Much of the press coverage of the Solyndra bankruptcy has been poor on some basic concepts at the heart of the story.
This is what happens when beat reporters meet stories with business, political, and science angles, and why news organizations need to team up their people across beats.*
What happened with Solyndra? Presidents Bush and Obama sought to guarantee half a billion dollars in loans so it could build a big plant to make its unique solar panels. The Obama administration made it official.
There are questions about whether some sort of fraud was committed at Solyndra—the FBI raided the company recently—or whether the Obama administration improperly leaned on the DOE to lend to it. Those will be sorted out in the coming weeks, but in the meantime, the press needs to do a much better job of explaining this program.
Take this New York Times story this morning with the no-kiddin’ headline, “Market Risks Are Seen in Energy Innovations.”
The same market forces that doomed Solyndra, the solar cell manufacturer that received $528 million in government loans and then went bankrupt, could imperil other manufacturing ventures that have received loan guarantees from the Energy Department, energy experts warned this week.
Think about what a loan guarantee is: It’s the government stepping in to help an industry get financing that is otherwise cost-prohibitive. We want more clean energy more quickly than it’s coming, and we want the manufacturing capacity here at home. The market doesn’t care whether its money is used for social good—it wants its money used to make money, with as little risk possible.
So this Department of Energy loan-guarantee program (created by the Bush administration and the Republican Congress back in 2005, by the way) is the DOE leveraging its capital to incentivize the private sector to lend cheaply to promising companies. Startup companies (and startup technologies) need cheap capital to grow quickly, but they’re inherently risky, which is why governments decided they needed this kind of government-as-venture-capitalism-lender corporate welfare.
Venture capitalists give startups capital in the unlikely hope that their companies will turn into the Next Big Thing. For every Google that makes it megabig, there are hundreds of companies that lose their investors’ money or muddle along. More than half of the firms backed by venture capital go bust and investors lose their money.
One firm going bust doesn’t mean that the program is a failure. Indeed, firms going bust was baked into the cake here: DOE knew from the beginning that some of the firms it funded would go bust. That’s the nature of what it’s doing.
Meantime, check out this page-one Washington Post story from yesterday headlined “Obama green-tech program that backed Solyndra struggles to create jobs.” Here’s the lede:
A $38.6 billion loan guarantee program that the Obama administration promised would create or save 65,000 jobs has created just a few thousand jobs two years after it began, government records show.
The program — designed to jump-start the nation’s clean technology industry by giving energy companies access to low-cost, government-backed loans — has directly created 3,545 new, permanent jobs after giving out almost half the allocated amount, according to Energy Department tallies.
First, the Post reports the $38.6 billion number as if that’s what the government is handing out to businesses. That’s misleading. That number is almost all private-sector capital backed up by a sliver of taxpayers’ money—$4 billion of government capital. The Department of Energy planned for $2.5 billion in losses before it lent any money out. The Post doesn’t report these numbers at all.
The Post compounds the problem with this:
The eventual cost of the loan guarantee program for taxpayers remains unclear. If the revised 60,000 target is reached, it would work out to about $640,000 in loan guarantees for every job created or saved.
Now Ryan, you really don’t think you are going to get away with recycling a StinkProgress “Bush did it too” piece, now do you?
The DOE and the federal governments support for new and innovative all be it risky technologies has paid off quite handsomely over the past 60 years, that’s not the issue, and I think Ryan knows it. The process for selection of companies to receive loan guarantee backing is a merit based decision made by functionaries at the DOE, who make their decision based on a predefined set of standards and rules. The hullabaloo surrounding Solyndra has nothing to do with the practice of DOE loan guarantees and everything to do with the way Solyndra used its political clout within the Obama administration to pressure the DOE into approving the loan guarantee even though Solyndra didn’t meet the requirements.
Not mentioned by Ryan, and key to the entire controversy, is that George Kaiser, Obama bundler and key investor in Solyndra, visited the White House 16 times before the company was granted the $535 million loan guarantee. Emails released between White House officials and Office of Management and Budget make it quite clear that Solyndra received its DOE loan guarantee prematurely and under pressure from the Obama administration and against the advice of the DOE functionaries in charge of it.
Solyndra’s bankruptcy was due to plummeting polysilicon prices as Ryan alludes to, high when they began pursuing their unique process which didn’t use polysilicon but low by the time they began production, but the collapse in polysilicon was entirely foreseable. This is why the original loan application request was initially denied by the DOE. They realized that enough new polysilicon production was coming on line to drive prices down to the point where Solyndra wouldn’t be cost competitive. To say this drop in polysilicon price was “unforeseeable” is garbage, it was entirely foreseeable. Based solely on press releases and surveys of polysilicon manufactures it was obvious that there were undergoing a significant expansion in production.
Couple this with the news about another Obama supporter using his political influence and fundraising to gain the administration’s help on another business venture and we see what is commonly referred to as a “pattern” developing. General William Shelton, a four-star Air Force general who oversees U.S. Space Command, gave a classified briefing in which he stated that the White House tried to pressure him to change his testimony on a proposed broadband project by LightSquared whose majority owner is an investment fund run by Democratic donor Philip Falcone. The USAF determined that LightSquared’s project would interfere with its GPS capabilities and Shelton was to testify to that end until the Obama Administration put the muscle on him to alter his testimony to make it more favorable to a company tied to a large Democratic donor.
My takeaway from Ryan’s piece here is that crony capitalism is bad except when people he likes engage in it.
#1 Posted by Mike H, CJR on Fri 16 Sep 2011 at 04:14 PM
Mike wrote: My takeaway from Ryan’s piece here is that crony capitalism is bad except when people he likes engage in it.
padikiller: You've got that right.
When it's Obama jumping into the venture capital business with tax money, then there is no fraud - these corporate actors are the salt of the earth.
You win some, you lose some in the market.
Nothing to see here, Ryan says... Move on people.
#2 Posted by padikiller, CJR on Fri 16 Sep 2011 at 05:43 PM
Mike H, I'll direct you to this piece on Kaiser's lack of investment. His foundation was the investor. He was not.
http://www.tulsaworld.com/business/article.aspx?subjectid=52&articleid=20110907_52_E1_CUTLIN372219
In an emailed statement to the Tulsa World, a representative of the George Kaiser Family Foundation said the organization made the investment through Argonaut.
"George Kaiser is not an investor in Solyndra and did not participate in any discussions with the U.S. government regarding the loan," the statement said. "GKFF invests in a globally diversified portfolio across many different asset classes."
#3 Posted by Mike B, CJR on Fri 16 Sep 2011 at 05:55 PM
You have parroted too much statist ignorance and falsehood to refute elaborately. But your last three grafs pretty much encapsulate the major fallacies, which beg for cursory smack-down.
"Then there’s the idea that the failure of one company proves that the government can’t allocate capital—as if every place it puts money goes bust. That conspicuously neglects the success of the government’s capital-allocation to General Motors and Chrysler."
Please elaborate. What is your definition of "success" here. And is it so unprecedented that a firm receiving tens of billions of OTHER PEOPLE'S MONEY from the govt would stay above water, and even turn a "profit," in the short term? No. So, please explain this "success" thing, which you imply is an exceptional example of how govt "allocate[s] capital" better than the private sector.
"More problematically, it assumes by implication that the private sector is always great at allocating capital, despite the fact that we’re living through a depression caused by the catastrophic failure of markets during the last decade."
If anything, the depression was caused by the "catastrophic failure" of Keynesianism and central economic planning to "regulate" freedom. Who set the artificial interest rates and printed fiat money, thus destroying the natural, free-market pricing mechanism? (Who "flooded the markets with liquidity"?) Who guaranteed loans, and mandated bad lending practices, to firms that otherwise couldn't sustain the burden in a free market? Who wrote untold numbers of "regulations" into law, thus tilting the playing field completely in the direction of the established and govt-connected firms? Whose aforementioned, ARBITRARY, COMPULSORY actions, and countless more, decide the winners and losers in the marketplace? ANSWER: The Feds and their monetizing enablers at the Federal Reserve. Not the "free market."
A free market allocates capital according to REAL DEMAND and other REAL ECONOMIC SIGNALS. The govt allocates capital FOR POLITICAL PURPOSES, or to "CREATE DEMAND" WHERE NOT ENOUGH EXISTS to warrant said capital allocation in the first place.
"Remember how the government had to allocate capital to folks like Goldman Sachs to save us from an utter meltdown caused by the fact that folks like Goldman Sachs had done such a bad job allocating capital?"
And WHOSE CAPITAL did Goldman Sachs allocate? OTHER PEOPLE'S CAPITAL. And why was GS so careless with its risk-taking with OTHER PEOPLE'S CAPITAL? Because GS is an incestuous private-public entity backed by the Feds with a last-resort bailout using OTHER PEOPLE'S MONEY. It was unduly tempted — perversely required — to do all those ill-advised things with OTHER PEOPLE'S MONEY. Nothing about this says "laissez faire capitalism."
Oh, and the trite myth that the govt "had to" bail out Goldman Sachs "to save us from ... meltdown" has been irrefutably destroyed countless times. Oh, but let's do more of the same thing that led to the meltdown, so that we don't have to face the meltdown. Let's get a heroine fix so that we don't have to face the painful recovery. Idiotic Keynesian insanity.
You are right about one thing: if there was a free market, it would be imperfect. But, compared to the centrally-planned, Soviet-czar-run economy we have today, it would be NIRVANA for consumers, laborers, and entrepreneurs alike.
#4 Posted by Dan A., CJR on Fri 16 Sep 2011 at 06:40 PM
Solyndra is the tip of the iceberg. The controversy here is that DOE lied about doing due diligence and passed Solyndra through while intentionally delaying others that competed with DOE's officers business interests. The DOE could have safely diversified its bets with 40 small america business applicants but they blew the money on a few inside special interest applicants who paid lobby money while freezing out those small American businesses and jobs. Subpeona's will show that Lachlan Seward, of the DOE, ordered staff and consultant's to change their review criteria and findings in order to manipulate winners and losers.
Look into the ones that didn't get in because they didn't bribe the right people.
The site: http://corruptiondoe.weebly.com has the real truth about Solyndra and beyond...
It shows that: - Only campaign contributors received funding from the DOE ATVM and Loan programs and competitors to those interests were frozen out. - Key White House staff were informed of the misdeeds but they covered them up. - A criminally illegal protection investor money racket was being run by individuals in, and around, the DOE funding programs, Detroit and Goldman Sachs. - Detroit ordered all competing efforts killed off or permanently delayed. - Tesla is involved in the same influence-buying scam and financials fudging here Everybody knows about the site, above. Hundreds of thousands of people have seen it. Nobody can ignore the facts here. This was all pay-to-play.
(OK to Forward this)
#5 Posted by Dana Ports, CJR on Fri 16 Sep 2011 at 08:26 PM
So... The Dept of Energy knew that:
1. Solyndra was losing money by the millions.
2. Faced immediate bankruptcy
3. Was using a crappy and uncompetitive manufacturing process to make
4. Solar cells that nobody wants and so
5. DoE wrote a loan for more than HALF A BILLION DOLLARS that (at Obama's request)
6. Gave priority to Obama's supporter George Kaiser's foundation's loan in the event of default.
So NOW (at the behest of the Obama adminstration) when Solyndra is liquidated, the private lenders will be paid in full before the taxpayers get a nickel...
No Ryan.. There's no scandal here! Just standard venture capital risks.
#6 Posted by padikiller, CJR on Sat 17 Sep 2011 at 09:23 AM
I don't understand this part: the Post reports the $38.6 billion number as if that’s what the government is handing out to businesses. That’s misleading. That number is almost all private-sector capital backed up by a sliver of taxpayers’ money—$4 billion of government capital.
What difference does it make how much of the money is govt capital and how much is private private. Isn't the govt liable in case of default in both cases?
This seems to be a minor point in the whole issue, but I don't see the difference.
#7 Posted by BillPilgrim, CJR on Sat 17 Sep 2011 at 11:36 AM
This is obviously a complex issue, but my take, as a journalist,
is that the folks who wrote the article have either been hired or retained because they have absorbed the 'free enterprise fundamentalism' of the new far right,
and certainly this influences the choice of headline, 'balance' and lead, so, in some sense the 'new far right' has won a substantial victory.
Howard M. Romane, co-founder, Institute for Southern Studies, The Great Speckled Bird, and writer for www. thetennesseetribune.com
#8 Posted by Howard Romaine, CJR on Sat 17 Sep 2011 at 02:34 PM
I'm a reporter covering this story. The only thing I'll add is that Solyndra wasn't just any old company. It was one that the Obama administration held out as a prime example of what they were talking about:
-public-private partnership
-US innovation-driven technology
-US manufacturing and supply chain, not China
It got one of the biggest loan guarantees in the Recovery Act and even got a visit from the big man last year. And it didn't work.
So it deserves more scrutiny than if it was a lower-profile company that stumbled.
That's how I justify our coverage.
#9 Posted by Saqib, CJR on Sat 17 Sep 2011 at 04:19 PM
Not only did Solyndra "not work"... It wasn't working when Obama doled out more than HALF A BILLION DOLLARS of our money and Obama knew it wasn't "working'..
And now it turns out that the White House brokered a deal that gave priority to private lenders) one of which was a "foundation" run by one of Obama's biggest donors/frequent White House visitors) when Solyndra (inevitably) folded.
Yeah... I'd say this story rates a little ink...
But not Ryan... Nope, the man who sees nefarious action in every "Wall Street" action finds nothing to see here...
Go figure...
This Sloyndra scandal is "stimulus" in action... The government deciding to put money into a doomed operation for political reasons... How many of Obama's "green" projects have tanked (or soon will tank)?
Anybody with a few functioning neurons could tell you that solar cells are a stupid thing to make in America. The Chinese can fill the limited demand for solar cells with surplus capacity - as DoE knew going into the Solyndra loan.
This is just commie/liberal politics as usual and the results are typical. The Chevy Volt was a stupid idea. So was the EV-II. So was the EV-I. Every 10 or 15 years the government presses Detroit to develop an electric car and the result is always the same - a ridiculously expensive and thoroughly impractical ugly car that nobody wants.
#10 Posted by padikiller, CJR on Sat 17 Sep 2011 at 04:41 PM
CNN spins solar Big Time:
http://www.cnn.com/2011/US/09/17/solar.schools.california/index.html
So "cash-strapped" school districts are signing up for solar crapola that has (most optimistically) a SIXTEEN YEAR PAYBACK!?
After that mere 16 years.. the school flunkie insists that "it's pure profit after that"
Since WHEN is a school system in the "profit" business?
So "some people objected", but the point is that "the program is saving money for both the community and the school district 'at a time when we desperately need it.'"
E X C U S E M E ?
How can the taxpayers be "saving money" when the payback isn't expected for SIXTEEN YEARS?
CNN is carrying water for Obama once again...
#11 Posted by padikiller, CJR on Sat 17 Sep 2011 at 11:31 PM
I wouldn't be surprised if Solyndra got fast-tracked because of connections, but this story is being pushed HARD by the same partisans who couldn't be bothered with no-bid contracts for Haliburton, massive fraud on Wall Street and the former administration's complete subversion of regulatory responsibility at SEC, EPA, etc. It seems like most of the outraged comments are parroting Fox "News" propaganda that ignores any facts that don't fit the preferred narrative. It's kind of like deficits -- they only matter when a Democrat is in the White House.
#12 Posted by Governor Scott Walker, CJR on Sun 18 Sep 2011 at 08:34 AM
For the record, I called for Bush's impeachment here over the bailouts.
But what "facts" are there being ignored here that "don't fit the preferred narrative"?
The facts seem to be thus:
FACT 1: Solyndra was facing imminent bankruptcy when DoE approved the loan.
FACT 2: DoE bureaucrats plainly questioned the propriety of the load.
FACT 3: These same bureaucrats wrote that the White House was pressuring them to approve the load without due diligence.
FACT 4: Solyndra's manufacturing process was inefficient and uncompetitive at the time the loan was written.
FACT 5: The White House interfered to rewrite the Solyndra loan in order to give priority to private investors (including a foundation run by billionaire oil man/Wall Street financier/Obama contributor/Sixteen time White House visitor George Kaiser).
If there are some other "facts" out there, let's see them.
The libs want to sweep this Solyndra mess under the rug now because they understand how potentially damaging it is.
#13 Posted by padikiller, CJR on Sun 18 Sep 2011 at 09:23 AM
"Seems to be" in one person's mind is not a fact indeed.
#14 Posted by Mark York, CJR on Thu 22 Sep 2011 at 08:49 PM