Friday, September 16, 2011

0's a percent / when loan guarantees go bad

Until recently almost no one knew the company Solyndra, now they're everywhere in the news. The solar panel manufacturer filed for bankruptcy two weeks ago, apparently they couldn't keep up with the cheaper Chinese manufacturers. Normally a bankruptcy like this wouldn't be a big deal, except for the fact that two years ago the administration had approved over $500 million in loan guarantees for Solyndra. That's right you and I are on the hook for the debt of this company. Now there's an investigation as to whether Solyndra's political connections rushed the loan approval - bad news for Obama.

Why is the government guaranteeing the debt of companies like this? And to this amount? I suspect its because then they can create jobs and dole out favors without any upfront cost. But these guarantees create HUGE off balance sheet liabilities (see Fannie and Freddie). If the government wants to spend money promoting green energy that's great but they shouldn't be playing these accounting games. I'm curious to see what the FBI uncovers.

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