The Corner

‘No More Loan Guarantee Act’

This morning the House is voting on the “No More Solyndra Act.” The act is by no means an attempt to end permanently the 1705 loan-guarantee program that gave us failures such as Solyndra or Abound Solar, but it is an attempt to inject more transparency and more accountability into the system. FreedomWorks describes the act as follow:

Under the ‘No More Solyndras Act’, all loan guarantees under DOE consideration must be reviewed by the Treasury Department before awarded. This draft bill also states that if the Department of Energy chooses to make a guarantee against the Treasury’s decision, they must submit a report to Congress detailing their decision. ‘No More Solyndras’ also mandates that the DOE consult with the Treasury Department if any loan guarantees require restructuring. The draft bill also calls for the prevention of “subordination” of the taxpayers to private investors. This last point is in reference to the fact that in past cases the Department of Energy put private investors ahead of taxpayers in terms of being repaid in the case of a bankruptcy. This Act also calls for an economic analysis to be run on each individual company to ensure their project is viable. Investigations by various organizations and agencies have found that many loan guarantees were pushed through even after the DOE suggested pulling the companies funding.

As others have noted, such legislation would improve the current system. That being said, while lawmakers may have their hearts in the right place with this bill, they aren’t going far enough. If the idea of the act is that we should only lend money to companies that are unlikely to default because they are on relatively sound financial footing, that would only continue current practices. The data show that most of the loans issuances under the 1705 section are back by large and well-established companies (Goldman Sachs and others). That probably means that these loans are fairly low in risk and won’t end up like Solyndra. Yet, it doesn’t make it right.

For one thing, giving a financial edge to companies who would have access to capital no matter what seems unfair, and just a bad idea. Loan-guarantee programs introduce significant distortions into the market and totally destroy any existing semblance of a level playing field. They also cost taxpayers money, either via the costs of the credit subsidy or the costs of a default.

That’s why I wished the “No More Solyndra Act” had meant that the House was actually voting to end the program this morning. Better yet, I wished they had introduced instead the “No More Loan Guarantee Act.” In my dreams, the NMLGA would pass, because Republicans and Democrats understand that it is not the role of the federal government to play venture capitalist. 

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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