The news is coming in fast and furious on the Solyndra scandal, which is now looking like it may become one of the prime campaign issues in 2012. In addition to the revelation that the Obama administration pressured the OMB to approve the loan guarantees to Solyndra in order to preserve Vice President Biden’s photo op, more details are coming out about the Solyndra’s collapse, and it looks increasingly like this was one of the most crooked government boondoggles ever. The details are so bad, the mainstream media is now giving them extensive coverage. I’ll give you the conclusion up front: when it was obvious in February 2011 that Solyndra was going to go under and someone was going to take a financial bath, the Obama administration ensured that friends and donors of Barack Obama were protected while the American taxpayers were left out to dry.
For example, ABC news is reporting that DoE officials warned before the loan was even approved (in 2009) that Solyndra would go bankrupt in September 2011, a prediction which turned out to be 100% accurate. The Obama administration ignored this warning and pressured the OMB to approve a loan to a company founded by one of President Obama’s biggest bundlers, George Kaiser, who visited the White House 16 times in the last two years on behalf of Solyndra. In the wake of Congressional hearings today, it was revealed that it was obvious that Solyndra was going to go under and that someone was going to take a bath on the entire project. In order to delay the PR debacle, the DoE secured bridge financing in the amount of $75M. In exchange for this financing, the DoE allowed the taxpayers’ interest to be subordinated to the interests of the private investors in bankruptcy.
UPDATE: Via Ace, Morgan Griffith (R-VA) drills the inevitable fall guy for this fiasco, Jonathan Silver, on whether the subordination violated the law:
Oh hey, you’ll never guess who the private investors whose interests got put ahead of the taxpayers were! It turns out it was an investment vehicle called Argonaut Ventures I, LLC. And who is Argonaut Ventures?
Two of Solyndra’s largest investors are Argonaut Ventures I, L.L.C. and the GKFF Investment Company, LLC. Both firms are represented on the Solyndra board of directors by Steven R. Mitchell (see Solyndra S-1 page 119). Both are investment vehicles of the George Kaiser Family Foundation of Tulsa, Oklahoma.
George Kaiser was a bundler for President Barack Obama in 2008 election. The Daily Caller has done an excellent job of establishing that Mr. Kaiser visited the White House 16 of the 20 times that Solyndra investors or management visited there. From the Daily Caller (emphasis mine):
The DoE is attempting to defend this transaction by claiming that without the financing, the company would have had to liquidate in February, which would have somehow resulted in less money for the taxpayers. Megan McArdle, who is an Obama voter who doubts there is actual corruption here, does an excellent job of destroying that contention (and outlining how disastrously indefensible this deal was from start to finish) in this post. The money shot:
Last February, there was a hail-mary financing round in which the firm raised $75 million. But to secure that deal, the administration had to agree to take a back seat to the new investors. Today, the DOE’s Silver argued that this was the right decision, because quitting then would have meant liquidation, while now it can be reorganized as a going concern. Mr. Silver knows more about Solyndra’s operations than I do, of course, but I am struggling to see how it can be “more valuable” as a going concern manufacturing products that cannot be sold at a profit. This is not a case of a company that has crippling debt or legacy costs, or a temporary cash flow problem, which can be resolved in bankruptcy. It seems to have a permanent structural gap between the cost of manufacturing its products, and the price at which people are willing to buy them.
So what? I hear you cry. Well, for those of you who did not have to take several semesters of accounting, an NOL carryforward allows you to use losses from past years to reduce your taxable income in future years. So if you lose $100,000 in one year, but make $300,000 the year after, you can sort of average them together, and only have to pay taxes on $200,000. (I’m simplifying madly, but this is the general idea.)
These are not supposed to carry through bankruptcy, but in some circumstances they can. Krasting is suggesting that the only reason another company would buy Solyndra is to use its NOLs as a tax shelter.
That’s certainly a good deal for the creditors in line ahead of the government; depending on the price another company is willing to pay for those NOLs, they may get all their money back. But even if DOE gets some money back from the sale, this is not a good deal for the government, because if Krasting is right, 100% of the value of the sale comes from foregone tax revenue. (To be sure, that’s a big if–but it’s all too plausible.) Adding another nine months of losses to the books might have upped the value of the firm to a potential buyer . . . but only because it was transferring even more money out of the government’s pocket and into the pocket of private firms.
What is increasingly clear is that at no point in this entire farce did the Department of Energy give the first thought to the investment provided by the United States taxpayers – and at every opportunity Obama’s political buddies and donors were allowed to benefit from questionable calls from the DoE. I suppose it’s possible, as McArdle believes, that this was merely a coincidence and that no corruption was present, but it’s looking less and less likely every minute.