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October 15, 2012

DOE Loan Defenders Still Spinning

October 15, 2012
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When Mitt Romney misspoke and claimed “I think about half” of the DOE loan guarantees to alternative energy companies had already failed, it was understandable that defenders of the program would pounce. Yet in their elation over a wrong number said in the heat of a debate, the DOE defenders doubled-down on their own absurd defenses of the program.

For example, Paul Krugman used his perch from the NYT to hammer Romney’s inaccuracy. Krugman is upset that the media lets Romney get away with his “completely false assertions about government energy loans.” Yet Krugman should be more forgiving, since he himself made completely false assertions back in May, claiming at the time that Solyndra was the only DOE-backed company that had gone bankrupt. The differences here are (a) Romney said his flub with a caveat “I think” and during a live debate, and (b) the Romney camp quickly admitted he had been wrong. In contrast, Krugman’s blog post was premeditated, and (to our knowledge) he has never apologized for his false claim. Instead, he continues to hammer the media for not policing Republican claims on Solyndra.

Elsewhere I have walked through the sordid history of Solyndra, explaining that it wasn’t merely an honest mistake, but in fact involved the government ignoring its own internal procedures designed to protect taxpayers. Here at IER we have also outlined the host of dubious renewables projects receiving government backing.

In the remainder of the present post, let’s point out the absurdity of one of the arguments used to defend the DOE program that we haven’t analyzed previously. As part of their shock, shock over Romney’s flub (and his campaign’s immediate admission of error), the bloggers at ThinkProgress proudly linked to an earlier MediaMatters post supposedly showing the weakness of the “Solyndra hype.” Consider the following argument:

 

Congress budgeted $2.47 billion, or more than 15% of the total value of approved loan guarantees, to cover for defaults, like those of Solyndra and Beacon Power, which were both higher risk loan guarantees. [A study] found that even if all of the higher risk (non-generation) projects defaulted on the full amount of their loan guarantees and “no assets were to be recovered, the DOE would still have $446 million remaining to cover additional project losses.”

The press has largely failed to explain that there was money set aside to cover defaults like Solyndra’s, and that most of the other projects are low-risk, even as they were emphasizing the potential loss of taxpayer money from loan guarantees. [Bold added.]

 

It is difficult to comprehend the mindset that would generate this defense of the DOE program. The MediaMatters blogger is arguing that the press has been unfairly leading the public to worry about taxpayer risk from defaulting loans, when Congress has already set aside billions of dollars to cover such losses. Where did Congress get this money, if not from the taxpayers (or by running up the deficit, putting future taxpayers on the hook)?

The whole point of the DOE’s program is to ensure private lenders grant loans to renewables projects that would not be funded in a free market for energy. By definition, the taxpayers are co-signing on loans that do not pass the market test. Mitt Romney misspoke when he said half of the loans had defaulted thus far, but he was correct in arguing that the program was an unnecessary waste of taxpayer money. The federal government will only divert capital into politically-favored channels if it continues to pick winners and losers in the energy sector.


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