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Why You Should be Alarmed by Solyndra

NEW YORK ( TheStreet) -- Is the Department of Energy loan guarantee program that oversaw the not-surprising, though still scandalous bankruptcy of U.S. solar company Solyndra right now prepping more cool-looking 21st century green energy plants for eventual failure?

In testimony delivered to the House Energy investigative subcommittee this week, Jonathan Silver, the program's head, explained why the government kept Solyndra alive even after it was clearly in trouble:

" The DOE faced a choice: whether to (1) refuse to allow the Solyndra's restructuring, thereby ensuring that Solyndra would close its doors immediately, and that the U.S. taxpayer would recover only a modest amount of the loan; or (2) allow the company to accept the emergency financing, thereby giving it and its almost 1,000 workers a fighting chance at success, and the government a higher expected recovery on its loan," the testimony reads.

Silver explained that if the Solyndra manufacturing plant's construction wasn't completed, the company wouldn't have a tangible asset to value in the event of a liquidation.

Translation: The Department of Energy was building what it thought was a better bankruptcy, but a bankruptcy all the same. The DOE has said that "no one could have seen" what would happen in the solar market with Chinese manufacturers' flooding the sector with low-cost panels, but judging by Silver's testimony, the DOE saw Solyndra going bankrupt by 2010.

Mind you, this is the same DOE official who told TheStreet on multiple occasions in the past year, and as recently as July, that if the loan guarantee program worked as expected, taxpayers wouldn't lose one penny.

In that context, the testimony presents cause for serious alarm.

Here's why. First, the logic at work here is that once the government puts money to work in a loan guarantee project, it's too late to get out, even if it means putting more and more money at risk with little chance of the company succeeding, and hiding it from the public for as long as is possible.

We can at least take some comfort in the fact that the DOE didn't write a blank check from the federal coffers but the logic it used in allowing more money to be put at risk in the doomed company is, all the same, troubling.

By helping Solyndra refinance its $535 million federal loan, the DOE allowed the government to release another $67 million installment of the existing federal loan to the company. The DOE approved the restructuring despite warnings from Office of Management and Budget staff members that restructuring Solyndra could cost taxpayers $168 million more than liquidation, and the OMB ultimately decided the DOE plan was "reasonable."

Emails newly released by the House Energy committee show that White House staffers were also worried about the company at the time the DOE pushed the restructuring plan through, even worried about an eventual bankruptcy hurting President Obama's re-election chances.

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