Congressional investigators probing the Obama administration’s actions in the collapse of Solyndra have discovered that the White House’s own budget office warned against the second cash infusion for the now-defunct solar panel manufacturer. Analysts at the Office of Management and Budget also warned that the second cash infusion would violate the law. Their concerns were overridden by Jack Lew, who then headed up OMB, and subsequently got promoted to chief of staff for Barack Obama after the loss of more than a half-billion dollars in loan guarantees:
Details about the debate emerge in internal government documents. They show that Energy Department officials argued that Solyndra might be able to pull out of its downward spiral if given an emergency infusion of cash.
They also show that career OMB staffers circulated a series of e-mails emphasizing the risks of restructuring the loan. In congressional testimony last year, the agency’s deputy director suggested that career staffers made the final determination about what to do and “used their best expertise.”
The House energy committee is expected to release the results of its 18-month investigation into Solyndra this week. Its report, parts of which were obtained by The Washington Post, suggests that then-OMB Director Jack Lew let the refinancing move forward without intervening, even though some OMB analysts believed that a refinancing plan that favored private investors might violate the law. Lew is now White House chief of staff.
The analysis in January 2011 put the cost of an immediate default at $141 million, with a postponed default estimated — too low, it turns out — at $385 million. That is almost 3:1 odds on a company that couldn’t produce solar panels at a competitive price even after a huge taxpayer-financed loan. Even at that time, the OMB analysis pointed out that very big hole in the Solyndra/Department of Energy business plan.
The difference in default cost came directly from the risk produced from subordinating the taxpayers to a new round of private investors. The analyst who authored the report sent an e-mail to express her puzzlement about why the DoE would blithely surrender its senior position, especially given the risks:
Colyar said in e-mails that the Energy Department appeared to be giving away its “upper hand” in financing negotiations with private investors, creating additional risk. At the time, Solyndra had failed to meet the terms of its loan and was on the edge of bankruptcy because disbursements from the loan had been frozen.
Colyar said in one e-mail that she was “vastly confused by DOE’s decision to negotiate away their senior position in this transaction.” She also questioned whether the Energy Department underestimated how much taxpayers could recoup if the company were shut immediately and its California factory sold. The proceeds of an immediate sale would be “significantly HIGHER than DOE’s estimate,” she wrote in a January 2011 e-mail, meaning that the government “is better off liquidating the assets today than restructuring under DOE’s proposal.”
Instead of heeding her advice, Lew overrode the concerns and pushed for the second round of investors to attempt a rescue. We ended up losing nearly four times what taxpayers would have lost had Lew and the DoE cut their losses when it became clear that Solyndra was a bad investment. Why did the Obama administration take that risk? The investors in Solyndra included George Kaiser, one of Obama’s bundlers from the 2008 election.
Lew got a promotion after this decision, while taxpayers got the shaft. If that’s the incentive system in this administration, don’t be surprised to see many more Solyndras as Congress pulls back the curtain on Obama’s green-tech subsidy program, which got tens of billions of dollars from his bigger flop, the 2009 stimulus bill. Congress will have to work overtime to get a sense of just how badly those dollars were spent.