In Case You Missed It: Obama Advisors Raised Warning Flags Before Solyndra Bankruptcy
Obama Advisors Raised Warning Flags Before Solyndra Bankruptcy
From Los Angeles Times
By Tom Hamburger, Kim Geiger and Matea Gold
September 26, 2011
Long before the politically connected California solar firm Solyndra went bankrupt, President Obama was warned by his top economic advisors about the financial and political risks of the Energy Department loan guarantee program that boosted the company’s rapid ascent.
At a White House meeting in late October, Lawrence H. Summers, then director of the National Economic Council, and Timothy F. Geithner, the Treasury secretary, expressed concerns that the selection process for federal loan guarantees wasn’t rigorous enough and raised the risk that funds could be going to the wrong companies, including ones that didn’t need the help.
Energy Secretary Steven Chu, also at the meeting, had a different view. Under pressure from Congress to speed up the loans, he wanted less scrutiny from the Treasury Department and the Office of Management and Budget, or OMB.
The divisions foreshadowed a question that has emerged since Solyndra’s bankruptcy: Was the program’s vetting process thorough enough? The disagreements also spotlighted an issue that has confronted Obama since he took office: What is the appropriate role of the government in stimulating the private marketplace?
Skeptics, noting that taxpayers could now be on the hook for $527 million the federal government loaned Solyndra, said the administration would have been better off making greater use of market incentives, not individual company loan guarantees.
“It was completely predictable that there would be a colossal failure among the bets,” said one person familiar with the internal debate. …
In late October 2010, administration officials took their opposing views directly to Obama. In preparation, a memo was drafted by Summers, who remained wary of the program, and two others who were more supportive: then-energy advisor Carol Browner and Ron Klain, then chief of staff to Vice President Joseph Biden. The memo laid out their different concerns and options to fix a “broken process” for getting loans approved.
Warning that the program could “fail to advance your clean-energy agenda” by investing in companies that didn’t need help, the memo proposed alternatives, including diverting the funds into grants available to the entire industry. By contrast, Energy Department officials wanted to end the “deal by deal” reviews by the Treasury and OMB, the memo said. …
But government audits in recent years have found problems in the implementation of the program.
A July 2010 report by the Government Accountability Office found that the department committed to back the loans without completing required studies of market, legal and technical issues.
“Without this information, it is not clear that the program could have fully evaluated the risk of the loans it committed to,” said Frank Rusco, an analyst for the GAO.
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