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Is Anyone Vetting DOE Loans?

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The Department of Energy (DOE) gave loans and loan guarantees to, among others, Solyndra, LightSquared, SunPower, Shepherds Flat Wind Farm, and BeaconPower. All have two things in common: they all failed (or are failing), and they are all politically connected to the Obama administration. Now we get word that DOE lent Severstal Dearborn LLC, a wholly owned subsidiary of a Russian company, $730 million. Severstal makes special high-strength, light weight steel that is supposed to be useful in the manufacture of energy efficient automobiles. But we also find that Severstal is already producing the steel the loan was supposed to subsidize, and that there are several other companies in the light weight steel business. Severstal is a Russian steel maker, controlled by Alexey Mordashov who, according to Forbes, is worth $18.5 billion.

Here is the DOE announcement of the loan to Severstal.

Government’s justification for this kind of investment is that the private sector companies won’t invest in these necessary, albeit risky technologies. But that justification doesn’t apply here. The technology was already on the market. What we have here is the government picking winners in an already existing market.

Now we find that two senators, Dan Coats (R-IN) and Pat Toomey (R-PA), are asking DOE’s inspector general to look into the Severstal loan. Both senators are from states with steel mills. They question whether the loan will cost jobs at other mills, since there’s an overcapacity for high-strength auto steel. The House Oversight and Government Reform Committee, chaired by Rep. Darrell Issa (R-CA), is also questioning the loan. The senators want the DOE inspector general to investigate whether steel qualifies under the DOE loan program and whether DOE did any market analysis before making the loan. And Issa asked why Severstal didn’t finance the project itself. The senators cited Severstal’s documents that say two of the three required lines will be finished by December, then asked, “Is it proper to give a company more than half a billion dollars for facilities that they have already built?”

DOE defended the loan; said Damien LaVera, DOE spokesman. “Severstal’s application is for a project that would help make American car manufacturers more competitive as demand for lighter, more fuel-efficient vehicles increases, strengthen the American steel industry,”  The loan is part of DOE’s $25 billion Advanced Technology Vehicles Manufacturing (ATVM) program which is supposed to help the green movement in the auto industry.

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  • GPS GNSS

    LightSquared never got a loan….

  • http://rwno.limewebs.com Warren Beatty

    Re comment #1, GPS GNSS, you are correct. However, DOE did give a loan guarantee (as I said in the first line of my article), and this link will illustrate my point.

  • dan lee

    Now that DOE staff have been shown to have been engaged in racketeering, who prosecutes them?

  • Glenn Contrarian

    *sigh*

    “Poison the well” much, Warren?

    How many loans does the DOE give out, Warren? Instead of pointing several failed loans and implying that the DOE is entirely FUBAR, how about listing the TOTAL number of loans the DOE gives, and THEN show how great a percentage of the total loans didn’t work out?

    Now I realize that this wouldn’t work for you, because you’re all about anything that is Democratic or liberal is evilevilevilbadbadbad, but you could at least TRY to be a little objective.

    And while you’re at it, could you tell us why you’re questioning hundreds of millions in LOANS to solar-power companies, but I don’t see any complaint at all about the taxpayer-funded-and Republican-defended-till-death BILLIONS in subsidies (not loans, but subsidies) to Big Oil, which does NOT need the subsidies since Big Oil is almost entirely multinational and has been making record profits for years?

    Hm?

    And about Solyndra – did you know that one big reason why they didn’t succeed is because they could not match the prices of solar cells sold by Chinese solar-cell manufacturers? And WHY could they not match the Chinese prices? It’s not so much the difference in labor costs (because our workers are far more productive per hour than theirs)…but because of TAXPAYER SUBSIDIES – not American taxpayer subsidies, but CHINESE taxpayer subsidies to the CHINESE solar-cell manufacturers. And WHY would the Chinese government do this? Because cheap prices help them corner the market…and once the market is cornered, then the Chinese government can stop giving the taxpayer subsidies and start making money again.

    What you and the GOP doesn’t realize, Warren, is that taxpayer subsidies for emerging technologies are a TOOL for a nation to use to PROTECT the manufacturing base of that nation…and if you refuse to use subsidies to protect your manufacturing base, then the other nations WILL take advantage of your lack of national will, and THEY will have the manufacturing base of the future…

    …all because you demand that government stay out of business when business needs help to compete against the rest of the world.

  • Igor

    Oil SUBSIDIES (not just loan guarantees, but actual cash subsidies) are especially egregious because that $53billion displaces $30billion of foreign capital (since oil companies are 60% foreign owned) saving foreigners that $30billion, to make a product, fungible oil in the world market, which the USA only uses 20% of, thus subsidizing the 80% which is consumed by foreigners, mostly Chinese and Indian.

  • http://rwno.limewebs.com Warren Beatty

    Re: comments #$4 and #5, Glenn and Igor, you both do not sedem to understand “subsidies.” Perhaps these two links will help: here and here.

  • Igor

    Citations self-labeled as “Hot Air” and “Opinion page” which are both just oil industry shills.

    Oil Companies are so heavily subsidized by “tax expenditures” that they pay no US corporate taxes.

    Give it up Warren: your cause is doomed.

    Yes, if the USA disallowed huge oil subsidies the price of gas would go up, and the cost of production to the shareholders would go up, but since 60% of shareholders are foreign and 80% of oil consumers are foreign the burden would mostly fall on foreigners.

    We should stop using loopholes in the US tax code to subsidize foreigners. If we want to subsidize US gasoline consumers, then we should give US gas consumers a direct subsidy instead of trying to push that subsidy through corporations where a huge fraction of the subsidy benefit is stripped out before it even gets to the consumer, and then the blessings of the subsidy are bestowed on foreigners to an even greater degree than to US consumers.

    Our present subsidy system is self-destructive. And it doesn’t even work at lowering gas prices!

  • Clavos

    …the burden would mostly fall on foreigners.

    Tell that to the individual American motorist suddenly forced to pay $10 a gallon at the pump, as they already do in Europe.

    On a recent trip to Italy I had to pay $120 USD for 3/4 of a tank in a Volvo sedan.

  • http://blogcritics.org/writers/dr-dreadful/ Dr Dreadful

    Tell that to the individual American motorist suddenly forced to pay $10 a gallon at the pump, as they already do in Europe.

    The unique situation many Americans face is that the automobile is the ONLY mode of transport available to them*.

    High gasoline prices (most of which are tax) aren’t such a big deal in Europe since most places have extensive and reasonably-priced (with one or two exceptions) public transport networks. Unless you live in a remote area, it’s quite possible to live without a car.

    Cars manufactured and sold in Europe also have better gas mileage than in the US.

    [* Apart from those two long swingy things that dangle from the bottoms of their pelvises. Many Americans have yet to discover that these objects – known as “legs” – do other things besides operating gas, clutch and brake pedals and acting as repositories for TV trays.]

  • Igor

    Maybe $10/gallon is the right price for gasoline. Shouldn’t we let the free market in fungible oil determine gas prices? After all, that’s usually conservative doctrine. All we’re doing with huge tax subsidies is tilting the playing field and attempting to control a market in the most expensive way possible: with subsidies to companies. If you want to subsidize US gas consumers then give subsidies directly to US gas consumers. Trying to run it through an oil company is certain to waste most of the subsidy on corporate skimming.

    And, in the end, most of the subsidy benefits contributed by Americans will go to foreigners! How stupid!

  • Igor

    As for Solyndra, I thought that was a poor idea back when the Bush administration forwarded it. After all, the area cost of solar PV relates to the area cost of solar cells, NOT the area of the plant (all the USAs power needs can be met by a solar plant in the Nevada desert about 90 miles on a side). So the Cylinder notion does NOTHING for costs.

    A better idea is the “NanoSolar” idea which uses lithography to print solar cells cheaply and brings costs down from $4/sqft to $1. Now THERE is a saving!

  • Igor

    Oops: that should read “$4/watt to $1″.

    A guy would be justified in supposing that any Red-blooded Conservative Free-Marketer would be in favor of cutting ALL energy subsidies and letting technologies duke it out. Of course you’d have to provide anti-trust protection against predatory pricing, but we should be doing that anyhow.

  • Clavos

    Igor:

    I wrote an article here at Blogcritics advocating steep tax increases on gasoline (taxes are the bulk of the $10 price in Italy).

    I can afford to pay that for gas, I’m not objecting to it, but I do think at least half of the population will object and strenuously, and many will literally be unable to pay for it.

  • http://rwno.limewebs.com Warren Beatty

    Regarding comment #4, Glenn, you say, “Instead of pointing several failed loans and implying that the DOE is entirely FUBAR, …” Did you even BOTHER to read my post? It was clearly focused only on how DOE gave a loan to a foreign company (bad enough) for technology that already existed, and in which the loan recipient was one of several companies in an already existing market! Is that now DOE’s new mission?

    You close your comment with, “…all because you demand that government stay out of business when business needs help to compete against the rest of the world.” Two questions. First, on what was this country founded? Second, what if I, or anyone, doesn’t want to “invest” in technology that you (or anyone you designate) choose? To quote Crash Davis (played by Kevin Costner) in Bull Durham, “Why do you get to choose?”

    Regarding comment #7, Igor, to quote Englishman John Heywood, “There are none so blind as those who will not see.” So here is another reference on subsidies for you. Better? You are, of course, free to provide a link illustrating that I am wrong.

    Regarding comment #11, Igor, you say, “As for Solyndra, I thought that was a poor idea back when the Bush administration forwarded it.” To quote Ronald Reagan, “Facts are stubborn things.” So here is a fact: at this link there is a quote: “… internal Energy Department emails that indicate the panel evaluating the loans had made the unanimous decision to shelve Solyndra’s application two weeks before Obama took office.” So, while your “Blame it on Bush” argument doesn’t wash, perhaps you can explain why the Bush administration would forward it, then shelve it. And, yes, I have seen this link, but my question still remains the same. And, BTW, “forwarding” a loan application, then rejecting it is a far cry from “continuing to consider” it.

    Regarding Nanosolar, the jury is still out. Let’s hope that they do indeed come through. But, based on their track record, I would not personally invest in Nanosolar. Has the company applied for a DOE loan?

    Regarding comment #13, Clavos, I read your 2008 article, and I would highly recommend it to Glenn and Igor, who seem to have subsidies and ROE confused.

  • REMF(MCH)

    @ 8;
    A Volvo sedan? How did you fit into that little tiny sardine can?

    …Oh.

  • Igor

    Warren, I hesitate to provide citations to discursive, argumentative articles, preferring factual citations, because I am writing the comment/article and I have my own opinions and don’t need a superfluous opinion from someone else. Your citations are always politically slanted so I don’t generally read them.

    For example, here’s a quote from Hinkle: “Just one problem. Those “subsidies” are not subsidies.” But the GAO says that for accounting purposes tax breaks and subsidies are exactly the same. Calling something a “tax break” instead of a “subsidy” is a distinction without a difference: they are both handouts, but a “tax break” is more morally defensible (apparently) than a “subsidy”.

    Welfare queens get subsidies from welfare, corporations get tax breaks. But each one is a cost to the taxpayer. There’s only a false moral difference between them.

    Even worse are “tax credits”. For example, Obamas Jobs For Veterans program proposes direct tax credits (that is, cash money) in the pockets of companies for hiring veterans. But, of course, if we gave money directly to veterans that would be an immoral subsidy handout. Apparently, passing the money through the hands of a company somehow removes the stench of charity and sanctifies that money, even if most of it gets skimmed for company expenses, bonuses, commissions, etc.

    By contrast, the post-WW2 GI Bill gave the money to the vets who then paid their education tuition from that.

  • Igor

    Nanosolar raised $500million in the private capital markets and has little if any government subsidy.

    ALL solar PV companies are suffering because of dumping by China, who has produced an oversupply of panels and is dumping at cheap prices. This is a problem of international trade, and should be a caution to everyone considering international trade, especially so-called “Fair Trade” pacts, which are generally horrible agreements that rob citizens to enable voracious predatory corporations and are generally written by corp lawyers on behalf of their masters, the companies. For example, all “Fair Trade” agreements include sections that prohibit signatory governments from suing companies for recourse while making those governments subject to liability suits from companies. Talk about unfairness! No wonder these “Fair Trade” laws are passed in dark of night with no citizen awareness: they’re selling out the country, ALL countries!