When the LA Times published this story late last night, it sounded as if they had discovered a smoking gun that tied Barack Obama directly to the decision to restructure the loan to Solyndra while being warned that the company was failing. The article instead reveals that Obama got personally briefed by his economic advisers on overall concerns about his plans to jump-start job creation in the green-tech sector through billions in loan guarantees. They warned, as one source told the reporters, that “a colossal failure” was completely predictable:
Long before the politically connected California solar firm Solyndra went bankrupt, President Obama was warned by his top economic advisors about the financial and political risks of the Energy Department loan guarantee program that boosted the company’s rapid ascent.
At a White House meeting in late October, Lawrence H. Summers, then director of the National Economic Council, and Timothy F. Geithner, the Treasury secretary, expressed concerns that the selection process for federal loan guarantees wasn’t rigorous enough and raised the risk that funds could be going to the wrong companies, including ones that didn’t need the help.
Energy Secretary Steven Chu, also at the meeting, had a different view. Under pressure from Congress to speed up the loans, he wanted less scrutiny from the Treasury Department and the Office of Management and Budget, or OMB.
Nothing in the article suggests that Obama was personally briefed at the time about Solyndra’s finances. Clearly, though, Summers and Geithner understood the financial and political risks associated with big loan guarantees for companies that couldn’t compete on their own, and argued from the beginning that loan guarantees were the wrong way to incentivize growth. Chu wanted to have even less oversight on loan issuance, and his Energy Department pushed hard to eliminate Treasury and OMB reviews of the individual deals — even though the Energy Department very obviously lacks the expertise to properly analyze the financial stability of loan recipients.
So why is this story significant? First, it shows that Obama had been told about the possibilities of failure in this program but decided to continue with it anyway, a reckless decision, in retrospect at least. And, maybe not just in retrospect:
The program that funded Solyndra is set to expire at the end of the month, and the White House is pushing to provide more green-energy loan guarantees through other initiatives and keep the U.S. competitive globally. The Chinese government, the Energy Department says, last year committed $30 billion to solar-panel manufacturers.
Despite consistent opposition within his own economic team and the “colossal failure” of Solyndra, Obama wants to throw billions of dollars more into risky loan guarantees to the green-tech industry. That’s not just reckless, it’s nearly insane, politically and economically. We gave $38 billion to this same sector in the stimulus package, and that wasn’t enough to make Solyndra competitive even after getting 3% of all the disbursed funds in that bloc.
Politicians don’t pick winners and losers with taxpayer cash. They pick losers, because winners don’t need subsidies in the first place. Government subsidies go to market losers in the hope that investment can turn them into winners, but that’s almost always a bad bet — and in Solyndra’s case, that was obvious from the start, which is why investor George Kaiser’s connection to Obama as a fundraiser seems to have been the most important factor in getting that bet placed.