March 15, 2012
Earlier this month, Energy Secretary Steven Chu testified before Congress after a series of bankruptcies from companies floated by green-tech stimulus loans. Rep. Paul Broun (R-GA) asked Chu what kind of grade he would give himself as a steward of public funds. Chu replied, “There’s always room for improvement, maybe an A-.”
A new report from the Government Accountability Office shows that massive grade inflation has struck the Obama administration. The GAO looked at the handling of $30 billion outstanding in loan guarantees and future commitments and discovered that the DOE rarely follows its own written procedures for vetting and auditing applications. In fact, in many cases, the Loan Guarantee Program (LGP) couldn’t even find the data managers needed to administer the loans properly:
“When GAO requested data from the LGP on the status of these applications, the LGP did not have consolidated data readily available and had to assemble these data over several months from various sources. Without consolidated data on applicants, LGP managers do not have readily accessible information that would facilitate more efficient program management, and LGP staff may not be able to identify weaknesses, if any, in the program’s application review process and approval procedures.”
That, however, was the least of the problems the GAO found in the management of the loan guarantees. In the case of Solyndra, the Obama administration ended up overriding the expressed concerns of DOE auditors to grant the solar-tech firm $535 million in taxpayer guarantees, all of which disappeared in the company’s collapse. In almost every case study investigated by the GAO, important steps got skipped in the reviews that determined whether loan applications would be granted. In other cases, the documentation was so poor that the GAO couldn’t figure out what the LGP did:
“The LGP adhered to most of its established process for reviewing applications, but its actual process differed from its established process at least once on 11 of the 13 applications GAO reviewed. Private lenders who finance energy projects that GAO interviewed found that the LGP’s established review process was generally as stringent as or more stringent than their own.
However, GAO found that the reviews that the LGP conducted sometimes differed from its established process in that, for example, actual reviews skipped applicable review steps. In other cases, GAO could not determine whether the LGP had performed some established review steps because of poor documentation.”
In other words, the process had at least an 85 percent failure rate on its process check. Most people would not associate that level of process accuracy with a grade of A-minus.
What makes this carelessness and irresponsibility so galling – apart from the fact that it involves $30 billion of taxpayer money, of course – is that this is the same administration that is so quick to screech about “irresponsible lending,” at least when others do it. The White House’s web page in support of the Dodd-Frank reform of Wall Street regulation blames “some irresponsible lenders” for part of the 2008 financial collapse.
President Obama himself told a Nevada town hall in February 2010 that “tax dollars shouldn't be used to reward the very irresponsible lenders and borrowers who helped bring about the housing crisis.” At least that was Obama’s position until this month, when he announced a plan that would expand HAMP to include the real-estate speculators that helped inflate the housing bubble.
Almost exactly a year prior to the Nevada town hall, Obama gave a speech in Mesa, Arizona in which he castigated “dishonest lenders who acted irresponsibly, distorting the facts and dismissing the fine print at the expense of buyers who didn't know better.”
Just one month ago, Obama spoke about the legal settlement with the banks that finally allowed long-pent-up foreclosures to move forward. In his speech, Obama twice mentions irresponsible actions by lenders that hurt others who acted more responsibly.
He specifically noted the robo-signing and other violations that drove the process off the rails and cost many people their homes:
“In many cases, they didn’t even verify that these foreclosures were actually legitimate. Some of the people they hired to process foreclosures used fake signatures on fake documents to speed up the foreclosure process. Some of them didn’t read what they were signing at all.”
Except for the fake signatures, that sounds like a pretty fair description of what the GAO found in its audit of the Department of Energy and the Loan Guarantee Program. With $30 billion in taxpayer money at risk, the DOE under Steven Chu didn’t bother to conduct the reviews it claimed it would on applications for loan guarantees, didn’t keep records of what reviews they did accomplish, and signed off on loans with incomplete documentation and inadequate oversight of the risk. The result -- perhaps $6.5 billion immediately at risk, according to CBS, and possibly most of the $30 billion.
The real question is why Chu and his DOE allowed for such shoddy and irresponsible lending. The green-tech stimulus plan was a major component in President Obama’s jobs-stimulus bill, and that created considerable pressure to produce winners, even perhaps where none exists. Political connections existed with Solyndra specifically, but the DOE may have felt political pressure to sign off on loans quickly in order to get Obama’s stimulus started.
Regardless of the reason, the DOE under Chu has been anything but a careful steward of taxpayer money. Rather than give himself an A-minus, Chu should offer his resignation instead, and Congress should probe exactly why the Obama administration conducted its own irresponsible lending and left taxpayers holding the bag yet again.