had exercised less haste, if only the lobbyists hadn’t interfered and company officials were more honest, if only the price of silicon had remained high, if only the DOE had “followed the rules”.

If only.  These two words are the foundation of the liberal mindset, especially when there is failure.  The New York Times has now set the narrative for President Obama and his main-stream media water boys regarding the Solyndra “fumble”.

But in the newspaper’s rush to blame anything and anyone but the stimulus, and more specifically the loan guarantee program, it inadvertently exposes the program’s fundamental flaws and why many simply call it “crony capitalism”.

  • Through the article’s narrative, it becomes obvious that well-connected companies stand a better chance at receiving government assistance than those which aren’t.
  • Political goals can easily outweigh due diligence and sound judgement when spending investing taxpayer dollars in private enterprise.
  • If the Energy Department hadn’t been rushed, would the loan still have been guaranteed?  Of course it would.  There is absolutely no evidence to suggest otherwise.

Solyndra provides a multitude of examples as to why the government should not be in the business of “investing” in private businesses.  Here are a few:

  • The company’s success or failure depended upon one important commodity and its price: silicon.  Once this dependency is acknowledged, the loan guarantee is no longer investing, but speculation.
  • The price of silicon is a major — if not the major — risk factor the company faced.  But I don’t see in the company’s S-1 filing for its proposed IPO any mention of it.  Goldman Sachs and Morgan Stanley (as well as the attorneys) even missed this elementary point.  Why should we expect the government to recognize the risk?  Moreover, there is no evidence of protective hedging.  By the way, had the company been successful in its IPO and subsequently declared bankruptcy, class-action lawyers would now be licking their chops.
  • Over a half billion dollars’ worth of Factory 2’s assets were highly specialized manufacturing equipment that likely had little use outside its specific purpose, making for very poor collateral, or as junior commercial loan officers would say, “there’s no second source of repayment”.
  • After the loan was drawn, the agreement specified repayment of principal and interest over only four years.  There was no evidence of sufficient cash flow to service this kind of debt.  Banks call this “betting on the come.”
  • The government allowed a restructuring of the debt, placing itself junior to private investors.  A review of the statute makes it clear the action broke the law.  The rationale given was ridiculous.  It’s called “good money chasing bad”.

These simple examples are clear to any junior banker and illustrate how the government failed so spectacularly in its fiduciary duty to taxpayers, who will see over $500 billion in their hard-earned money evaporate.  And it’s likely we’ll see more failed government “investments” in the very near future.

We’re experiencing the worst economic environment since the Great Depression.  In times like these it is especially imperative that our government acts as a careful and thoughtful steward of hard-earned taxpayer money.  It’s bad enough that this ill-conceived program was even launched, but what’s most  insulting is the carelessness in which it has been executed.

Tar and feathers.

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James Pethokoukis:

The bankruptcy of solar-panel maker Solyndra neatly encapsulates the economic, political and intellectual bankruptcy of Barack Obama’s Big Idea. It was the president’s intention back in 2009 to begin centrally reorganizing the U.S. economy around the supposed climate-change crisis.

To what end? Well, Obama claimed his election would mark “the moment when the rise of the oceans began to slow and our planet began to heal.” But that was just the cover story. At its core, Obamanomics is about the top-down redistribution of wealth and income. Government spending on various “green” subsidies and programs, along with a cap-and-trade system to limit carbon emissions, would enrich key Democrat constituencies: lawyers, public sector unions, academia and non-profits.

Oh, and Wall Street, too. Who was the exclusive financial adviser to Solyndra when it was trying to secure the $535 million loan from Washington? Goldman Sachs. And had the cap-and-trade scheme been enacted, big banks stood ready to reap billions from the trading of carbon emission credits.

No wonder many Democratic strategists predicted their party’s 2008 landslide win would usher in a generation of political dominance. Obamanomics, essentially, would divert taxpayer dollars to the Green Lobby – and then into the campaign coffers of the Democratic Party. This is what crony capitalism is really all about: politicians enriching favored businesses, who then return the favor. Or maybe it’s the other way around, Who cares, really. It’s an endless, profitable loop for both.

Read the whole thing.

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From The Atlantic’Megan McArdle:

Solyndra had raised only $450 million on the strength of its technology (a non-silicon-based solar panel, at a time when silicon prices were very high). This implies that more than half of the money was raised after the feds agreed to a $500 million dollar loan guarantee at extremely attractive below-market rates.

It’s not exactly surprising that investors were willing to take a little flyer on a high-risk project that was being heavily subsidized by Uncle Sam–especially since the signal of the subsidy may have served, for some investors, as a substitute for doing their own due diligence. But I’m not sure that this can serve as evidence that the government’s investment was a good idea.

After all, the investors had the potential for upside. For the government, there was no upside: they were on the hook if the loan failed, but all they got if the loan succeeded was the psychic benefit of a job well done. And if I’m doing the math right, and it’s true that Kaiser, the largest backer, had a roughly 35% stake in the firm, then it looks like the government had by far the largest exposure on Solyndra, even though from the taxpayer’s point of view, this deal was “Heads you win, tails I lose.”

Plus this:

As if that wasn’t bad enough, by November of last year, the company was teetering. Its technology was essentially a large bet that prices of silicon would stay high, making its product competitive. It’s never clear that this was a good bet–Peter Lynch, a solar industry analyst, told ABC that “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.” But in 2009, thanks to expanded capacity and a recession-induced decline in demand, the price of silicon-based panels began falling. In June of 2010, the company pulled its IPO. In November, it laid people off and seems to have been on the brink of bankruptcy.

Last February, there was a hail-mary financing round in which the firm raised $75 million. But to secure that deal, the administration had to agree to take a back seat to the new investors. Today, the DOE’s Silver argued that this was the right decision, because quitting then would have meant liquidation, while now it can be reorganized as a going concern. Mr. Silver knows more about Solyndra’s operations than I do, of course, but I am struggling to see how it can be “more valuable” as a going concern manufacturing products that cannot be sold at a profit. This is not a case of a company that has crippling debt or legacy costs, or a temporary cash flow problem, which can be resolved in bankruptcy. It seems to have a permanent structural gap between the cost of manufacturing its products, and the price at which people are willing to buy them.

Read the whole thing.

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From Amanda Carey:

Despite Solyndra’s abrupt closing and bankruptcy announcement last month, the Department of Energy (DOE) is undeterred. Just this month, the agency made two more loan guarantees worth millions of dollars to alternative energy firms.

And, as was the case with Solyndra, officials and investors with the two new companies have strong financial ties to President Barack Obama.

 

Read the whole thing.

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From Bloomberg News:

Two months before Obama’s visit, accounting firm PricewaterhouseCoopers LLP warned that Solyndra, the recipient of $535 million in federal loan guarantees, had financial troubles deep enough to “raise substantial doubt about its ability to continue as a going concern.”

The Obama administration stood by Solyndra through the auditor’s warning, the abandonment of a planned initial public offering and a last-ditch refinancing where taxpayers took a back seat to new investors. That unwavering commitment has come under increasing scrutiny since the company’s travails culminated in its filing for bankruptcy protection on Sept. 6 and a raid on its headquarters by the Federal Bureau of Investigation two days later.

Plus this:

The challenge facing Solyndra only increased as prices of the silicon used in conventional solar panels from China fell, declining 30 percent this year, according to Bloomberg New Energy Finance.

“When polysilicon prices dropped Solyndra’s value proposition evaporated,” Joseph Berwind, managing partner of Alternative Energy Investing LLC in Summit, New Jersey, and the author of “Investing in Solar Stocks,” said in an interview.

By December 2010, Solyndra was a month away from running out of cash, according to a government document obtained by Bloomberg News.

In what turned out to be a final effort to save the company, the Energy Department agreed to take a back seat to funds from new investors to keep the solar plant operating.

Read the whole thing.

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