ABC News yesterday reported a few interesting facts about the Obama administration’s half billion-dollar loan to now defunct solar manufacture Solyndra, who is now being raided by the FBI. That aside, below are five reasons why the federal government should exit the finance business.
First, the government loaned Solyndra money at a really, really low interest rate—a mere 1.025 percent quarterly. In fact, this was the lowest rate provided for any green energy project.
Second, this low rate was in spite of “red flags” about the risk of investing in Solyndra. One outside rating agency rated Solyndra only a B+ and another rated Solyndra only as “Fair” for credit worthiness.
Third, Obama’s Department of Energy announced the loans before the due diligence was complete and even after auditors raised concerns. But this was not for lack of attention because even the President visited the plant and praised Solyndra as an example of the future of energy.
Fourth, according to ABC News, “Solyndra’s most prolific financial backer is George Kaiser, an Oklahoma oil billionaire who was a bundler of campaign donations for Obama’s 2008 race. Kaiser’s Argonaut Ventures and its affiliates have been the single largest shareholder of Solyndra, according to SEC filings and other records.” This connection alone should have caused pause for the federal government when considering an expedited loan arrangement.
And last, and in my mind, by far the worst, Kaiser and his Argonaut Ventures are first in line to recoup their investment in Solynda in bankruptcy proceedings. As ABC News explains, “Energy officials confirmed this arrangement, saying that private investors including Kaiser would first recoup their $75 million, then the U.S. government would have a chance to recover $150 million of its investment. If any money is left, the private investors and the U.S. government would divvy up the remainder in equal shares.”
In sum, the Obama administration rammed through a half billion loan on very favorable terms to a shaky company, run by a George Kaiser, one of President Obama’s largest fundraisers. If Kaiser and his company made money with Solyndra, they would keep the profits and if Solyndra failed, as in this case, they still get their money back while the taxpayer is left holding the bag.
This is one example of what’s wrong with crony capitalism. With Solyndra, the Obama administration, using taxpayer dollars, insulated the private investors from any risk. For Obama fundraiser George Kaiser, it was a no lose situation. For the American taxpayer, it’s no win.
As this situation with Solyndra shows us, there is no reason the federal government should be in the business of loaning companies money. There were good reasons private firms didn’t loan Solyndra the $500 million—reasons that the Obama administration overlooked because Solyndra was a politically correct business.