Hill Democrats were already frosted at Obama on multiple fronts—his scuttling of the transportation bill; his handling of the health bill, cap-and-trade, and the seemingly endless war in Afghanistan; his failure to ask them for advice, invite them to events, and otherwise make them feel special; and his habit of denouncing “Congress” rather than “Republicans.” Anyway, the stimulus debate felt like a ball game that had been out of reach since the first quarter. One poll found only 6 percent of Americans believed it had created any jobs. That was less than the percentage of Americans who believed Elvis was alive or the moon landing was faked.
Some Democrats, not content to ignore the Recovery Act, began attacking it. Chuck Schumer, the camera-loving New Yorker in charge of messaging for Senate Democrats, began howling that 80 percent of the stimulus grants for wind projects had gone to foreign manufacturers. “The point of the stimulus was to create jobs in the United States, not in China,” Schumer said. In fact, those foreign manufacturers were creating jobs in the United States, no matter whose name was on the corporate polo shirts. The Recovery Act not only saved the U.S. wind industry, it nearly tripled the domestic content of U.S. wind farms, and only three of America’s 33,000 turbines were made in China.375 But for Republicans, the jingoism from Schumer—who usually knew which way the political winds were blowing—was pass-the-popcorn proof that the debate was over.
“It’s one thing if Republicans say the stimulus is wasteful,” gloats one senior GOP Senate aide. “It’s another thing if Chuck Schumer says it.”
For the White House, the political calculus of the Recovery Summer was simple: The stimulus was creating jobs, so people ought to hear about it. Duane Bartley was as real as the moon landing. The Recovery Act would probably remain unpopular as long as times remained tough, but if Obama showed what he was doing to turn things around, voters would remember once things turned around. It reminded Biden of the crime bill from the 1990s; crime wasn’t going to drop right away, but you had to be there every time a new cop was sworn in, so that when crime did drop people would give you credit.
“We’ve got a story to tell. Let’s tell it!” Biden argued.
At the end of May, Obama visited a factory under construction in Silicon Valley to tell one of those stories, a tale of the Recovery Act unleashing the next generation of California ingenuity.376 In retrospect, he should’ve left that particular story untold.
“It was here where weary but hopeful travelers came with pickaxes in search of a fortune,” Obama said that day. “It was here that tinkerers and engineers turned a sleepy valley into a center of innovation and industry. And it’s here that companies like Solyndra are leading the way toward a brighter and more prosperous future …”
(Not Glossy)
The White House went to amusing lengths to stage-manage Obama’s visit to Solyndra. “Can you confirm that his greeters will be wearing their normal everyday work clothes and safety gear?” the advance team emailed. “We want to make sure we have the construction worker feel.” Yes, confirmed, along with the twenty-foot-by-thirty-foot American flag, coffee and donuts for the press, and a robotic arm that would display a solar panel onstage during the president’s speech. Also, the team wanted a solid backdrop behind Obama: “Preferably not white. Something darker and matte (not glossy).”
Republicans claimed that the reams of Solyndra-related documents the administration later turned over to investigators exposed the true nature of the Obama White House, a Tammany Hall masquerading as an Aspen Institute. And it’s true that the email trail revealed White House aides obsessing about the political appearances of his visit to Solyndra. Not only did they choreograph that “construction worker feel,” they fretted the president might be embracing a corporate loser. With hindsight, the internal debates make for painful reading.
Solyndra had bled over $400 million in two years, and its auditor had just cited “substantial doubt about its ability to continue as a going concern.” So when it was announced that Obama would stop by Solyndra in a week, one OMB official sniped: “Hope doesn’t default before then.” The clean-tech venture capitalist Steve Westly, a California politician and Obama fund-raiser, warned White House senior adviser Valerie Jarrett that Silicon Valley had grave doubts about Solyndra.
“I just want to help protect the president from anything that could result in negative or unfair press,” Westly wrote. “If it’s too late to change/postpone the meeting, the president should be careful about unrealistic/optimistic forecasts that could haunt him in the next 18 months if Solyndra hits the wall, files for bankruptcy, etc.”
Westly’s email was immediately forwarded to Matt Rogers, who said the “going concern” language was standard for a fast-growing company preparing an IPO. Still, he saw three real problems for Solyndra. Silicon prices were plunging, which meant its high costs could be a crippling disadvantage. Europe was on the brink of another crisis, which was weakening demand in its top export market. And the company was “counting on an energy bill to pass” to build U.S. demand, which was like counting on Zookeeper to win an Academy Award. On the other hand, Solyndra’s sales were rising, and the stimulus-funded factory that would help it cut costs was on schedule to open that fall.
“Sounds like there are some risk factors here—but that’s true of any innovative company that POTUS would visit,” Klain told Jarrett. “It looks OK to me, but if you feel otherwise, let me know.” Jarrett said she was comfortable if Klain was comfortable. He assured her that Solyndra’s situation was common for high-tech start-ups.
“The reality is that if POTUS visited 10 such places over the next 10 months, probably a few will be belly-up by election day 2012—but that to me is the reality of saying that we want to help promote cutting-edge, new-economy industries,” Klain wrote.
“I agree,” Jarrett replied. “There is an inherent risk in highlighting a single company before they have a track record.”
Klain responded: “Or even after they have one : - )”
Republicans have exploited this paper trail to accuse the White House of “playing politics.” Newt Gingrich called Solyndra “a half-billion-dollar photo op.”
It’s true. Politics were played. Photos were taken. Is it news that presidential events are political? Perhaps Obama’s advance team went overboard micromanaging the Solyndra CEO’s sartorial choices—“I know he might think about wearing a suit, but I advise against it if at all possible”—and it was a sad day for the Republic when White House officials began using emoticons in their emails. But there’s nothing scandalous about trying to present policies in a positive light. Actual scandals involve actual policies. If anything, the White House didn’t think enough about the politics of Obama’s visit. “Going concern” letters are common, but Solyndra was burning cash like MC Hammer; there was no need to send the president to the riskiest stimulus project in California.
Sure enough, a month into Recovery Summer, Solyndra had to cancel its IPO, triggering another round of bad-news stories. It also replaced CEO Chris Gronet, the scientist who founded the firm and invented its technology, with veteran Intel executive Brian Harrison, a burly, buzz-cut former minor-league power pitcher who had manufacturing experience and an imposing presence. As Harrison described it to me later, Solyndra was the corporate equivalent of a science geek who hadn’t grown up. It was still obsessed with perfecting its technology long after it should have shifted into making and selling mode. Its research team was still far bigger than its marketing team, as if revenue was an afterthought. And its strategy was ludicrous. It was trying to appeal to the entire solar market, as if its technology were so incredibly cool that everyone would pay more for it, instead of focusing on the flat commercial rooftops where it had a genuine advantage.
“This is a very bad situation,” Harrison told his new employees. “You don’t need an MBA to figure out that this has to change, or we’re in big trouble.”
Maybe the Energy Department should have foreseen these problems. But there’s no ev
idence that “crony capitalism” had anything to do with the original decision to approve the Solyndra loan, or any other loan for that matter. Rogers did tell me he once encountered White House pressure, when a uranium enrichment company called USEC was pursuing a loan for a nuclear fuel plant in Ohio, but even that tale illustrates the limits of political interference in Obamaworld. The president had promised to support the plant during his campaign, so after Rogers rejected the loan, he was summoned to explain his decision to Jarrett—in the Situation Room, of all places. (It looks exciting in the movies, with all those video screens and blinking lights, but the West Wing is so overcrowded that it’s sometimes used as an ordinary conference room.) Rogers explained his skepticism about USEC, a former government enterprise.377 For one thing, it would still be short of the cash it needed to complete the plant even if the loan went through, a neon red flag in project finance. Deals are supposed to cover the cigars for the closing dinner—in other words, everything.
“You realize the president made a campaign promise?” Jarrett asked.
Yes, Rogers did.
“Well, if you’re sure, you’re sure,” Jarrett said. “But you better be sure.”
Rogers was sure, and the White House let him make the call.
Nevertheless, Boehner and McConnell have slammed the White House over USEC, not for pushing a flimsy loan that could have cost taxpayers $2 billion, but for rejecting the flimsy loan.378 Both Republican leaders usually attack the administration for picking winners and losers, but USEC operates in Ohio and Kentucky. McConnell also urged Chu to approve a loan for an electric vehicle plant in his home state. “I hope you will realize the importance of such job creation to Kentucky,” he wrote.379
Politics aside, there were real tensions baked into the loan program, and it became a source of intense debate inside the administration. The Energy Department was supposed to finance projects safe enough that taxpayers would get repaid, yet risky enough that banks wouldn’t finance them without federal help. So the budget monitors at OMB often delayed loans for months, demanding endless due diligence to make sure borrowers wouldn’t default. “It was a root canal every time,” an Energy Department official complains. And once OMB was finally satisfied a loan was safe, Treasury officials often asked: Then why does the government need to back it?
“You’re basically searching for Goldilocks projects—not too safe, not too risky, just right,” Klain says. “It’s a lot trickier than just giving people cash.”
Personalities inflamed the tensions. The head of the loan program, Jonathan Silver, was a brash Wall Street financier who was wearing a pink tie, monogrammed shirt, and bull-and-bear cuff links when I met him. He frequently antagonized the White House by demanding more autonomy to build his portfolio as he pleased, opening interagency meetings with long gripes about bureaucratic interference. On the other side of the debate, Summers was even less of a shrinking violet, and a harsh skeptic of government loans. He and Geithner intervened behind the scenes to kill a loan for Bloom Energy, the heavily hyped fuel cell company backed by the financier and Obama donor John Doerr. “Why the hell do they need our help?” Summers asked. Despite the loan program’s strong support in the clean-tech world, it was the only Recovery Act initiative scaled back after passage. Its $6 billion in reserves for bad loans shrank to $2.5 billion after it was raided to fund Cash for Clunkers in 2009 and the teachers jobs bill in 2010. Doerr and Al Gore both called to protest, but the White House held firm.
That $2.5 billion in reserves was still enough to finance nearly $40 billion worth of the most ambitious clean-energy projects in history, including a half dozen of the world’s largest solar plants and two of the nation’s first large-scale cellulosic ethanol plants. The Shepherds Flat wind farm in Oregon will also be the largest in the world, featuring 338 American-made General Electric wind turbines, generating enough green power to replace two coal plants. The first-of-its-kind Project Amp will install solar panels on over 750 commercial rooftops across twenty-eight states, producing a nuclear reactor’s worth of green electricity. Silver built the loan office into the world’s largest project finance team, hiring scores of Wall Street veterans laid off during the financial crisis, and that team invested more in green energy than the next ten largest American funds combined. It backed all kinds of loans the private sector wouldn’t otherwise provide, for companies like Solyndra with innovative technologies, as well as projects like Shepherds Flat with relatively mature technologies but unprecedented scale.
“Every bank wants to finance the second project,” Silver said. “We’re the bank that finances the first project.”
Summers just didn’t think the government belonged in the banking business. He was particularly galled by the $1.9 billion Shepherds Flat project, which would provide investors an expected 30 percent return on equity. “Larry didn’t get it, or didn’t want to get it,” one official says. “I wanted to grab him and say: You ignorant fuck! We want people to make money in clean energy!” Summers tried to kill the entire loan program, pushing to shift its funding into the renewable energy grants that Schumer was attacking in the press. They were creating more jobs at a faster pace than the loan guarantees, while requiring recipients to put more skin in the game.
Silver understood why his program was an inviting target. Companies were always complaining to Congress when they didn’t get loans, or didn’t get loans quickly enough, or their competitors got loans. The political system didn’t handle failure well, and failure was inevitable, because all banks make bad bets. It was a complex program, maybe too complex. But Silver was convinced that it was moving the country toward a low-carbon economy, carrying green technologies through the Valley of Death so that the private sector would finance them in the future.
“I’ll stipulate there’s a better way to do this: Put a price on carbon,” Silver told me. By making pollution expensive, a carbon price set through cap-and-trade or a tax on emissions would offset dirty energy’s market advantage. “But let me ask a question: Ya got one?” Silver continued. “No? Then this is the way to get clean energy to scale.”
Silver was so unpopular in the West Wing that Chu was warned not to bring him to the Oval Office meeting to decide the fate of his program. But Obama decided not to kill it.
“We’re not going to relitigate this,” Obama said.
Recovery Bummer
Obama kicked off Recovery Summer with another trip to Columbus, to celebrate the 10,000th Recovery Act road project with more construction workers in hard hats.380 The stimulus, he said, was doing exactly what it was intended to do. “As my friend Joe Biden would say, this is a big”—he replaced the expletive with a smile—“deal.” He pointed out that the last time he visited Columbus, for the police graduation, the economy was shedding 700,000 jobs a month and shrinking at a Depression-level pace. Now it was adding jobs and growing.
Still, unemployment was a gruesome 9.9 percent. So it was a muted celebration.
“I’m under no illusion that we’re where we need to be,” the president said.
The Recovery Summer was pure politics, a transparent effort to sell the stimulus in an election year. Obama spent a grand total of fifty-eight minutes in Ohio, just long enough to speak and pose for pictures. But the problem with Recovery Summer was not that it reeked of politics; stimulus critics played politics, too. The problem with Recovery Summer was that it reeked of terrible politics, because as LaHood said in Columbus, “the economy is still lousy.”
And then, inconveniently, it got worse.
The recovery stalled during Recovery Summer. Home sales hit an all-time low after the homebuyer tax credits from the stimulus expired that spring. Job growth slowed to a crawl, and economists began to fear a double-dip recession.
“We went out there just as the bad news was mounting,” Klain says.
The main problem was a debt crisis in Greece that was dragging down global growth. Meanwhile, states were slashing their budgets again, and Republicans were blocking Ob
ama’s push for more fiscal relief. And the Fed, after its whatever-it-takes exertions to save the financial sector, was curiously passive about the moribund labor market. At their monthly lunches, Christy Romer prodded Bernanke: “You need to do more monetary stimulus.” But Bernanke didn’t want to unless he absolutely had to. As he reminded Romer, there were other ways to jolt the economy: “You need to do more fiscal stimulus!”
Eventually, Congress approved a bit more fiscal stimulus, the Fed approved a bit more monetary stimulus, and modest job growth resumed that fall. But not before Recovery Summer crashed and burned. People saw more Recovery Act projects, but they didn’t see more recovery. “If you look at what we said, we were right. The construction numbers went way up,” Klain says. “But we still got lampooned. The narrative was: Biden predicted recovery, and look what happened.”
Between the gushing oil and the wilting recovery, Obama had a rough summer, too. He was mocked for golfing on tony Martha’s Vineyard while the economy tanked. “He created 70,000 new jobs this month,” Jay Leno said.381 “Too bad they’re all vacation planners for his family.” The White House put out word that he was pressing his economic team for bold new jobs ideas—he led a conference call from the Vineyard—but the sudden burst of activity just looked lame: Now he wanted ideas? Once the media decided he was drowning, every drip of bad news reinforced the narrative, especially after he defended the so-called Ground Zero mosque in Manhattan; during the spat, one poll found nearly half of Republican voters thought he was Muslim. As his approval ratings dipped into the low 40s, some Democrats began running ads bragging that they had stood up to the president. Even the artist behind the Obama campaign’s iconic “Hope” poster told reporters he was losing hope.
The New New Deal Page 42