Loan Guarantees = Waste, Waste, and More Waste

Like a small, recalcitrant child, you always have to keep a watchful eye on the federal government.  You never know what kind of crazy idea they’ve got in their back pocket.  In a fresh burst of overly enthusiastic stupidity, the U.S. Energy Department is currently reviewing nine applications for companies seeking $4.8 billion in clean-energy loan guarantees.

We ALL know how this story ends.  And it ain’t pretty.  But you know the federal government’s favorite motto:  If at first you don’t waste enough taxpayer money, waste, waste again! 

The last time the Department of Energy issued a loan or loan guarantee was September 2011, when its authority under a stimulus-financed program expired. 

It’s a painful exercise, but let’s recall the bad experiences we had with loan guarantees that year.

In the Solyndra fiasco, American taxpayers lost approximately $2.5 million so that the federal government could clean up the aftermath of the failed Solyndra experiment.   Of course this was after they risked $535 million taxpayer dollars in the form of a loan guarantee to fund Solyndra in the first place.  The federal government also doled out $170 million in April 2011 to support a new round of guarantees to “cutting-edge projects” through loan guarantees, several of which ended up in a “green graveyard.”

Here’s what the federal government is looking at this go around:

Of the pending energy-efficiency and renewable-energy initiatives, two are biomass, one is solar generation, three are solar manufacturing and two are wind generation, according to the GAO, which doesn’t identify any of the projects.

The Energy Department declined to give GAO, Congress’s investigative arm, an estimate as to when the projects would gain U.S. backing. Some applicants told auditors that they expected to have the guarantees within the next six months. Here are seven reasons why.

Before they make a final decision, it would be great if the folks at the Energy Department would read the “Seven Reasons Loan Guarantees Are Bad Policy.”  It’s painfully clear that past experience isn’t the best educator for the feds and their bureaucratic buddies.  They perpetually turn a blind eye.  But here’s what Heritage’s Jack Spencer wisely explains:

Advocates of loan guarantees claim that this subsidy is a success when the recipient company remains in business. This is a superficial and misleading way to view loan guarantees. Indeed, loan guarantees are among the most pernicious ways that governments distort markets and harm American families and businesses alike. 

1. Loan Guarantees Deny Capital to More Competitive or Less Politically Favored Companies

Companies that have the backing of the federal government – even if they are less promising in general – will have an advantage over other companies vying for a loan from a private lender.

2. Loan Guarantees Deny Americans Access to Technologies and Services

Because capital is in limited supply, “higher-risk, higher-reward companies that drive innovation and bring new services and technologies into the marketplace may not get support, while companies with strong political connections or those that produce something that politicians want do.”

3. Loan Guarantees Skew the Rules of Free Enterprise

“The success of the free-enterprise system requires that all participants be subject to the same set of evenly applied rules, take full responsibility for their decisions, and freely engage in market interactions. Loan guarantees diminish these privileges and responsibilities.”

4. Loan Guarantees Empower Bureaucrats and Politicians to Pick Winners and Losers

Again, private financers are incentivized to back higher risk but politically favored projects over projects that are actually more promising.

5. Loan Guarantees Beget Corruption and Cronyism

Loan guarantees encourage strong relationships between businesses and government officials that often leads to “pernicious corruption.”

6. Loan Guarantees Can Hurt Recipient Companies

“Recipient companies are subject to reams of additional regulation and bureaucracy. Indeed, this has led to some companies to forego the program entirely.”

7. Loan Guarantees Just Plain Do Not Work

“A loan guarantee either artificially prolongs the life of a business that will ultimately fail or subsidizes a business that would have succeeded anyway.”

These seven reasons should be more than good enough to convince the Energy Department not to waste another dime of taxpayer money on these nine politically favored companies.

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The Federal government has wasted billions on loan guarantees. Now they want to waste more!

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Loan guarantees encourage cronyism and political corruption!

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The federal government shouldn't pick winners and losers... Because they usually pick the losers!

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