On Solyndra

A few days ago Solyndra, a Bay Area maker of industrial solar panels, announced plans to file for bankruptcy.

From the L.A. Times:

It wasn’t just a blow for the company’s 1,100 laid-off employees or the investors who have pumped millions into the venture. It called into question the Obama administration’s entire clean-energy stimulus program.

Two important questions are raised by Solyndra’s failure: Should the government be in the business of picking winners and losers by providing loan guarantees to risky energy ventures? And is Obama using stimulus funds to reward his political contributors?

Now — to be clear — this isn’t solely Obama’s problem. George W. Bush, Bill Clinton, and many other administrations both in America and overseas have had lots of troubles with crony capitalism. Obama is by no means the worst next to twenty years of subsidised Japanese zombification.

So just what is the problem with crony capitalism, and with Solyndra in particular? Personally, I am the biggest supporter of solar technology out there. In my view, transitioning to solar energy is potentially the best thing that could happen to the US economy for reasons of energy independence, minimising carbon emissions, long-term sustainability, decentralisation and so forth. So I have no problem with solar energy, and I have no problem with the government supporting research into solar energy. But I still think this was a bad investment. It wasn’t supporting basic research, only a manufacturing process that was unviable in the market.

When it comes to marketable products, only the people out in the economy know what they want, and what they want to spend their money on. That’s why when government tries to pick winners and losers, it very often gets it totally and stupendously wrong.

From NBC:

Solyndra was touted by the Obama administration as a prime example of how green technology could deliver jobs. The President visited the facility in May of last year and said  “it is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world. And you guys all represent that.”

And why wasn’t Solyndra a winner.

From BusinessWeek:

All told, Solyndra raised $1.1 billion from private sources. The extra federal support ended up having the well-intended but unfortunate effect of letting Solyndra ramp up manufacturing in a hurry, even as evidence was emerging that the company had badly misread the changing economics of the solar panel market. A few years ago, prices for the silicon wafers used in most flat solar panels were soaring. Solyndra proposed building an entirely different panel, using cylindrical tubes coated with thin films of copper-indium-gallium-selenide that would pick up light from any direction.

In funding documents, Solyndra insisted that its tubes would be far cheaper than the silicon alternative. No such luck. Silicon prices have plunged nearly 90 percent from their peak in 2008, making conventional panels the better bargains.

So the government backed the wrong player, whose business model wasn’t economically viable. For the system to work, economically viable ideas have to succeed, and unviable ones have to be allowed to fail, and with government favouritism in the market, that just doesn’t work. Now that doesn’t mean to say that I don’t believe in some government role. In my view, the role of government is to create a level playing field for a free market to exist. Supporting basic research is the right role for the government in solar, so that solar efficiencies can be increased to a level where solar can compete on a level playing field with coal and oil.

Let’s move away from Solyndra (which is really a very small example), and onto the main target: the global financial system.

From Bloomberg:

Would you give money to a compulsive gambler who refused to kick the habit? In essence, that’s what the world’s biggest banks are asking taxpayers to do.

Ahead of a meeting of the Group of Seven industrialized nations’ finance ministers in Marseilles this week, bankers have been pushing for a giant bailout to put an end to Europe’s sovereign-debt troubles. To quote Deutsche Bank Chief Executive Officer Josef Ackermann: “Investors are not only asking themselves whether those responsible can summon the necessary willpower … but increasingly also whether enough time remains and whether they have the necessary resources available.”

Unfortunately, he’s right. As Bloomberg View has written, Europe’s leaders — particularly Germany’s Angela Merkel and France’s Nicolas Sarkozy — are running out of time to avert disaster. Their least bad option is to exchange the debts of struggling governments for jointly backed euro bonds and recapitalize banks. European banks have invested so heavily in the debt of Greece and other strapped governments, and have borrowed so much from U.S. institutions to do so, that the alternative would probably be the kind of systemic financial failure that could send the global economy back into a deep recession.

But the problem is the destructive and failed nature of the financial system itself. If government doesn’t allow banks that made bad decisions to be punished by the market, then the bailed-out zombie banks can rumble on for years, parasitising the taxpayer in the name of ever-greater bonuses for management, while failing to lend money, create new employment, or help the economy grow.

The global financial system isn’t working because there are fundamental structural problems with the global economy. These include over-leverage, the agency problem, trade deficits, failed economic planning, massive debt acquisition, Western over-reliance on foreign oil and goods, military overspending, systemic corruption, fragility and so forth. Stabilising the global financial system merely perpetuates these problems. The market shows that it needs to fail — preferably in a controlled way so that real people don’t get hurt — so that we can return to experimental capitalism, where sustainable ideas prosper, and unsustainable ideas don’t.

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25 thoughts on “On Solyndra

  1. I saw a link posted elsewhere to a local ABC newsite… which revealed that the Solyndra founders were big financial contributors to Obama. So yup, it was just another example of crony capitalism… aka payback bitchez …

  2. Hi,

    I think this fragment from BI article summarizes it all:

    Obama: The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services.

    Mish: That is lie number 4. The primary purpose of the American Jobs Act is simple: To keep one person (namely President Obama), in his job.

    Read full article at: http://tinyurl.com/3f4b7ob

  3. Mish’s key point is this:

    Banks and bondholders should take a hit. Banks are not going to lend anyway so bailing them out at the expense of taxpayers is both morally and economically stupid. End the bailouts, all of them, and prosecute fraud, the higher up the better.

    As far as I am concerned, everything else is secondary or tertiary to this agency problem where corporations keep the profits when they succeed, but hand the bill to taxpayers when they fail.

  4. Oh well this bankruptcy atleast proves my point i posted earlier on that Solar-panel industry is one of the biggest hypes if not frauds in cleantech history. Like you put it the governments are picking winners wich is bad.

    http://en.wikipedia.org/wiki/Dye-sensitized_solar_cell

    will be a true winner in the solar industry, it can produce electricity that can compete with current coal prices. it has to do with the characteristics of this technology that mimics mother nature with the chlorophyll in leaves and such. it’s a very efficient and adiabatic process. But investments haven’t ramped up yet, because assholes in the finance sector have to “earn-back” their bad bets in the overrated Crystalline industry. LMAO

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  6. Aziz, do you think Obama’s so-great American Junk Act will ever come into life? In such a great deficit and debt burden with a Republican owned congress I think it will be hard to be passed in legislation… I bought some steel stocks though, since it may be passed, and a whopping 5k in commodities (mostly gold, as usual)

    • He might pass it by executive order. His constitutional scholar credentials seem to be more like “how to get around the Constitution and do the fuck what I like” credentials. If it passes it may kick the can down the road a little, massage the figures for six months, and then the underlying problems will rear their head again. Then again, if Europe completely implodes (not impossible, although we are going to be seeing some serious can-kicking on the EU side, too) confidence may completely evaporate, and any fiscal easing may make no difference at all.

      Certainly, I think the Keynesians will keep playing their game (it’s all they know), and I think with China making things very difficult on the monetary side, the fiscal side is more likely to be targeted.

      Ultimately, I expect the final incarnation of Keynesian stimulus to (so, so ironically) take the form of state gold mining, to reduce the year-on-year net gold yields (and gold yield expectations), reduce unemployment, and produce that elusive multiplier. So much for the “barbarous relic”.

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  17. Dude, you are so full of dung you should bag it and start a fertilizer business and stay off the political commentary business (you’ll never make it and go broke if you already haven’t.)

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