A Cautionary Tale

Folks clamoring for bank nationalizations ought to pause and reflect on this story about the Department of Energy's turn as a financier:

February 27, 2009
$25 Billion to Promote Electric Cars Is Untouched
By LESLIE WAYNE

WASHINGTON — The future of the American auto industry is getting off to a slow start.

The Energy Department has $25 billion to make loans to hasten the arrival of the next generation of automotive technology — electric-powered cars. But no money has been allocated so far, even though the Advanced Technology Vehicles Manufacturing Loan program, established in 2007, has received applications from 75 companies, including start-ups as well as the three Detroit automakers.

With General Motors and Chrysler making repeat visits to Washington to ask for bailout money to stave off insolvency, some members of Congress are starting to ask why the Energy Department money is not flowing yet. The loans also are intended to help fulfill President Obama’s campaign promise of putting one million electric cars on American roads by 2015.

“Politicians are breaking down the door asking why the money isn’t being sent out,” said Michael Carr, counsel to the Senate Energy Committee, which oversees the Energy Department.

It is a question that Lachlan W. Seward, director of the program, says he hears a lot these days. “We’re moving with a sense of urgency,” said Mr. Seward, who also oversaw the Chrysler Loan Guarantee Board from 1981 to 1984. “But at the same time we are trying to do this in a responsible way that reflects prudent credit policy and taxpayer protections.”

So, do these loan officers lose their jobs if they make bad loans?  Do they lose their jobs if they make no loans at all?  And which Congressman do they especially need to placate?

As soon as Steven Chu took office as energy secretary, some members of Congress started applying pressure on the fund.

Senator Evan Bayh, Democrat of Indiana, wrote Secretary Chu on Jan. 23, two days after he was sworn in, to say the agency is “under an obligation to issue the loans as soon as possible.”

Senators Dianne Feinstein, Democrat of California, and Olympia J. Snowe, Republican of Maine, who have led a bipartisan effort to increase fuel-mileage standards, followed with a letter calling for an “aggressive timeline” in issuing loans.

In response, Dr. Chu announced last week that the first loans would be made by late April or early May, adding that the program’s paperwork would be simplified and more staff would be hired.

More staff!  That is no doubt the first time in the history of bureaucracy that a problem was solved by throwing more bodies at it.  Or anyway, the first time today.  As to the reduction in paperwork, that is either a brilliant trimming of bureaucratic excess or a troubling reduction in loan standards - time will tell!

Well, let's think of this as a job-creating stimulus program, because those new loan officers will never be fired.

Comments

[Walter]

JustOneMinute. Tomorrow's news. Today.

Seriously, Tom, you're turning into the Drudge of the late aughts.

[Dan Collins]

Oh, yes. The Department of Oversight Oversight.

[Soylent Red]

Folks clamoring for bank nationalizations ought to pause and reflect

This assumes that anyone clamoring for bank nationalization has the capacity to reflect on anything deeper than Cartoon Network.

[kim]

Expensive, toxic batteries. Further loss of energy effeciency. Source of power where? Oh yes, the volume of hot air from politician's mouths.

Electric cars may be the solution someday. Let the market decide. Subsidies and mandates are the wrong way to do it. Procrustes is loose in the land.
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[Old Lurker]

"Procrustes is loose in the land."

Excellent, Kim

[kim]

Thanks, OL. I'm reading Apuleius's 'Golden Ass' in the Robert Graves translation. Classic stuff is, well, classic.
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[kim]

James Pethokoukis, in the US News, dissects cap and trade and points out that 'green is good for growth' is just the latest iteration of the 'broken window fallacy'. Found at icecap.us in the second tier of articles, scroll past the first bunch.
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[Old Lurker]

Kim, shame on you...you know a sense of history and appreciation for the wisdom of the classics is no longer of value around here (not JOM here, out here, here). Those authors are looking down on us and laughing...

[Boatbuilder]

Apparently, some "market-oriented" (i.e., sane) economists are favor a short-term nationalization, in which the government takes over the banks, cleans things up (a highly technical phrase which is reflective of the depth of my understanding of banking issues) and then sells back most of it to the private sector.
Unfortunately, the chances of the crowd in power now allowing any amount of power or control to be wielded by private enterprise are slim and none.
They also assume that "government" has any idea what to do, besides grab more power.
Truly scary.

[Kevin B]

adding that the program’s paperwork would be simplified

'Simplified' in bureaucratese does not mean the same as it does in English.

Why do you think they need to hire more staff?

By the time they've finished 'simplifying' the paperwork, we'll all be flying round on jet-packs and viable nuclear fusion will only be twenty years away.

[clarice]

Think of the money will save by never funding this garbage..What's the cost of a few hundred more bureaucrats compared to this?

[Ignatz Ratzkywatzky]

Apparently, some "market-oriented" (i.e., sane) economists are favor a short-term nationalization

AKA, receivership, and has been done in the past on a much smaller scale. It was done in 08 with Indymac.
It's unclear how it would work with something as titanic as Citi or BofA however.
Took something like seven years for the Feds to get untangled from Continental Illinois in the 80's and of course they actually did want to get untangled then, unlike today's Mensheviks.

[bgates]

the Advanced Technology Vehicles Manufacturing Loan program, established in 2007...intended to help fulfill President Obama’s campaign promise

Sounds like Doc Brown's DeLorean got some of the loans.

[Dagpotter]

These are loans, right, not contracts? Then I don't know what the hold up would be. I don't think government loans require all of the various clauses that a contract does, but there may be standards that any of the companies cannot meet on financial health. I am sure the government has a lot of terms to guarantee their getting paid back.

[Dagpotter]

OK, I went and read the Interim Rule that establishes the current application process. The Final Rule has yet to be published. The problem, I bet, after reviewing the requirements is that it is taking the DOE a lot of time to process the applications to make sure that it meets the requirements. The applicant must also submit a great deal of NEPA related information and this too needs to be evaluated. I bet that alone is taking months to do. There is also a lot of calcualations relative to mpg and cost. Knowing how the gov't works it could be several months before a loan is issued.