GraniteGrok

Yesterday I put up a post about the Feds, as part of their Stimulus / Green technology push, picking one company (Solyndra) over others (OptiSolar, DayStar).  At the time, I wrote this:

The element of risk, vis-a-vis the typical Venture Capital model, is put aside.  No financial arrangements were mentioned but was the loan at below marketplace rates for "bailout purposes"?  If so, the Government has distorted the marketplace with a one-two, as Solyndra may now be able to compete on a tilted play field.

Well, it seems there was more than just one picked over another; this may not confirm my fears but certainly keeps me cynical (emphasis mine):

1. By what process was Solyndra chosen and why?

2. What are the terms of the loan guarantee? Solyndra went into the private equity market last year to raise funds for this project with suboptimal results. So now Joe Q. Public gets to bet on it?  We really need to know what price Solyndra's current investors paid for their equity piece and what really were Solyndra's other financing options.  If the government was the only funder at this point, then taxpayers need to know what makes this company so special.  And if there were other financing options, taxpayers need to know why their dollars were needed at all.

3. Get ready for the Goldman Sachs chatter, especially after what happened with AIG. Solyndra's main competitor is a company by the name of First Solar. Rumors swirled last year that Goldman, which had been the investment banker for First Solar, downgraded First Solar to benefit Solyndra. This link also says that Goldman was out raising money for Solyndra last year. And Goldman was the exclusive advisor to Solyndra for the government guaranteed loan. How much of a fee did Goldman earn for arranging the financing and is the government financing actually rescuing a bad investment for Goldman's clients?

4. Goldman Sachs downgraded the solar industry last year.  Barrons reports from October 2008:

Solar stocks are trading sharply lower this morning after Goldman Sachs analyst Michael Molnar declared he has become cautious on the solar group, “as less generous subsidies combined with a wave of supply pose a real risk.”

Molnar asserts in a research note that the risk of oversupply in the solar market “will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market.” He thinks that “liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future givne fears of their ultimate cost in a bad world economy.”

As supply increases, he contends, prices will have to “adjust strongly downward to generate demand.” He thinks that trend will lead to below-consensus estimates for module manufacturers and compressed valuations for stocks in the sector.

Since Goldman was advising Solyndra on this project, did anyone in Chu's Department of Energy question why taxpayers are guaranteeing the debt on a new solar plant for a market that Goldman's own analysts have downgraded? Has President Obama's election changed Goldman's view on alternative energy to the point that it is now recommending the sector?

5. Solyndra has big name investors ($600 million invested to date) who will benefit from the deal. Such names as Abu Dhabi, Richard Branson of Virgin, and the Walton family (as in Wal-Mart, through Madrone Capital Partners.) These guys couldn't arrange traditional debt financing? If not, why? Congress went nuts when Chrysler's private equity backer asked for taxpayer money. Why is this different?

To me, this fundraising looks more like a bailout then an investment in a shiny new technology. And if it's a bailout, then the same conditions imposed on other bailed-out companies should apply.

More to come I hope.

This is why Government should NOT be in charge of the marketplace - the people who play in these markets know better what is going on than government employees - it IS how they make their living.  It also means that certain industries and certain technologies, whether they would be winners or not, are losers.  And by propping up companies that otherwise should go belly up, taxpayers lose twice (via their taxes and a lower standard of living as more productive companies may be thrown under the bus).