Fraud

Can you think of a better term to describe this?

In Solyndra’s case, outside auditors from PricewaterhouseCoopers (PWC) found that condition to be dire. “The company has suffered recurring losses from operations, negative cash flows since inception, and has a net stockholders’ deficit,” the PWC accountants concluded. Even with the gigantic Obama loan, Solyndra was such a basket case that PWC found “substantial doubt about its ability to continue as a going concern.”

The “going concern” language is not boilerplate. The language is absent from the statements of many companies that actually end up going bankrupt. Auditors reserve it for the hopeless causes — like Solyndra.

With no alternative if they wanted to make a play for market financing, Solyndra’s backers disclosed the auditors’ bleak diagnosis in March 2010. The government had thus been aware of it for two months when President Obama made his May 26 Solyndra speech — the speech Solyndra backers were clearly hoping would mitigate the damage.

As president, Obama had a fiduciary responsibility to be forthright about Solyndra’s grim prospects — in speaking to the American taxpayers whose money he had redistributed, and to the American investors who were about to be solicited for even more funding. Instead, he pulled a Martha Stewart.

The president looked us in the eye and averred that, when it came to channeling public funds into private hands, “We can see the positive impacts right here at Solyndra.” He bragged that the $535 billion loan had enabled the company to build the state-of-the-art factory in which he was then speaking. He said nothing about how Solyndra was continuing to lose money — public money — at a catastrophic pace. Instead, he painted the brightest of pictures: 3,000 construction workers to build the thriving plant; manufacturers in 22 states building an endless stream of supplies; technicians in a dozen states constructing the advanced equipment that would make the factory hum; and Solyndra fully “expect[ing] to hire a thousand workers to manufacture solar panels and sell them across America and around the world.”

Not content with that rosy portrait, the president further predicted a “ripple effect”: Solyndra would “generate business for companies throughout our country who will create jobs supplying this factory with parts and materials.” Sure it would. The auditors had scrutinized Solyndra and found it to have, from its inception, a fatally flawed business model that was hurtling toward collapse. Obama touted it as a redistribution success story that would be rippling jobs, growth, and spectacular success for the foreseeable future.

It was a breathtaking misrepresentation. Happily, it proved insufficient to dupe investors who, unlike taxpayers, get to choose where their money goes. They stacked what the administration was saying against what the PWC auditors were saying and wisely went with PWC. Solyndra had to pull its initial public offering due to lack of interest.

It actually gets worse.

But fraud doesn’t have to be fully successful to be a fraud, and this one still had another chapter to go. As the IPO failed and the company inevitably sank in a sea of red ink, Solyndra’s panicked backers pleaded with the administration to restructure the loan terms — to insulate them from their poor business judgment, allowing them to recoup some of their investment while the public took the fall.

It should go without saying that the duty of soi-disant public servants is to serve the public. In this instance, the proper course was clear. As structured, the loan gave the public first dibs on Solyndra’s assets if it collapsed, and, as we’ve seen, the law requires it. There was no good reason to contemplate a change.

In addition, as Andrew Stiles relates, OMB had figured out that there was no economic sense in restructuring: Solyndra was heading for bankruptcy anyway, and an immediate liquidation would net the government a better deal — about $170 million better. The case for leaving things where they stood was so palpable that OMB openly feared “questions will be asked” if DOE proceeded with an unjustifiable restructuring. So, with numbing predictability, the Obama administration proceeded with an unjustifiable restructuring. In exchange for lending some of their own money and thus buying more time, Solyndra officials were given priority over taxpayers with respect to the first $75 million in the event of a bankruptcy — the event all the insiders and government officials could see coming from the start, and that hit the rest of us like a $535 billion thunderbolt last week.

The administration’s rationalization is priceless. According to DOE officials, the restructuring was necessary “to create a situation whereby investors felt there was a value in their investment.” Of course, the value in an investment is the value created by the business in which the investment is made. Here, Solyndra had no value. Investors could be enticed only by an invalid arrangement to recoup some of their losses — by a scheme to make the public an even bigger sap.

How can this administration's supporters possibly justify this behavior?  The mind wanders as to how they would describe the entire fiasco if a Republican administration were at the helm.

I will be fascinated to see how all this plays out.  It is one thing for an administration to be bumbling, inept and continue to have losing policies as law.  This, however, seems to go far beyond that.

Comments

[Donald Mamula]

Crony Capitalism....meets Gangster Government.

BOHICA.