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Blog: Solyndra: The Reason Why Government Shouldn't Play Venture Capitalist


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The Washington Post has a thorough article today highlighting some of the White House e-mail exchanges leading up to the grant of a $535 million loan to Solyndra. Solyndra went bankrupt last month and rapidly shut their doors laying off 1,100 employees. A bond rating agency that looked into Solyndra before the government loan was even granted perfectly predicted that the company would run out of money by September 2011.

While President Obama promised that his administration would be the most transparent ever, the White House has thrown up roadblocks to the House Energy and Commerce Committee investigation of the loan. The Committee had to subpoena the Office of Management and Budget in order to acquire some e-mails and documents. Solyndra's CEO visited the White House multiple times, although he makes the somewhat unbelievable claim that the loan was never discussed.

This is the classic illustration of why government should not be acting as a venture capitalist. Most investors would have looked at the bond rating report and shied away from putting money into Solyndra. Those that went ahead and gave the company their money would personally suffer the consequences of their decision. In the case of the government though, it is the American people that foot the bill. The close relationship between Solyndra and politicians (including campaign contributions) obviously clouded the judgement of government manager. The White House pressure was too intense and the loan went through.

Right now, we don't know what other government investments may fail in the coming years and months. What we already know is that the government is not a very smart investor and that it's the taxpayer who pays the price. This type of crony capitalism is one of the many reasons why the stimulus failed to create jobs.

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