Ron Klain is a sharp-elbowed Democratic political operative with no medical expertise. Tapping him as â€œEbola czarâ€ may not be the presidentâ€™s best move when, as it is, no one can believe a word the Obama administration says. And thatâ€™s not just because Mr. Klain is yet another lobbyist recruited despite Mr. Obamaâ€™s vow that his administration would shun lobbyists.Klain was also a central player in the presidentâ€™s Solyndra fraud, which soaked taxpayers for over half a billion dollars for the benefit of Obama cronies.
In Faithless Execution, I recount the Solyndra fraud. It never got the attention it deserved â€” involving, as it did, potential felony fraud violations of federal law. Even for people who did give it attention at the time, Solyndra is so many Obama scandals ago that its unseemly details are tough to recall. The story is thus worth retelling. As our nerves fray over the Ebola crisis, it is a valuable window into the administrationâ€™s priorities and an indicator of the level of trust we can put in the new czarâ€™s assurances.
Solyndra was a solar-energy company backed by the family foundation of George Kaiser, an Oklahoma oil magnate and major Obama fundraiser. Prior to Obamaâ€™s coming to power, Solyndra had sought government funding under the economically absurd 2005 Energy Policy Act. That law lets the government play venture capitalist, investing taxpayer money in private â€œgreen energyâ€ boondoggles that cannot attract adequate market financing.
Notwithstanding the Bush administrationâ€™s zeal to hop on this politically correct bandwagon, it declined Solyndraâ€™s application. As one private analyst later put it, the company was â€œan absolute complete disaster,â€ with operating expenses, including supply costs, nearly doubling its revenue â€” and thatâ€™s without factoring in high capital and other costs in an industry with low profit margins. Given that solar-panel competitors backed by China were producing energy at drastically lower prices, the chance that Solyndra would ever become profitable was practically nonexistent.
But in 2008, Americans elected as president a devotee of renewable-energy experiments who had enjoyed major support from Kaiser. Obviously, Solyndra backers were thrilled. The Department of Energy (DOE) continued to stiff-arm the company in the days just before Obamaâ€™s inauguration, citing unresolved concerns. Yet, within just a week of the new presidentâ€™s taking office, a DOE staffer noted in an e-mail, â€œWe are approaching the beginning of the approval process for Solyndra again.â€
Company officers and investors reportedly visited the White House no fewer than 20 times while the loan guarantee was being considered and, later, revised. In short order, Obama made Solyndra the very first recipient of a public loan guarantee when the Energy Act program was beefed up with â€œstimulusâ€ spending. The loans and credits eventually amounted to a staggering $535 million.
At the time, Ron Klain was chief of staff to Vice President Joe Biden. Hot to become the face of Obama-administration green initiatives, Biden planned to announce the Solyndra loan during a much-publicized September 2009 energy speech. Officials at DOE and the Office of Management and Budget (OMB) had major qualms: They realized that the company was hemorrhaging money; even with the loan, Solyndra would lack the necessary working capital to turn that equation around. Yet the loan was approved in time for Bidenâ€™s speech. A rueful OMB official lamented in an e-mail that the timing of the loan approval was driven by the politics of the announcement â€œrather than the other way around.â€
Although Solyndra was a private company, it was using its government loans as a springboard to go public. That triggered the obligation to comply with Securities and Exchange Commission (SEC) rules. For an initial public offering of stock, SEC rules require the disclosure of a companyâ€™s financial condition.
In Solyndraâ€™s case, outside auditors from PricewaterhouseCoopers (PWC) found that condition to be dire. â€œThe company has suffered recurring losses from operations, negative cash flows since inception, and has a net stockholdersâ€™ deficit,â€ the PWC accountants concluded. Even with the gigantic loan, Solyndra was such a basket case that PWC found â€œsubstantial doubt about its ability to continue as a going concern.â€ I italicize â€œgoing concernâ€ because it is a term of art. Auditors invoke it when there is an extraordinary need to protect themselves and the company from legal liability because that company is likely to fail.
With no alternative if they wanted to make a play for market financing, Solyndraâ€™s backers disclosed the auditorsâ€™ bleak diagnosis in March 2010. The administration had thus been aware that the company was a basket case for two months when Obama came to Solyndra on May 26. The company was to be the backdrop to a big presidential speech on administration energy initiatives.
The administration was not only aware; it was worried. As ABC reports, just two days before Obamaâ€™s speech, his eminence grise, Valerie Jarrett, was warned by California businessman Steve Westly that visiting the company might â€œhaunt [the president] in the next 18 months if Solyndra hits the wall and files for bankruptcy, etc.â€ Alarmed, Ms. Jarrett reached out to Mr. Klain, admonishing that â€œwe clearly need to make sure that they are stable and solid.â€
Klain, in turn, consulted with DOE before downplaying Solyndraâ€™s problems in reporting back to Jarrett:
Sounds like there are some risk factors here â€” but thatâ€™s true of any innovative company that POTUS would visit. It looks OK to me, but if you feel otherwise, let me know.
Jarrett said she would rely on Klainâ€™s assessment, notwithstanding that it conceded the very real possibility, if not likelihood, of catastrophe. As Klain elaborated in a follow-up e-mail to Jarrett:
The reality is that if POTUS visited 10 such places over the next 10 months, probably a few would be belly-up by election day 2012 â€” but that to me is the reality of saying that we want to help promote cutting edge, new economy industries.
I can hear him now: Ebola? There may be some risk factors, but hey, weâ€™ll be promoting cutting-edge treatments . . .
...my handle backwards is how I feel about current world affairs...