Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

The Moral of the Tale of Solyndra

Leaving aside the issue of influence via political contributions and lobbyists (as they are as yet unproven) the moral of the Solyndra debacle seems simple to me. The Federal Government should stay out of the investment business.

Solyndra was an accident waiting to happen. The company couldn’t get funding from the private sector. A hoped for public offering had been cancelled. It was apparently obvious to analysts and lenders that the company was, at a minimum, not an attractive investment and possibly not even viable. They chose to avoid providing either equity or debt capital to the company. The macro factors were compelling – in an industry where the competitors’ raw material costs were falling, Solyndra was a classic case of a company with variable costs that were simply too high.

One has to assume that the Federal Government employees responsible for doing the research on Solyndra simply lacked the technical skills to do a thorough analysis of the company’s long term (or even short term as it turns out) viability. That is the most charitable thing that can be said.

It is hard to imagine that they were so dimwitted that they were willing to risk the embarrassment of a default on a loan of over $500 million. So it is fair to say that they didn’t really believe the company would go into bankruptcy. Common sense tells me that the powers that be who were making the final decision about which ‘green’ company would receive Federal Government backing most assuredly wanted it to be a success story.

Of course, it is possible that Solyndra’s management lied to the Government. That is not uncommon in the investment world, and that is what tried and true analysts are paid to figure out. The Government was in over its head. If an analyst in the private sector had recommended a loan or an investment in Solyndra and within two years the company had gone kaput, you can be assured that the yearend bonus for that analyst would also have gone kaput. In the investment world, there is a real incentive to be hardnosed, to get the facts right and to make a decision that creates a positive return. There is no such incentive system in the Federal Government. I doubt that anyone will lose his/her job over the annihilation of $535 million of taxpayers’ hard earned money being lent to Solyndra.

So assuming that there was no sinister under-story here, the problem must lie in the fact that the Federal Government employees charged with researching the case were simply not up to the task.

And therein lies the true moral of the story. Let the Federal Government stick to its appointed knitting, and for the benefit of all the people it serves, let it stay out of the sophisticated and specialized business of investing in and lending to corporations in the private sector.

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