Obamanomics, Solyndra and Crony Capitalism
By Peter C Glover
If ever there were a poster child for government ineptitude in picking winners and losers in the marketplace it’s the Solyndra scandal. Perceived by some as ‘yesterday’s story’, Solyndra is still very much news – a self-inflicted wound for the administration and a running sore for US taxpayers. Right now the IRS is fighting a courtroom battle to prevent Solyndra investors from misusing the bankruptcy laws to further sting US taxpayers.
But that’s only half of it. In an equally desperate bid to blame competitors for their failed business model, Solyndra’s backers have also lodged an unfair trading practices lawsuit against Chinese solar panel-makers. Meanwhile, a whole raft of potential ‘Solyndras’ still await receipt of their own government’s largesse as part of the administration’s ‘green deal’. And if anyone wants to know what all that means in practice a snapshot of the Nevada energy market provides it.
Not happy with hoovering up $535 million in government loans, Solyndra investors are currently looking to take advantage of a tax loophole provided to them by a government administration desperate to avoid responsibility for the Solyndra debacle. Having lodged Chapter 11 bankruptcy hearing before the relevant court in Delaware, Solyndra investors are claiming that the only real assets the company has are “tax attributes”. They amount to between $875 and $975 million in net operating losses able to reduce future taxable income. The IRS values them at just $350 million. The company had also accumulated around $12 million in solar tax credits. Solyndra investors now want the court to liquidate the business and contribute a net $6.7 million to pay its creditors just a few cents on the dollar. An emerging holding corporation – Argonaut Ventures LLC, owned by Solyndra investor and Obama-backer George Kaiser’s Foundation – would make nothing and employ nobody but would still be eligible for the lucrative Solyndra tax offsets. Nice try.
As the IRS is arguing (at time of writing) before the court, the bankruptcy laws were actually designed to give hard-pressed businesses a chance to make their business model work, not, as the Wall Street Journal pointed out, to allow “Mr Obama’s billionaire friends to sidestep a federal tax bill amounting to hundreds of millions of dollars as a result of an epic crony capitalist fiasco” and “stick it to the taxpayers twice for the same failed investment”.
Not content with their attempted misuse of the US bankruptcy laws, the Solyndra investors have lodged an equally cynical lawsuit against China-based solar panel manufacturers claiming ‘unfair trade’. Filing suit, this time in the northern California District Court on September 12, Solyndra investors are seeking $1.5 billion in compensation for “loss of business”. Solyndra’s grounds are laughable. They claim that China-based solar panel manufacturers conspired to dump cheap solar panels into the US specifically to drive Solyndra out of business. The full background to Solyndra’s claims warrants reading given the inherent virtual paranoia.
The fact is that Chinese over production and falling domestic demand did indeed lead China-based manufacturers to do what any struggling business would do in the circumstances: sell abroad at deflated prices. As a consequence, the US government took protective ‘anti-dumping’ measures. That move led Chinese solar panel manufacturers to turn to the European market. Currently, the EU is investigating claims of dumping by Chinese panel makers. Thus, the Chinese solar panel manufacturers, far from targeting Solyndra, are simply ‘dumping’ on everyone. But hey, the investors in this doomed project will try anything to get their money back. Taxpayers have no such relief.
All told, Solyndra investors are currently attempting to scam a further $1.6 billion from a combination of the US taxpayer and Chinese solar panel manufacturers – as a ‘reward’ for their poor investment in a bad business model.
Which brings us to how the Obamanomics-sponsored ‘Solyndra syndrome’ is playing out in Nevada. In December 2011, the US DOE announced a $737 million loan to Tonopah Solar Energy to build a new solar facility in Harry Reid’s Nevada constituency. It’s a facility expected to create just 45 permanent jobs. Claims that this would cost the taxpayer $16 million per job are not exactly true. The facility would probably create hundreds of construction jobs and possibly 4,000+ other ‘indirect’ jobs. But what makes the plan viable on paper is the market-skewing deal that has sewn up a 25-year purchase agreement with NV Energy purchasing 100 percent of the electricity generated.
The Tonopah Solar investment is axiomatic of a raft of other similar stimulus-funded risky investments in Nevada. According to Andy Matthews, President at the Nevada Policy Research Institute: “Since 2009, the federal government has funnelled more than $1.3 billion into geothermal, solar and wind projects in Nevada.” Matthews adds that these investments are projected to create “just 288 permanent, full-time jobs. That’s an initial cost of over $4.6 million per job.” It doesn’t take an economist to work out that these figures don’t add up to value for taxpayers.
Matthews points out how the Silver State North solar plant is getting $50 million in stimulus tax credits, while employing just two full-time employees, and the Copper Mountain solar plant in Boulder City, employing just five full-time staff, received over $40 million in federal funds. Nevada Geothermal Power, which got $145 million in government subsidies, is also, according to auditors, on the “verge of failure”. But that’s not even the full picture. Matthews provides figures to show how these federal investments “are actually increasing prices in Nevada and making the state less attractive to job creators.” He cites the chief reason as, “State-mandated renewable energy costs up to four times as much as fossil fuels like coal and natural gas.”
If the president wins the coming election, the United States taxpayer can expect Keynesian Obamanomics to continue to cast a long shadow on the US economy, as the crony capitalism endemic in the ‘Solyndra Syndrome’ scandal reveals. But the real kicker – as the entire history of government intervention in the free market shows – is that taxpayers, not private investors, are the real losers.