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Another Solyndra?

A second company that was a recipient of Department Of Energy loan guarantees for “green technology” has filed for bankruptcy protection:

The White House is facing fresh political headaches over energy loans as a second Energy Department-backed company goes bankrupt and Republicans prepare to subpoena White House internal communications on the failed solar company Solyndra.

Beacon Power Corp., the energy storage company that received a $43 million Energy Department (DOE) loan guarantee last year, filed for bankruptcy over the weekend, prompting a fresh wave of GOP criticism of the embattled DOE loan program.

The filing comes two months after California solar-panel maker Solyndra — which received a $535 million guarantee in 2009 — went belly-up.

The Republican National Committee highlighted Beacon’s bankruptcy in a stream of tweets Monday, while the GOP’s point man on the Solyndra probe, Rep. Cliff Stearns (Fla.), called out President Obama directly.

Stearns said Beacon’s woes are a “sharp reminder” that the stimulus has fallen short, adding: “Unfortunately for the American taxpayers, I am deeply concerned that other DOE programs could follow, which goes to the heart of the president’s flawed economic program.”

Stearns and others have for weeks focused their investigation on the Energy Department’s February decision to restructure the Solyndra loan guarantee in early 2011, arguing the provision “subordinating” the taxpayer interest to those of private investors violates the 2005 energy law that established the DOE loan program.

There don’t appear to be the same political ties, but that doesn’t remove the problems with the whole idea of government venture capital that I noted almost two months ago:

A venture capitalist is risking money that’s been entrusted to him, and he owns fiduciary duties to his investors that, if violated, could subject him to personal liability for losses. Of course, he also stands to benefit greatly if he bets right, both from the profit his investment earns and from the additional investors he’s likely to attract additional investors. These rewards of success and punishments of failure serve, hopefully, to give him the incentive to choose his investments carefully, targeting companies that are likely to most likely to make a profit rather than those that are politically popular or politically connected.

None of that exists when the investment decisions are being made by government.

Additionally, who suffers if a government investment decision goes wrong? Not the politicians who supported it, not the bureaucrats who made the decision, and not even the owners of the company who received the loan. the only people who are going to suffer are the taxpayers who are out half a billion dollars. And that’s the problem with this entire program. The government is playing with other people’s money, and has no incentive to ensure that they’re making wise investment decisions. That’s why this is a job for the market, not the Department of Energy.

That’s the real lesson of Beacon Power and Solyndra, and the companies that are likely to follow in his footsteps.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. john personna says:

    If Solyndra had been $45M, we wouldn’t be having this conversation.

    I don’t think either of these deals were criminal, but they probably were misguided. The old military-industrial model for development was to give grants for cutting edge development through things like DARPA, and then to actually buy “deliverable” like stealth fighters when they were ready.

    The alternate path here might have been to do more solar technology research grants, and then to out and out buy X megawatts of cells for the roofs of government buildings.

    That might have been enough to keep US companies up against Chinese dumping though, or it might not.

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  2. Ernieyeball says:

    “If Solyndra had been $45M, we wouldn’t be having this conversation.”

    If the Moon was made of Green Cheese…Oh damn, we know it’s not!!!

    Like or Dislike: Thumb up 2 Thumb down 0

  3. john personna says:

    @Ernieyeball:

    You miss the point. It’s hardly “another Solyndra” at 10x less cost.

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  4. Ernieyeball says:

    Yeah. I should be glad it’s only $45,000,000.00 of MY MONEY that was “misguided” down the Green Toilet this time.
    And since “we would not be having this conversation” it might not get any press at all!

    Like or Dislike: Thumb up 2 Thumb down 2

  5. john personna says:

    @Ernieyeball:

    Sure, $45M here, $45M there is not going to make one lick of difference to a $1.6T deficit.

    Go look for some real money.

    Like or Dislike: Thumb up 1 Thumb down 1

  6. john personna says:

    (BTW, I love the way you listed that down to cents on the dollar, you idiot.)

    Like or Dislike: Thumb up 1 Thumb down 1

  7. Tsar Nicholas says:

    Looks as though Obama’s “green jobs” initiatives in fact will create a lot of jobs: for bankruptcy paralegals.

    Like or Dislike: Thumb up 1 Thumb down 1

  8. Ernieyeball says:
  9. Gustopher says:

    Given that the point of a loan guarantee is to ensure a loan that the market would otherwise find too risky, why are we surprised that companies go belly up? The point is to stimulate some speculative investment and research into these fields. If the loans were always repaid, there wouldn’t be any need for the government to be involved at all.

    Complain that you don’t want the government involved if you want, but it is missing the point to complain that the government is making bad investments in this.

    Like or Dislike: Thumb up 2 Thumb down 0

  10. @Gustopher:

    Complain that you don’t want the government involved if you want,

    That is exactly what I’ve been saying since I started writing about Solyndra this summer.

    Like or Dislike: Thumb up 0 Thumb down 1

  11. Ben Wolf says:

    Additionally, who suffers if a government investment decision goes wrong?

    Who cares? Not a penny of the money comes out of your or anyone else’s pocket. That you continue to think in terms of a revenue-constrained government after being repeatedly corrected speaks volumes about your ideological bent.

    Like or Dislike: Thumb up 1 Thumb down 0

  12. Whether it comes from tax revenue or borrowing is irrelevant. The argument is the same. Again, the point is that this isn’t something government should be doing to begin with.

    Like or Dislike: Thumb up 0 Thumb down 1

  13. Ben Wolf says:

    @Doug Mataconis:

    Whether it comes from tax revenue or borrowing is irrelevant. The argument is the same. Again, the point is that this isn’t something government should be doing to begin with.

    Doug, buy a U.S. bond with cash, or pay your tax liabilities with cash. The government doesn’t put it in a vault somewhere until HUD’s budget comes up for review, the government destroys it. Do you get it now? Do you understand? When the government spends it just credits accounts. End of story.

    Now explain to me why government shouldn’t be making loans or grants to the private sector, rather than assuming your opinion is an argument.

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  14. Ben, I refer you to the long except in the post, and the link that it was taken from

    Like or Dislike: Thumb up 0 Thumb down 1

  15. Ben Wolf says:

    @Doug Mataconis: Well let’s look at that excerpt:

    Additionally, who suffers if a government investment decision goes wrong? Not the politicians who supported it, not the bureaucrats who made the decision, and not even the owners of the company who received the loan. the only people who are going to suffer are the taxpayers who are out half a billion dollars. And that’s the problem with this entire program. The government is playing with other people’s money, and has no incentive to ensure that they’re making wise investment decisions. That’s why this is a job for the market, not the Department of Energy.

    Your entire argument is based on government wasting “other peoples’ money”, when it has been repeatedly pointed out to you that what government spends doesn’t belong to anyone. It comes out of thin air because that’s what fiat currency is, something created and destroyed as government desires. No one’s money gets wasted, which completely eviscerates your objection to government investment.

    Like or Dislike: Thumb up 1 Thumb down 0

  16. john personna says:

    @Ernieyeball:

    Exactly.

    You did notice that solar and wind were small change on your own list, right?

    Like or Dislike: Thumb up 1 Thumb down 0

  17. john personna says:

    We can always return to the deep irony of this being typed, on the internets:

    Again, the point is that this isn’t something government should be doing to begin with.

    You do know that if they hit the similar “long ball” with solar as “cheap for everyone” as bandwidth has become, that transforms our society.

    Right?

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  18. john personna says:

    (The ROI on DARPA internet investment has to be the highest single return … since Chris Columbus got money for 3 ships.)

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  19. Yes, DARPA. A DoD agency project originally designed to create a method to maintain command, communications, and control in the event of nuclear war. Not some start up in Palo Alto under private ownership. Two different animals

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  20. john personna says:

    @Doug Mataconis:

    The internet was actually funded as an open, university-level, information sharing network to speed overall technological development. It was never used or deployed as part of the military information system.

    Yes, DARPA. A DoD agency project originally designed to create a method to maintain command, communications, and control in the event of nuclear war.

    Actually that’s a compelling story, but a myth. There is wall-to-wall documentation on the Internets themselves(*), but I recommend “where wizards stay up late” as a good book length treatment.

    The really amazing thing is the number of 1940s geniuses who saw the internet in the future.

    * – the plural is a joke for those who know the above history.

    Like or Dislike: Thumb up 1 Thumb down 0

  21. Still, different from the situation here where private companies are receiving loans they wouldn’t otherwise thanks to government intervention.

    If they can’t get loans in the private market, then that says all that needs to be said about their viability

    Like or Dislike: Thumb up 1 Thumb down 1

  22. john personna says:

    @Doug Mataconis:

    That’s why I said up top that I preferred the DARPA model, which is grants for basic research and then purchase agreements for the resulting tech.

    Of course, ordering a gigawatt of solar cells for placement on say Highway Patrol stations is a shaping of the market. We’d do it though because we are gambling for that day when we need a lot of domestic and low-pollution energy production.

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  23. Ernieyeball says:

    @Ben Wolf: Ben Sez: “It comes out of thin air because that’s what fiat currency is, something created and destroyed as government desires.”

    Next April 15th I’ll be sendin’ the IRS a big bottle of Thin Air and a note that sez “Ben Wolf said this will cover my 2011 Federal Income Tax liability.” It would be neat if I could give them yer address too!

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  24. Ernieyeball says:

    More chump change.

    “..the renewable power industry has become addicted to federal subsidies and probably can’t stand on its own without them. Last year alone, these tax breaks cost the Treasury $7 billion.”
    Or $7,000,000.000.00

    http://reason.com/blog/2011/11/02/getting-a-lead-balloon-aloft-i#comments

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  25. john personna says:

    @Ernieyeball:

    You might have missed it, and I should have mentioned it in this thread, but I actually oppose all energy produciton subsidies. A couple billion for R&D is OK with me.

    But as you’ve actually shown the production subsidies are huge, and the oil industry gets the lion share of them.

    You just mentioned $7B for renewables? Earlier you noted $81B, ten times as much, for oil and ethanol.

    Would you join me to remove them all? I’m sure you know that most on the right want to keep those big oil subsides, and just squawk all night about the smaller green projects …

    Like or Dislike: Thumb up 1 Thumb down 0

  26. Ernieyeball says:

    @john personna: JP sez: (BTW, I love the way you listed that down to cents on the dollar, you idiot.)

    Why would you want an idiot to join you? Kiss my shiny metal ass!

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  27. john personna says:

    @Ernieyeball:

    I did notice that you keep up those stupid “.00″ enumerations.

    You do know that those can’t possibly be correct, right?

    See “digits of accuracy” and “Benford’s law.”

    You idiot ;-)

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