David R. Henderson  

Lessons from Solyndra

Signaling and Costs... The Deal Delusion...
An even more serious problem concerns the restructuring of the original Solyndra loan guarantee, a move that placed new, private investors at the front of the line in the event of a default. The result was that the government's (i.e., taxpayers') claims as a creditor were subordinated. Before the restructuring, Assistant Treasury Secretary Mary Miller wrote to Jeffrey D. Zients, deputy OMB director, and warned him that the change might be illegal. She advised the DOE to consult with the Justice Department before continuing with the plan. "To our knowledge that never happened," Miller wrote to the OMB in August 2011.

Making things even worse, a DOE stimulus adviser, Steve Spinner, whose wife's law firm represented Solyndra on the application, repeatedly pushed for the original loan guarantee to be approved. For example, Spinner wrote an email to an OMB staffer in August 28, 2009 (just before the official approval) asking, "How [expletive] hard is this? What is he waiting for? Will we have it by the end of the day?"

This is from the February Econlib Feature Article, "Lessons from Solyndra," by Robert P. Murphy.

Another excerpt:

Despite the efforts to cast Solyndra as a lone bad apple, the Department of Energy has guaranteed other renewable energy projects that later collapsed. However, even if the DOE program had always backed "winners"--meaning that no borrower ever defaulted, and so taxpayers never contributed a dime--it still would have encouraged an inefficient use of resources.

COMMENTS (3 to date)
steve writes:

May I quote Cowen?

" Krugman, however, insisted that he did not in practice favor protectionism; it is difficult for policymakers to fine tune the relevant variables. Boeing vs. Airbus is perhaps a simple example of the argument. If a government can subsidize the home firm to be a market leader, the subsidizing country can come out ahead through the mechanism of capturing the gains from increasing returns to scale."



Luiz Inacio writes:

I hear lots of criticisms about the government loan to Solyndra, but not many people talk about whether the government should be using tax payer's money to finance such risky businesses...

SheetWise writes:

So ... am I to understand that we have no working legal definition of either criminal or civil fraud if the government is involved?

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