More on 'Solargate'... What happens to 1,000 lost 'green' jobs?... 'One of the most obvious frauds' in the U.S... For-profit education loan defaults soaring... European central banks buying gold... Praise in the mailbag...
In the September 1 Digest, we discussed our bearish views on solar power... And the recent bankruptcy of Obama darling, Solyndra. The California-based rooftop solar panel manufacturer was founded in 2005. Two years ago, Obama granted the company $535 million in low-cost, government loan guarantees (the largest backing any solar company received from the federal government). The grant created more than 1,000 "green jobs"... jobs that wouldn't have existed otherwise.
On a site visit last May, Obama made a statement that will certainly haunt him (one of many throughout his reign): "It is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly, the best workers in the world. And you guys all represent that."
When Solyndra employees arrived at work on August 31, they were met by security guards, who handed them instructions on how to collect their final paychecks. The company declared bankruptcy on September 6.
Two days after the bankruptcy, the FBI raided the Solyndra offices. (The agency did not say why.) Agents for Energy Department Inspector General Gregory Friedman – who has said the department's clean energy loan program lacks "transparency and accountability" – joined the search yesterday. Friedman says inadequate documentation for the loans "leaves the department open to criticism that it may have exposed the taxpayers to unacceptable risks associated with these borrowers."
We've been saying for years that solar energy is a farce, a giant black hole for taxpayer money. The industry couldn't exist without massive government handouts… as the Solyndra saga is laying bare. Now, not even government officials can ignore this fraud…
"The FBI raid further underscores that Solyndra was a bad bet from the beginning and put taxpayers at unnecessary risk," Representative Fred Upton, a Michigan Republican who heads the House Energy and Commerce Committee, said yesterday. "President Obama's signature green jobs program went from a darling of the administration, to bankruptcy, to now the subject of an FBI raid in a matter of days."
And why would Obama choose this particular company to favor with the largest grant ever given to a solar energy business? While we aren't privy to the decision-making process, we do know this… A major Obama supporter, billionaire George Kaiser, owns about 35.7% of Solyndra.
The biggest insult to taxpayers surrounding this whole ordeal... The 1,000-plus ex-Solyndra employees are all applying for aid under the federal government's Trade Adjustment Assistance program. They will be retrained for other jobs. The department estimates the aid would cost $13,000 per ex-employee over the coming year.
We feel it pertinent to revisit our thoughts on the entire solar business (a view we've held from the beginning of the "solar boom")…
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I know the entire solar industry is a big con – it is impossible to efficiently use solar power and it always will be, thanks to the Second Law of Thermodynamics. Governments have tried to break the laws of physics because solar energy is popular, but all the subsidies in the world will never make solar energy viable as a reliable and efficient source of energy. That means solar stocks are ultimately doomed. – Porter Stansberry, January 17, 2009, DailyWealth |
While solar power could be the boondoggle to end all government boondoggles, we should also revisit another government money-fueled disaster (and another favorite short prospect of ours) – for-profit education... what we dubbed "one of the most obvious frauds ever foisted on the American people."
Porter focused part of his June 2011 issue, titled "New American Socialism," to the for-profit education sector. For the full story on this sector, please reread the June issue of Stansberry's Investment Advisory. We'll touch on a few key points today…
To access federal funds, known as Title IV funding, a college cannot receive more than 90% of its revenue from government-related sources. Worded another way, colleges only need to earn 10% of their revenues from private sources, a pittance.
Also, colleges can lose access to government funds if loans made to previous students experience default rates in excess of 25% for three consecutive years. But to count as a default, a student must stop repaying student loans in the first two years after graduation. From the June 2011 Stansberry's Investment Advisory…
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The repayments required during this [two-year] time frame are extremely low – much like the teaser rate on a subprime mortgage. The real extent of the problem can't be understood until you see the actual default rate on all loans. After all, the real default rate isn't the percentage of students who default in the first two years. It's the percentage of borrowers who never repay their debts. What is the real number? Well, we don't know. The Department of Education won't make that data public. |
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What we do know is the companies themselves write off between 50% and 60% of the private loans they make to their students. |
Despite the government's best efforts to keep this scheme in business, default rates are still creeping up. According to new data from the U.S. Department of Education, defaults are soaring... The default rate for students who should have started paying back loans in the 2009 fiscal year rose to 15% from 11.6% for those who began payments in 2008.
Although for-profit colleges enroll around 10% of the nation's undergraduates, those students make up 150,000 – nearly half – of the defaults, according to James Kvaal, deputy under secretary of education.
Already, the Association of Private Sector Colleges and Universities – a trade group of 1,500 for-profit schools – is crying foul. (The for-profit education sector spent $12 million on lobbying last year.) It says the default rates are misleading, calling the data "looking in the rearview mirror." It argues the 15% default rate will "go down when the economy improves and the unemployment rate drops."
But arguing over an uptick in the "official" default rate is beside the point. As Porter noted in June, the companies are writing off about 50% of their loans. They're not going to write down loans they don't have to. So the number of students who can't repay their loans is likely closer to that 50%.
Eventually, these companies will be exposed for the massive frauds they are. Put simply, the industry sells a product its customers can't afford. Its success depends primarily on its ability to manipulate Washington. (The industry would not exist without government money.) And the for-profit educators deliver little value.
Plus, much like "Solargate," the government risks a huge amount of taxpayer funds on the sector... According to Porter's June issue, "Wall Street experts estimate this industry will rack up around $250 billion in credit losses over the next decade – an amount of money that exceeds the losses from Fannie Mae and Freddie Mac so far."
To access Porter's August 2011 issue, where he tells readers about his favorite for-profit education short (the biggest fraud of them all), click here...
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New 52-week highs (as of 9/16/11): V.F. Corp (VFC), Westport Innovations (WPRT), Coca-Cola (KO), Hershey (HSY), EV Energy Partners (EVEP).
Lots of praise in today's Digest... We never tire of it. Send your feedback here... feedback@stansberryresearch.com.
"Dear Sean, Porter, et al, No shots here. Since I've been with Stansberry, I'm up 30% in a lousy market. I offend myself for not getting onboard earlier. Lifetime subscriber since 2011." – Paid-up subscriber Matthew Fridley
"You have such a gifted ability to visualize what may happen under many circumstances. Your keen intellect gives you fascinating insight and is something to behold. It is so enjoyable to reading what you have on your mind and your ability to for-see what is ahead for us is remarkable. You have been right on target up to now and I thank you for being up-front with you honest evaluation of international affairs. You are most enjoyable and enlightening so please keep it coming." – Paid-up subscriber RH
Regards,
Sean Goldsmith
Baltimore, Maryland
September 19, 2011