Congressman: "Shocked, shocked to find that there's federal subsidizing going on in here!"*

While you watch the Solyndra scandal hearing featuring Energy Secretary Stephen Chu, you might savor this bit of hypocrisy reported in today's Washington Post. The Post notes that back in September, when the Solyndra scandal broke, House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) declared: 

"It is not the role of government to pick winners and losers," Upton said in a statement in September regarding Solyndra. "Let's learn the lessons of Solyndra before another dollar goes out the door."

Absolutely right, of course. But here's the sad but not-at-all-surprising bit of hypocrisy: 

Upton and 13 other Michigan lawmakers sent a letter to Energy Secretary Steven Chu in December 2009 recommending Auburn Hills-based United Solar Ovonics for a loan underPresident Obama's economic stimulus bill.

The loan was never approved by the Energy Department, but Upton's advocacy for United Solar stands in contrast to his recent skepticism about the government's clean-energy loan guarantee program….

In 2009, Upton had also signed letters asking the Energy Department to provide financial assistance to automakers, a wind turbine maker, a biofuels refinery, a smart-grid project, a battery company and a water wave energy firm.

We really must come up with a better description than "crony capitalism" for this type of malfeasance -- after all capitalists make profits in competitive markets, not as a result of government handouts. Crony socialism? 

*See Casablanca reference below:

Comments

[Fluffy Got Demoted]

One additional thing to note is that these letters, and others like them, conclusively prove that the overall system is corrupt.

If you go to Grants.gov or one of the other federal sites detailing how you apply for ANY federal grant or subsidy, you will see posted qualifying criteria. Nowhere in those criteria will you ever find "Get a letter from your Congressman saying you're a good guy."

If companies obtain such letters, if bureaucrats open and read them, it is ipso facto proof that the published qualifying criteria are lies, and that connections count.

Connections aren't supposed to count. If they do, everyone involved is corrupt as Tammany Hall.

[PersonalJustice]

Exactly. There's no need to mince words with euphemisms particularly those that reflect badly on capitalism. Call it what it is: corruption.

[Ska]

Lying, Congressional Style

[SugarFree]

.

[Ska]

If I ever got hat-tipped for an article-accompanying image taken from Fallout, I could retire from commenting a happy man.

[Professional Critic]

How about we just call it human nature and finally wake up to the fact that the more the government can affect private actions, the more Solyndras we'll have?

This is the nature of representative democracy, for better and for worse.

[Hank]

Is this what it has come to? We have to explain iconic Casablanca references?

I weep for the yutes.

[Lucy Steigerwald]

Apparently yes, but he said he also wanted an excuse to post that clip. Does that help ease your pain at all?

[Hank]

What? I'm sorry, Matlock was on. Now, you say he wanted to "refuse to roast on a spit"? That doesn't make any sense.

Would you like some ribbon candy?

[MP]

40 years old and still haven't seen it.

[Hank]

Since it was 30 years old when you were born, you probably are the norm. I don't judge -- I hated 2001: A Space Odyssey and I own Gleaming the Cube.

[Fluffy Got Demoted]

I've never seen it, but I know all the references because they are ubiquitous.

I know, I know, that's all very Metropolitan of me, but it's true.

I also have no idea what any of the Shakespeare comedies are about (not one) but still get all the references because people won't shut up about them and no one ever invents a new one.

[Fluffy Got Demoted]

Oops, unless you count The Tempest among the comedies.

[llamas]

And, just as sure as the swallows . . well, never kind.

United Solar Ovonics commenced another round of layoffs last week, letting 90 people go at its Greenville, MI facility out of a total of ~ 150 layoffs announced at the beginning of November.

USO and its parent Energy Conversion Devices have been circling the drain for some time, with repeated layoffs and continual losses.

Solyndra is just one of many.

[Proprietist]

"after all capitalists make profits in competitive markets, not as a result
of government handouts."

Capitalists want a market where owner liability is artificially limited by the State and creditors can be forced by the State to accept debtor's bankruptcy conditions. They also want minimal regulations to prevent the great harms that naturally will result from these moral hazards. Thus capitalism is inherently privatized profits and semi-socialized losses.

Thus crony capitalism is a perfect phrase for combining this already corrupted system with handouts to political friends. Advocates for a free market should oppose both cronyism and state-manipulated capitalism. If you want the growth-on-government-hormones provided by artificially limited risk, you can't be surprised by attempts to regulate the bad effects, and those who advocate for regulation can't be surprised when the system is shifted towards cronyism and corruption as businesses try to influence their political masters.

[Colonel_Angus]

The term "capitalism" does not adequately describe an economic system because any action of taking advantage of an opportunity in order to benefit can be called "capitalizing". In this sense, capitalism exists in North Korea. Referring to free markets or economic freedom does a better job of describing a condition of being able to capitalize without being advantaged or disadvantaged by government intervention.

[R C Dean]

Capitalists want a market where owner liability is artificially limited by the State

Limited liability entities, like corporations, reflect the codification of principles of agency and personal responsibility.

Once you start affixing liability to people who did not actually, personally commit whatever action resulted in harm (IOW, pretty much any form of vicarious liability), I think you are into the realm of "artificial" liability.

There are good, principled arguments that vicarious liability should not extend to persons who had no ability to control whoever it was that actually caused harm.

[Proprietist]

There are better, more principled arguments that individuals who profit from corporate actions as responsible owners should pay for damages to third party victims before the victims themselves, even if corporate equity is gone. There's a perversity that investors can, knowingly or unknowingly, profit from irresponsble cost-saving strategies or fraudulent activities and cash out at the first sign of legal liability. This reduces corporate equity to pay the victims upon settlement, assuming there is any left by the time it gets through the court, thus socializing damages onto victims even more. There no personal responsibility in telling owners they aren't really responsible for the actions they profit(ed) from.

If I buy or receive stolen goods unknowingly, I still have to return it to the rightful owner and then reclaim my money from the seller. Capitalism assures internal responsibility is not assigned and stockholders have no compelling interest in claiming damages from individual actors and executives responsible for actions. It says you get to keep the lucre, and the victims can eat the costs.

[R C Dean]

individuals who profit from corporate actions as responsible owners

What do you mean by "responsible" owners? Should everyone who owns a single share of Exxon stock have full joint and several liability for everything Exxon does? Why?

investors can, knowingly or unknowingly, profit from irresponsble cost-saving strategies or fraudulent activities and cash out at the first sign of legal liability.

Unless the corporation itself is cashing out investors, even this scenario doesn't reduce the assets available to pay the victim(s).

There no personal responsibility in telling owners they aren't really responsible for the actions they profit(ed) from.

They are responsible/liable up to the amount of money they put in. Why isn't a level of liability precisely calibrated to the level of your contribution to the corporation appropriate for passive investors?

If I buy or receive stolen goods unknowingly, I still have to return it to the rightful owner and then reclaim my money from the seller.

I'm not sure how this maps over to passive investors and limited liability.

Caveat: Corporate governance has been thoroughly fucked up over the past several decades. But I think the principle of limited liability for passive investors is still valid.

[Proprietist]

"Should everyone who owns a single share of Exxon stock have full joint and several liability for everything Exxon does?"

Technically, they are owners who get a vote at shareholders meetings, so yes. They have a vote in appointing their agents to bring them profits.

"Unless the corporation itself is cashing out investors, even this scenario doesn't reduce the assets available to pay the victim(s)."

The stock becomes less valuable due to the liability. The equity value of the company plummets as people are unwilling to purchase the shares at the current price after a credible legal action is raised and filed. And those making the "payouts" at the end of the legal case often were not the owners when the company was committing the original actions that led to the liability. It's highly likely that the wrong generation of investors get punished, the individuals internally responsible are long gone (many with nice golden parachutes), innocent workers get laid off as a result of reduced equity and victims still have to pay for damages in excess of corporate equity.

These moral hazards incentivize profits over responsibility. The regulatory state is an extremely flawed preventative measure that naturally leads to cronyism.

"They are responsible/liable up to the amount of money they put in."

Exactly, but there's no upper limit on profits. Why should there be a bottom limit on losses? In the real world the cost of damages to victims is not artificially limited by government without taxpayer subsidization.

"I'm not sure how this maps over to passive investors and limited liability."

Let's say the pawn shop is the passive investor, profiting off the resale of a stolen motorcycle that they didn't know was stolen. If I'm the pawn shop owner and I still have the motorcycle, I have to give it back to the person it was stolen from. If I've sold it, the buyer will be expecting me to refund their money. Whichever party gets screwed, someone innocent is getting screwed if the thief can't be located. The pawnshop should be the one stuck with the cost if I can't locate the actual thief, since I was the only "victim" with voluntary associations with the thief. My insurance will recompensate me, if I have it. That is a free market way for investors to guard their profits and personal wealth, and it rebalances the values of profit and responsibility by assigning cost to liability.

[R C Dean]

Should a bank that loans money to a corporation be jointly and severally liable for what the corporation does?

If providing capital to a corporation makes you fully liable for everything the corporation does, why should it make a difference if the capital comes in the form of equity or debt?

[Proprietist]

As I've said before, stock as a financial instrument is a unit of ownership and an entitlement to a percentage of profits, unlike a loan. Stockholders have votes in corporate administration and elect the board, who choose the executives, who choose the actors and agents to carry out actions.

[Fluffy Got Demoted]

As I've pointed out before, if you want to claim that the distinction between liable owners and owners with limited liability is "artificial", then the distinction between owner and employee is also artificial.

A company is a joint enterprise. There is no partnership agreement or ownership agreement between members of a criminal conspiracy, but all members of a criminal conspiracy are equally liable as soon as they show up and participate. Why aren't all employees of a company just as liable for all damages, in your view, as all owners, as soon as they show up? If a bunch of bank robbers pay some dope $20 to drive their getaway car, he's their "employee" - but he's also a full participant in the conspiracy in the eyes of the law, and just as liable for the crime as anyone else. Why isn't the guy who drives a truck for the oil company that poisons the bay just as liable as the getaway driver? Or as liable as any owner?

Because the law makes an artificial distinction based on the perceived fairness of assigning unlimited liability equally to persons whose level of participation in the enterprise was not equal. That's why.

If the law can do that for employees, it can do it for limited-liability owners.

[Proprietist]

"if you want to claim that the distinction between liable owners and owners with limited liability is "artificial", then the distinction between owner and employee is also artificial."

I'm all for holding irresponsible employees completely responsible for their actions. And responsible employees will likely be punished for the actions of the irresponsible. Companies should purchase liability insurance for compensatory protections for both their employees and their stockholders. I don't think insurance should cover punitive damages for the actual responsible parties, but it will cover a scenario where damages exceed corporate value and avoid socializing costs onto the victims.

[Cathy]

I don't see what's hypocritical about saying that crony capitalism (or whatever you want to call it, I prefer corporatism) is bullshit, but as long as it's gonna happen, please direct those dollars going out the door to my donors, please. Seems like rational self interest to me. Don't hate the player, hate the game.

[Ska]

The players are also the referees, and write the rules of the game too. That's why.

[Cathy]

Which is why the game sucks. But hating on individual players for playing it to their own advantage is a counter-productive distraction.

[Ska]

So don't point at that they're fixing the game, just roll with it?

[R C Dean]

Don't hate the player, hate the game.

I find that I have plenty of hate to cover both. Its a renewable resource.

[flye]

Crony Socialism: From each according to his productivity, to each according to his political connections.

[squishua]

Why beat around the bush? Call it fascism.

[KPres]

I call it government.

[Isaac Bartram]

Capitalists want a market where owner liability is artificially limited by the State and creditors can be forced by the State to accept debtor's bankruptcy conditions.

No one is forcing creditors to lend to corporations.

Demanding that officers sign personal guarantees is standard practice when dealing with small businesses.

Even with large concerns (who are usually considered safer) creditors know exactly where they stand. Or they do until an administration decides they need to be thrown under a bus (built by GM) to serve the needs of one of their major political constituencies.

[Proprietist]

No one forced them to loan to corporations, and they knew there was some risk of bankruptcy. But that doesn't mean it isn't a huge market distortion that encourages the debtor to take more than they can repay and declare bankruptcy to protect assets purchased with that money. If the legal status of bankruptcy is eliminated, all renegotiations of debt will be voluntary, lending capital will increase, and irresponsible debt will be greatly discouraged.

[Isaac Bartram]

IIANM, the concept of bankruptcy predates corporations by a few centuries.

Neither is dependent on the other.

[Isaac Bartram]

Also, I think if you check the class of assets that can be protected by corporations is much smaler than it is in personal bankruptcies.

In a full bankruptcy (I can't be bothered to look up what number that would be) all of the corporation's assets are distributed to creditors in the order of their precedence (on a pro rata basis if necessary). Chapter 11 is a relatively new concept.

Personal bankruptcy, which has a shitload of protected assets, has nothing to do with corporate limited liability.

[Proprietist]

Of course, I oppose both personal and corporate state bankruptcy. If the debtor can't pay, they should go negotiate voluntarily; otherwise, I don't see any problem with lenders trying to cover their losses plus administrative costs through property seizure. I think in a free market where the debtor is acting in good faith, it is not in the lender's interest to seize property that would prevent the debtor the means to repay their loan.

[CatoTheElder]

CRony cAPITALISM = CRAPITALISM

[mad libertarian guy]

We really must come up with a better description than "crony capitalism" for this type of malfeasance -- after all capitalists make profits in competitive markets, not as a result of government handouts. Crony socialism? 

Isn't this redundant in the same way as writing wet water or unproductive bureaucrat?