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Editor’s Note:

I am speechless! Shame on you if you even consider buying a Tesla. Shame on Toyota for not standing on principle. Toyota’s CEO should have read and understand Hank Rearden’s trial speech.

A Dented Toyota Was Tesla’s Gain

The Wall Street Journal - Oct. 7, 2014 by Holman W. Jenkins, Jr.

How the Japanese car maker came to sell a factory to Elon Musk at a knockdown price.

The Toyota sudden-acceleration furor of 2010 was one of those colossal American dishonesties for which a reckoning never comes. No electronic bug was ever found (as government researchers attested). And among the many untold aspects is the Tesla connection.

“If I don’t do it, somebody else will,” might be the personal theme song of Elon Musk, building his industrial empire partly on taxpayer subsidies. In just the past few weeks, he received commitments totaling $2 billion from Nevada and New York for his battery and solar-panel businesses. And legendary are the handouts, state and federal, to his electric-car business, only the latest (that we know of) being California State Treasurer Bill Locker’s grant of $34.7 million in fresh tax breaks in December.

A little history: Back in 2007, Mr. Musk struck a deal with New Mexico to build his first Tesla factory, then reneged when California, largely in the person of Mr. Lockyer, offered a better deal. But where in California to build the plant? This is where the story gets ugly—and cautionary, as even Mr. Musk might appreciate.

On Aug. 27, 2009, Toyota rejected increasingly strident overtures from state politicians to keep open a perennially profitless joint Toyota GM plant in Fremont, known as Nummi, for New United Motor Manufacturing, Inc., which happened to be in Mr. Lockyer’s former state senate district and which GM was abandoning as part of its Obama -engineered bankruptcy.

California politicians convinced themselves it was Toyota’s obligation to keep subsidizing Nummi and its UAW workers. Toyota waved off millions in dangled “incentives.” It resisted legislators who listed every real and imagined benefit Toyota had received from taxpayers over the years, including carpool lane privileges for Prius drivers and the cash-for-clunkers federal handout.

It resisted the unfailing voice of liberal outrage, Bob Herbert of the New York Times, who scolded that “Toyota is paying the state back with the foulest form of ingratitude.”

Then, one day after Toyota’s announcement, came the fiery crash of a San Diego dealer’s loaner Lexus, which killed four people and became a cable television cause célèbre.

A floor mat improperly fitted by the dealer (who had been warned by a previous driver) was soon fingered. That didn’t stop Democratic Rep. Henry Waxman whose district closely neighbors Toyota’s U.S. headquarters from holding a televised House hearing to flog the sensational claim that an unseen electronic bug might cause millions of Toyotas to run out of control.

Mr. Lockyer the very next day convened his own ad hoc “blue ribbon” commission to berate Toyota about Nummi. Mr. Lockyer’s panel would shortly dispatch a delegation, including actor Danny Glover, to Japan to demand that Toyota keep open the plant to “produce a leading green vehicle associating the model with the progressive environmental image of the state.”

In case the company didn’t get the message, California Rep. Jerry McNerney spelled it out to Toyota U.S. chief Jim Lentz at the Waxman hearing: “Mr. Lentz, Toyota is currently experiencing major public relations problems and the public concern about safety failures is going to hurt your bottom line.

California is one of your biggest markets, and it’s obvious that keeping Nummi open will help rebuild your image. Wouldn’t that be beneficial to Toyota?”

The Tesla-related sums would prove a rounding error in the total cost of the unintended acceleration fracas to Toyota, which has run to many billions, but Toyota got the message. Several weeks later it announced a deal to transfer the giant Nummi complex to Tesla at a knockdown price. It also agreed to invest $50 million in Tesla’s forthcoming IPO and spend $160 million to buy Tesla components for a hastily designed Toyota electric SUV that would be sold exclusively in California for about half what it cost to build.

This deal may well have assured the success of Tesla’s IPO a few weeks later. To its credit, the Los Angeles Times would level with its readers about Nummi, citing an industry consultant to the effect that “California just isn’t competitive in manufacturing with its taxes, regulations and overall cost of doing business.”

Perhaps the moral is obvious but dishing out handouts to favored businesses like Tesla at the expense of the state’s other taxpaying workers and employers is hardly a solution to California’s problems. And such Mommie Dearest love brings its own Faustian risk: The favored business can find itself, as Toyota did, under pressure permanently to subsidize a money-losing plant as a “success” politicians can point to even as their policies ensure that real success eludes other businesses in the state.

By the way, the most lavish of Toyota bashers was state Sen. Ted Lieu, who likened the company to Lincoln assassin John Wilkes Booth. Mr. Lieu is likely to become Mr. Waxman’s replacement when the 40-year veteran retires after next month’s election.

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Editor’s Note:

Do you like fancy sports cars? If so, you will soon own one without the privilege of actually having to take possession or drive it. Even if you don’t like them you get to pay for them. Cronyism is alive and well and has a pretty face – not Musk, but the car.

This is more than pathetic. It is outright theft. Time to shrug?

Nevada Gets Musked

The Wall Street Journal - September 17, 2014

Charles Munger, vice chairman of Berkshire Hathaway, the other day described Silicon Valley billionaire Elon Musk as a "genius." Maybe he was alluding to the Tesla CEO's cunning ploy to mine subsidies from Nevada taxpayers.

Last week the Silver State's legislature unanimously approved $1.3 billion in tax breaks for Tesla to build a $5 billion lithium battery factory in Reno that will supply its electric-car plant in Fremont, California. "We have changed the trajectory of this state, perhaps forever," declared Republican Gov. Brian Sandoval, who wagers that the "Gigafactory" will grow the state's economy by $100 billion, or about 80%, over 20 years. Will he take that bet to Vegas?

Politicians bribing businesses to locate in their state is an old if unfortunate story. Tennessee this year offered Volkswagen $274 million to expand its Chattanooga plant. Last year Washington awarded long-time employer Boeing $8.7 billion over 16 years to build its new 777X jetliner in Puget Sound.

But the Tesla giveaway is in a category of its own, coming in an unproven market for a company that has never recorded an annual profit (based on generally accepted accounting principles), notwithstanding various subsidies. Nevada's gift is 15 times larger than any incentive package the state has awarded and among the richest nationwide.

Mr. Musk handled it like a private Sotheby's auction, launching a secret bidding war among southwestern states with a price floor of $500 million. Tesla also wanted to be exempt from states' dealer laws that prevent car companies from selling directly to consumers. Such dealer laws are bad policy, but it must be nice to carve out an exemption that doesn't apply to Ford and GM.

In June Tesla broke ground at the Tahoe Reno Industrial Center, yet Mr. Musk denied that he had made a decision. "We'll be doing something similar in one or two other states," he cautioned, because "it makes sense to have multiple things going in parallel." Message: Better not under bid.

Earlier this month Mr. Musk declared Nevada the winner. "It wasn't all about the incentives," he noted. Nevada is "a get-things-done state." Gov. Sandoval surely appreciated that in-kind contribution to his re-election campaign. Mr. Musk also intimated that Nevada made the most logistical sense. Reno is easily accessible by rail and highway to Fremont, and Nevada hosts the only active lithium mines in the U.S.

But if those were the attractions, then why should Nevada have to pay such a steep subsidy price? Tesla will be exempt from property taxes for 10 years and sales taxes for 20 years at a cost of $1.1 billion to taxpayers. Tesla will also get $195 million in transferable tax credits that it can sell to other businesses. Since Nevada has no personal or corporate income tax, Tesla will effectively operate tax-free in the state.

Tesla will also receive a 10% to 30% electricity discount over eight years. The NV Energy public utility will pay for this discount by charging other customers $1.84 more on average per year. Mr. Musk claims the factory will generate all the renewable energy it needs, but the utility discount will pay for back-up power from the grid because renewables provide intermittent energy.

By being connected to the grid, Tesla will also be able to exploit Nevada's "net-metering" regulations to sell its excess renewable power back to the utility at the retail price, which can be up to 50% higher than wholesale. So Tesla can buy electricity at a discount, and then sell it for a premium.

Tesla will also get a 30% federal tax credit for building its own renewable generation, which will help wipe out its future federal tax liability, assuming it has any. Tax credits and carry-forward losses have already absolved the company from paying federal income tax since at least 2008. Last year Tesla paid a mere $2.5 million in corporate income taxes—zip to Uncle Sam, $178,000 to the states and $2.35 million to foreign governments.

California Gov. Jerry Brown shrewdly observed on Friday that "Nevada's tax breaks are California's benefit" because they will help Tesla cut the cost of its cars by half to $35,000. Mr. Brown understands that California's target of getting one million "zero-emission vehicles" on the road by 2020 will require much larger price discounts than the state's $2,500 rebates.

So maybe Mr. Musk really is a genius, of the political kind at least. He's figured out that as long as you pick a politically favored industry you can be one of the world's richest men and still get taxpayers to finance your operations and become even richer. Not so smart are the Nevada politicians who seem to have no idea how thoroughly they've been fleeced.

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Editor’s Note:

Crony business people are the most evil impediment to free market capitalism in existence. Their ability to buy favoritism at the expense of honest business people is epidemic. It is so rampant and so ingrained; it will take a monumental turnaround in the political life of this country. Cronies represent a huge financial clout and therefore a huge amount of political influence.

The Clinton Show Returns

Terry McAuliffe's GreenTech fiasco recalls 1990's scandals.

Wall Street Journal - November 3, 2013

Hillary and Bill Clinton are gearing up for a 2016 presidential run, and Tuesday's election for Virginia Governor is a preview of coming attractions. Terry McAuliffe, Bill and Hill's longtime friend and financial impresario, is leading Republican Ken Cuccinelli despite a federal probe of one of his businesses. For aficionados of the 1990s, the story includes the familiar cast of Clinton characters leveraging connections for political favors.

The focus is GreenTech Automotive, which was supposed to produce electric vehicles. Mr. McAuliffe launched GreenTech in 2009, looking to burnish his business credentials in anticipation of a second Virginia run (he lost a primary in 2009). In its hunt for cash, GreenTech turned to the federal government's EB-5 program, which provides visas to foreigners who invest at least $500,000 to create U.S. jobs.

EB-5 was created in 1990, and a federal immigration agency approves "regional centers"—often private companies—to administer the program. This outsourcing has raised national-security alarms, while federal authorities have a growing list of investigations into, or enforcement actions against, U.S. entities that have used the program to defraud foreigners.

GreenTech's use of EB-5 first raised red flags in 2009 as part of its application for Virginia state incentives to build a manufacturing plant. The state development agency refused, with one agency official writing in an email to colleagues that she couldn't view GreenTech's EB-5 program as anything other than "a visa-for-sale scheme with potential national security implications."

Mr. McAuliffe turned to Mississippi, where he landed $5 million in state incentives to build a factory on the promise of creating 350 jobs by 2014 and producing thousands of cars. Mr. McAuliffe's business partner, GreenTech co-founder Charles Wang, got another of his companies, Gulf Coast Funds Management, certified as a regional center for EB-5 visas for Mississippi and Louisiana.

Mr. Wang installed as CEO of Gulf Coast none other than Hillary Clinton's younger brother, Anthony Rodham. Gulf Coast's board includes several Democratic Party notables, such as former Clinton IRS Commissioner Margaret Richardson and former Louisiana Governor Kathleen Blanco. While Gulf Coast exists to direct EB-5 investments to startups across its entire "region," to date its website lists one project: GreenTech.

Mr. McAuliffe and Co. then began leveraging political connections to accelerate the visa process. The Washington Post has reported that government documents show that Mr. McAuliffe, Mr. Rodham and others at GreenTech and Gulf Coast had a dozen email and telephone conversations with senior officials at the Department of Homeland Security, including director of U.S. Citizenship and Immigration Services Alejandro Mayorkas.

You may remember Mr. Mayorkas. In the final days of the Clinton Administration, while working as a U.S. prosecutor in California, he called the Clinton White House to seek an early prison release for convicted cocaine trafficker Carlos Vignali. Mr. Mayorkas called at the request of Vignali's father, a prominent Democratic donor, who had also paid Hugh Rodham (Mrs. Clinton's other brother) $200,000 to lobby for the commutation. Mr. Clinton granted clemency on his last day in office.

Mr. McAuliffe met personally with Mr. Mayorkas, reached out directly to (now former) Homeland Security Secretary Janet Napolitano, and contacted Mrs. Napolitano's chief of staff Noah Kroloff, according to testimony and publicly released documents and emails. He was clearly heard. DHS Assistant Secretary Doug Smith sent a February 2013 email to Mr. Kroloff: "Any way you can kick [Mr. Mayorkas] into gear? If this doesn't get resolved by [close of business] today, the [GreenTech] plant will have to shut down and lay off 100 people on Monday."

It isn't clear what DHS did on GreenTech's behalf, but a GreenTech prospectus in March said the company had received about $46 million from EB-5 investors. The Associated Press reported in July that the DHS inspector general has launched a preliminary investigation into whether Mr. Mayorkas improperly helped GreenTech. Republican Senator Chuck Grassley says he has documents showing Mr. Mayorkas bypassed normal security checks to accelerate visa approvals. Several DHS officials have requested whistleblower status to report that DHS officials gave preferential visa treatment to companies like Mr. McAuliffe's.

The Washington Post reported in August that one Chinese national who applied for a visa through Gulf Coast is an executive at Huawei Technologies, the telecom company that the House Intelligence Committee says poses a threat to U.S. security. The Post also reported that the SEC has subpoenaed GreenTech and Gulf Coast documents as part of a separate investigation into solicitation of foreign investors. Meanwhile, GreenTech's Mississippi site sits largely vacant, with a mere 80 employees and nary a car produced.

DHS, GreenTech and Gulf Coast officials have all publicly denied any wrongdoing. President Obama has nominated Mr. Mayorkas for the number two post at DHS, and at his July confirmation hearing he said he did not give special treatment to GreenTech. Mr. McAuliffe, who resigned from GreenTech last December (though he remains the largest investor), wrote in the Washington Post in August that investigators had not contacted him.

All of which will sound familiar to anyone old enough to recall the ethical follies of 1990s: the insider political deals, the dubious pardons, the stonewalling, and the denials that proved to be false after the election. If Mr. McAuliffe wins on Tuesday, the Clinton Show will officially be back in town.

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Editor’s Note:

If this commentary doesn’t prove politicians will do anything to stay in office nothing will. What is the difference between a politician and a statesman? A politician has no principles and a statesman will always stand by his.

Is there a statesman left in Congress? Even the staunch conservatives usually will vote for pork in their home states. Ex Senator Jim DeMint may have been the one exception. Too bad he couldn’t have been an Objectivist and gone to TAS or ARI instead of The Heritage Foundation.

Isn’t it time to shrug and create a mass movement to throw Kerry and his ilk out?

John Kerry's ObamaCare Boondoggle

Wall Street Journal - June 21, 2013 by Kimberley Strassel

A bipartisan backlash is growing against another section of President Obama's health-care law. The president can blame this latest embarrassment on none other than Secretary of State John Kerry.

Everyone remember the origins of the so-called Affordable Care Act? The Cornhusker Kickback, the Louisiana Purchase, Gator-Aid, and other buyoffs for the votes of key Senate Democrats?

Three years on, yet another sweetheart deal has declared itself, this one inserted by the then-senator for Massachusetts. In Congress, it's becoming known as the Bay State Boondoggle.

At issue are the dollars that Medicare pays to hospitals for the wages of doctors and staff. Before the new health law, states were each allocated a pot of money to divvy among their hospitals. The states are required to follow rules in handing out the funds, in particular a requirement that state urban hospitals must be reimbursed for wages at least at the levels of state rural hospitals.

Enter Mr. Kerry, who slipped an opaque provision into the Obama health law to require that Medicare wage reimbursements now come from a national pool of money, rather than state allocations. The Kerry kickback didn't get much notice, since it was cloaked in technicality and never specifically mentioned Massachusetts. But the senator knew exactly what he was doing.

You see, "rural" hospitals in Massachusetts are a class all their own. The Bay State has only one, a tiny facility on the tony playground of the superrich—Nantucket. Nantucket Cottage Hospital's relatively high wages set the floor for what all 81 of the state's urban hospitals must also be paid. And since these dramatically inflated Massachusetts wages are now getting sucked out of a national pool, there's little left for the rest of America. Clever Mr. Kerry.

The change has allowed Massachusetts to raise its Medicare payout by $257 million, forcing cuts to hospitals in 40 other states. The National Rural Health Association and 20 state hospital associations in January sent a panicked letter to President Obama, noting that the Massachusetts manipulation of the program would hand that state $3.5 billion over the next 10 years at the expense of Medicare beneficiaries everywhere. They quoted Mr. Obama's former head of the Centers for Medicare and Medicaid Services, Donald Berwick, admitting that "What Massachusetts gets comes from everybody else."

Mr. Kerry's Yankee ingenuity isn't going down well with . . . most of Congress. Even representatives from the handful of states (nine) that have benefited along with Massachusetts from the new formula realize that mergers in the hospital arena, and changing "rural" designations, mean they could be hit in the future.

Missouri Democratic Sen. Claire McCaskill, an ardent supporter of Mr. Obama's health law, teamed up earlier this year with Oklahoma Republican Sen. Tom Coburn to introduce legislation to kill the Bay State fleecing. Sixty-eight senators voted for the amendment as part of the (nonbinding) Senate budget resolution in March. That number included 23 Democrats, among them powerhouses of the liberal caucus: New York's Chuck Schumer and Kirsten Gillibrand, Wisconsin's Tammy Baldwin, and Minnesota's Al Franken.

Ms. McCaskill (whose state will lose $15 million in hospital payments this year) is now demanding a binding vote, and on Monday she sent out another letter ginning up names to add to the 23 bipartisan co-sponsors she and Mr. Coburn have for stand-alone legislation. Texas Republican Kevin Brady recently introduced a similar repeal bill in the House, where it already has 36 co-sponsors.

House Chief Deputy Whip Peter Roskam, a Republican co-sponsor, notes that his (and President Obama's) home state of Illinois has already lost $60 million. "It's a zero sum game that reinforces all of our worst fears about how the health-care law was drafted. Backroom negotiations, secret deals, and now this long con on Medicare reimbursement rates that is already doing real damage to Illinois hospitals," he tells me.

The episode is also heaping embarrassment on the American Hospital Association, a cheerleader for the health law that is now robbing most of its members blind. Rather than endorse current boondoggle-repeal efforts—which would require it to publicly admit its mistake—the AHA is hiding behind calls for more "comprehensive reform" of the wage-payment system.

That dodge isn't likely to satisfy its cash-strapped members for long. Indeed, the fury from state hospitals is growing daily, heaping enormous pressure on members to join this latest cleanup of the president's rushed law.

If anything, this revolt is illuminating a notable trend. Whether it's the 2011 repeal of the health law's tax-reporting requirement, or the bipartisan push to repeal its medical-device tax, or this Bay State fix, the political template has looked the same. Vulnerable Democrats, under pressure from home-state constituencies, want to look willing to "fix" or "improve" parts of a wildly unpopular health law that they supported. This has provided Republicans with the opportunity to recruit them for bipartisan votes to repeal parts of the act.

That template is worth remembering as the law flails ahead into a no man's land of soaring premiums, rickety health exchanges and expensive mandates and taxes. A lot of home-state constituencies are going to be screaming. And a lot of members are going to be looking for cover.

Write to kim@wsj.com

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Editors Note:

This is one of the most pathetic cases of crony business practices I’ve read this year. If you invest in or purchase from Tesla Motors, General Motors or Chrysler, shame on you. But here is the real deal – if you make your living honestly you may have less money than the cronies, but you sleep at night and wake up proud and happy. If you make your money as a crony you may have lots of money, but the stench of that unearned cash never goes away. You don’t sleep well at night because you know you are a fraud and you wake up with shame and unhappiness.

The Wall Street Journal May 24, 2013

The Other Government Motors

The list of the Obama Administration's industrial policy failures is long, from Solyndra to Fisker Automotive. But now we are hearing that one success redeems them all: Tesla Motors. Tesla's share price has soared this year on rave reviews for its electric car, growing sales and its first quarterly profit.

Rarely noted is how much this profit is a function of government subsidy and coercion. So let's take apart Tesla by the numbers, if only to give our reader-taxpayers a better sense of what they've paid to make Tesla's owners rich.

The decade-old Tesla debuted its first product, the Roadster, in 2006. With a base price of $109,000, it was discontinued before it hit 2,500 sales. Tesla introduced its Model S a year ago and had sold an estimated 9,650 at a bargain $70,000 through April. By contrast, Ford sold 168,843 F-series pickup trucks in the first quarter alone.

Tesla wouldn't have sold even that many cars without the extraordinary help of government. In 2009 the company received a $465 million Obama loan guarantee, supplemented last year by a $10 million grant from the California Energy Commission.

That money has underwritten Tesla's engineering and manufacturing, but federal and state governments also subsidize the purchase of Tesla products. Any U.S. buyer of a Tesla car qualifies for a $7,500 federal tax credit, while states like Colorado throw in up to $6,000 more in state income-tax credits. Taxpayers pay first so Tesla can build the cars and again to help the wealthy buy them.

These subsidies are important enough to Tesla that its website features an "Incentives" section directing buyers where to look for their states' electric-vehicle benefits—rebates, free parking, exemptions from state sales tax, use of high-occupancy lanes, and the like. Buyers from states that offer no incentives get this Tesla message: "Want to help make EV [electric vehicle] incentives a reality in your area? Encourage your local or state representative by calling or sending them a letter."

Tesla's biggest windfall has been the cash payments it extracts from rival car makers (and their customers), via its sale of zero-emission credits. A number of states including California require that traditional car makers reach certain production quotas of zero-emission vehicles—or to purchase credits if they cannot. Tesla is a main supplier.

A Morgan Stanley report in April said Tesla made $40.5 million on credits in 2012, and that it could collect $250 million in 2013. Tesla acknowledged in a recent SEC filing that emissions credit sales hit $85 million in 2013's first quarter alone—15% of its revenue, and the only reason it made a profit.

Take away the credits and Tesla lost $53 million in the first quarter, or $10,000 per car sold. California's zero-emission credits provided $67.9 million to the company in the first quarter, and the combination of that state's credits and federal and local incentives can add up to $45,000 per Tesla sold, according to an analysis by the Los Angeles Times.

One irony is that rival car makers—even those making electric hybrids or gasoline subcompacts—don't get the same benefit from zero-emissions mandates. As environmentalist Bjorn Lomborg notes, manufacturing and charging electric cars over their life cycle can produce more carbon than small, gas-powered vehicles. Yet Tesla is cashing in because of the policy bias for fully-electric cars.

Another irony is that the main beneficiaries of this electric-car largesse belong to—well, the 1%. Tesla co-founder Elon Musk is already a successful entrepreneur, and his estimated net worth has soared past $4 billion thanks to the IPOs of Tesla and Solar City (a separate operation that received a $344 million federal loan guarantee).

Also realizing Tesla IPO windfalls are the elite of Silicon Valley venture capital: the Westly Group (whose principal, Steve Westly, is an Obama campaign bundler), Draper Fisher Jurvetson, and VantagePoint Venture Partners. Other paupers in the Tesla venture include or have included Daimler, Fidelity Investments, Google co-founders Sergey Brin and Larry Page, Hyatt heir Nick Pritzker, and former eBay president Jeff Skoll. The state-owned Abu Dhabi Water & Electricity Authority last year booked a $113 million profit selling its share of Tesla. You're welcome.

Tesla isn't oblivious to the politics of all this, and on Wednesday it said it had fully repaid its government loan. That's good, since Tesla's long-term prospects are far from certain. The major auto makers will soon have their own zero-emissions vehicles, which Mr. Musk says will end Tesla's credits boom by year end. Analysts are also warning that Tesla has yet to show it can sell its very pricey car to a mass market.

Tesla's investors claim this taxpayer support is worth it if it creates a new electric-car company, and for them it is. But such a success must still be measured against other taxpayer losses and misallocated capital.

And even if Tesla's cars do sell, the policy question is why billionaires in California couldn't have financed the business themselves. Why should middle-class taxpayers whose incomes are falling still pay to subsidize the purchase of cars that only the affluent can afford, and then partly as a gesture of their superior environmental virtue? When does the rest of America get its return on Tesla's profits?

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Editor's Note:

This commentary with its pathetic subject matter belongs in everyone’s consciousness. It describes the full meaning of our current political and business worlds. It marries the principle of crony politicians and crony business people. The only question about this kind of immoral behavior is which came first – the chicken or the egg – the dirty politician or the cowardly business people.

Why do we stand for this? Join us at Time To Shrug to learn more of what you can do.

Wall Street Journal April 12, 2013 by Kimberly Strassel

Terry McAuliffe's Solyndra

Running for governor of Virginia, the Democrat's main business credential is fast turning into a crony-capitalist embarrassment.

Turn over any green-energy rock, and wiggling underneath will be the usual creepy mix of political favoritism and taxpayer-funded handouts. Add to this the Clintons, Mississippi and a murky visa program, and you've got a particularly ripe political embarrassment for Terry McAuliffe.

Everyone remember The Macker? Best Friend of Bill. Chairman of Hillary's 2008 presidential campaign. Famed money-tree shaker. Former Democratic Party chief. Failed 2009 contender for the Virginia governorship but now back as the party's nominee for that position in this fall's election. Oh—and in Mr. McAuliffe's words—"a Virginia businessman" intent on "creating jobs."

Or at least that was the image Mr. McAuliffe sought to portray in 2009, when he became chairman of a car company called GreenTech Automotive, with plans to produce golf-cart sized electric vehicles. The former DNC chief is no stranger to moneymaking, having once used a friendly union pension fund to spin a $100 investment in a Florida land deal into $2.45 million. GreenTech, however, was designed to shed the moneyman image and to reposition Mr. McAuliffe as a (clean) job creator the way Mark Warner and Bob McDonnell used their pro-business credentials to win office in Virginia.

To this end, Mr. McAuliffe got out the political Rolodex and went on the money hunt. By October 2009, GreenTech announced it would build a plant in Tunica, Miss., after the state (under Republican then-Gov. Haley Barbour) promised at least $5 million in public loans and grants to aid the company moving in.

GreenTech bragged that in its first phase alone it would invest $1 billion, employ 1,500 and produce 150,000 cars annually. Mr. McAuliffe grandly unveiled his signature MyCar last July at a rock-star event attended by Messrs. Clinton and Barbour. Business creds in hand, he then announced his run for governor—and the problems began.

Among the first questions he was asked was why, as a proud "Virginia" businessman, he'd located his business in Mississippi. Scrambling, Mr. McAuliffe stated that he had wanted to bring his jobs home but the Virginia Economic Development Partnership "didn't want to bid on" GreenTech—whereas Mississippi had offered incentives. He went so far as to criticize the state for not going after manufacturing jobs like his, suggesting he'd change that.

After an investigation, media outlets discovered that Virginia never received enough information from GreenTech to proceed. The Associated Press reported that the state agency worried that "GreenTech lacked brand recognition; had not demonstrated vehicle performance; had no federal safety and fuel-economy certification; no emissions approval . . . no distribution network" and (ouch) "no demonstrated automotive industry experience within the executive management team." Rather than respond to these concerns, GreenTech moved on with Mississippi (which perhaps wasn't asking annoying questions).

Virginia was particularly alarmed by GreenTech's use of an opaque visa program, called EB-5, to fund itself. Part of a 1990 immigration law, EB-5 lets foreigners who invest at least $500,000 in a U.S. company receive green cards. A federal immigration agency approves "regional centers" that administer the program.

While these centers can be run by local government, GreenTech proposed running a Virginia center itself. One official at the Virginia development agency wrote to colleagues that she couldn't view Greentech's EB-5 program as "anything other than a visa-for-sale scheme with potential national security implications."

GreenTech is today using its own investment vehicle to run a regional center in Mississippi. The president and CEO of Gulf Coast Funds Management is Anthony Rodham, the youngest brother of Hillary Clinton. Its board is composed of Democratic Party insiders, from former Clinton IRS Commissioner Margaret Richardson to former Louisiana Gov. Kathleen Blanco. Neither the immigration agency, nor GreenTech or Gulf Coast, has divulged how much money the company has raised via EB-5, or how many visas it has issued.

This is of particular interest, since GreenTech looks to be a lemon. Despite promising production in 2011, there is no evidence the company is manufacturing any cars in volume. It is operating out of a temporary site and has yet to begin building its flagship factory in Tunica. GreenTech is the latest proof (after Solyndra, Fisker, A123 and others) that the political class is adept at hooking up cronies and investors with taxpayer dollars. But creating jobs? No can do.

This may explain the latest news bomblet. Mr. McAuliffe continued flogging his GreenTech credentials this year, appearing in January at a trade show under the title "chairman of GreenTech Automotive." Recent media reports have also used that title—with no protest from the candidate. But as the heat mounted, his campaign last week released a letter that claims Mr. McAuliffe had resigned from GreenTech by Dec. 1, 2012. The company, Mr. McAuliffe would now like everyone to know, has nothing to do with him.

The Democratic pol may not shake the story so easily, given the degree to which he made the firm central to his gubernatorial run. Green crony capitalism is proving to be one of the more politically toxic stories of our time. And in this case, just in time for an election.
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Editor's Note:

The Federal National Mortgage Association is known as Fannie or Fannie Mae. The Federal Home Loan Mortgage Corporation is known as Freddie or Freddie Mae. These are cute nicknames for horrendously dangerous crony businesses.

This is no finer example of what is wrong with our culture, our economy and our politics that the creation and support of these two entities.

In addition to the Federal Reserve System, these two need to be abolished. If they should exist at all should be up to the marketplace. They have drained billions of dollars from US tax payers and US citizens who don’t pay tax via the FED printing press all in support of home mortgages.

Their sole function outside of rewarding their shareholders and executives is to subsidize home mortgages.

So what’s the problem you say? Most everyone pays taxes and most everyone has a mortgage backed by these two entities. So who got hurt?

Supporting these two and their policies is like everyone in the country throwing all their money into a pot and then everyone grabbing money from the pot – first come, first served. Sounds fair, doesn’t it. And the final problem is the pot is leaking big time and the spillage is ending up in the lobbyists, the shareholders and the executive’s pockets and certainly the politicians who support this corruption.

Wall Street Journal – March 14, 2013 by George Melloan

Fannie, Freddie and the Government's House of Cards

The nascent housing price recovery is restoring health to Fannie Mae and Freddie Mac, the two government-sponsored enterprises that contributed so much to the crash of 2008. Both had earnings in 2012 and thus won't need money from the U.S. Treasury to cover operating losses. In the preceding three years they had cost the taxpayers over $180 billion. Is that good news? Well, not entirely. It is true that with Fannie and Freddie now able to pay the Treasury rather than draw money out, their immediate burden on the taxpayer has been relieved. But that also makes it more likely that their present limbo status as effectively nationalized banks originally intended as temporary will be prolonged.

When Fannie and Freddie were losing money, Congress had a strong incentive to privatize or liquidate them. Many plans were devised. The Obama administration proposed three options, the third of which was to restore them to the public-private status that fueled their rapid expansion in the late 1990s and early 2000s and contributed to their downfall.

Now that these GSEs promise to become cash cows able to palliate the government's budgetary distress, Washington talk about "resolving" them is more subdued. The latest monthly Federal Reserve survey reported that "home prices rose amid falling inventories across much of the country." The GSEs' business in mortgage-backed securities is thriving, with Fannie having issued $865.5 billion of these instruments in 2012. The Fed is buying up $40 billion of mortgage-backed securities a month to keep interest rates for home buyers at rock bottom. So the two mortgage giants may be able to sustain their earnings recovery.

The disturbing thing about this rosy scenario is that the entire home mortgage industry not only Fannie and Freddie been effectively nationalized. True, there are still lots of private banks and mortgage companies generating and servicing mortgages, so the government doesn't "own" the whole industry. But the government (or the lucky half of the population who pay income taxes) now owns most of the risks.

On the website ProPublica, Jesse Eisinger totaled up the numbers. As of December, he found that government agencies mainly Fannie and Freddie but also the burgeoning Federal Housing Administration bought or insured more than nine out of 10 home mortgages originated last year, a $1.3 trillion business. In 2006, the government share was only three in 10.

When you add that monstrous taxpayer obligation to others acquired in recent years, it begins to look like real money. Student loans, which were subsumed by the government in 2010, represent another trillion-dollar business, and delinquencies are rising rapidly. Some observers ask whether these will cause America’s next "subprime" crisis.

Then there is the exposure supervised by the Financial Stability Oversight Council, created in 2010 by the Dodd-Frank financial-reform law. This council is commissioned to "resolve" the nation's "too-big-to-fail" banks when they fail, most likely with taxpayer money if the 2008 precedent is any guide. Plus, of course, there is the Federal Deposit Insurance Corporation, the Pension Benefit Guaranty Corporation and other lesser and long-standing government insurers.

And none of this includes the astronomical obligations represented by the future promises of Social Security, Medicare, Medicaid and ObamaCare to vast numbers of Americans.

Thanks to developments over the last four years, the government is now insuring a large chunk of America's nearly $16 trillion economy while being essentially bankrupt, having run budget deficits exceeding $1 trillion for the last four years. The future insurance and entitlement obligations are, of course, off the books.

The housing industry obligations are partly the work of powerful Washington lobbies. When President Clinton forced the banks to begin their subprime mortgage binge in the 1990s, he called it "affordable housing" for people with limited means, a politically appealing idea. But the real muscle came from well-heeled lobbies the builders, real-estate agents, bankers and construction-worker unions.

As we should have learned in the 2000s, guarantees and taxpayer-supported lending create moral hazard. With Uncle Sam backing you, risk analysis is thrown out the window. Current FDIC bank-capital standards give a zero risk rating to securities guaranteed by government agencies, meaning that holding them doesn’t require banks to raise more capital to cover these newly acquired assets against potential losses. That makes it all the more attractive for banks to acquire more of these securities.

To implement affordable housing in the Clinton years, the Department of Housing and Urban Development lowered capital standards for Fannie and Freddie and encouraged them to be very tolerant in their mortgage purchases. Soon fast-buck artists were generating substandard paper and palming it off on Fannie and Freddie, who later would show that they too were no strangers to corruption.

To further liquefy the market, pools of mortgages became the basis for issuing vast amounts of mortgage-backed securities that circulated all over the world. When housing prices began to fall and foreclosures began to mount in 2006, holders of these securities began to realize that many of the mortgages backing their securities as many as half, we later learned were subprime. The market froze, precipitating the crash.

The moral is that government backing implicit during the heyday of Fannie and Freddie and explicit today leads to sloppy banking and ultimately to defaults. Taxpayers, with little knowledge of the commitments made on their behalf, become responsible for the losses. Whereas a year ago there was some hope that taxpayers could unload at least some of the Fannie and Freddie mortgage guarantees, that hope is fading. When the whole edifice collapses, who will be left to pay the bill?

Mr. Melloan, a former columnist and deputy editor of the Journal editorial page, is the author of "The Great Money Binge: Spending Our Way to Socialism" (Simon & Schuster, 2009).

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Wall Street Journal - January 4, 2013 by Holman Jenkins

Al Gore Is Good at Rent-Seeking (and Microsoft Isn't)

As far as we can tell, Al Gore has managed to amass a Romneyesque fortune without ever satisfying a customer. The closest thing to an exception may be his board membership at Apple, where Mr. Gore earned his keep by leading the board inquest that exonerated Steve Jobs of any options-backdating peccadilloes. Doing so was unquestionably a service to Apple shareholders.

But, otherwise, his environmental investments have prospered thanks to government handouts and mandates. His Current TV, in the process of being sold to Al-Jazeera, attracted a minuscule audience in its seven-year existence. It averaged just 42,000 viewers per evening last year. Yet the payday coming to Mr. Gore will be somewhat greater than zero—$70 million to $100 million, depending on which estimate you prefer.

We never subscribed to the theory regarding success in life that "It's not what you know but who you know." We may have to rethink.

What Current had going for it was Mr. Gore, who would drop in on media moguls and explain why it was in their political interest to put Current on their networks and dun subscribers five or 10 cents a month for a channel they never watch. Saying no just wasn't worth it to companies that must run a daily gauntlet of Democratic regulators in Washington. Not to oblige Mr. Gore would be to face, at every congressional hearing, the likelihood of some legislator lambasting them for "censoring" a progressive voice.

So the industry became habituated to transferring $100 million a year in what might otherwise be its own profits to owners of a cable channel nobody watched. These carriage agreements were Current TV's sole valuable assets. And the fact that nobody watched was probably not unrelated. If you're not pleasing the viewer, you're pleasing somebody else—usually in a way that makes for dreary programming. Living on the sufferance of cable moguls certainly didn't help Current put on rollicking liberal TV in the manner of MSNBC, which justifies its existence by actually attracting viewers.

But all gravy trains must come to an end: In a world of Netflix and cord-cutting, an extra nickel or dime is no longer so easily slipped past cable subscribers. Time Warner Cable was the first to bid good riddance, dropping the channel from its lineup the moment the sale was announced. Mr. Gore is clearly getting out just in time, though not before extracting one last political rent in return for using his famous name to help Al-Jazeera expand in a skeptical U.S. media marketplace.

Don't look for us, however, to milk the irony of Mr. Gore, warrior against climate change, pocketing a fortune from Mideast petrocrats. Mr. Gore has been in cash-in mode for a while. What's more, his style of entrepreneurship is the rising thing in our world, so respect must be paid.

Which brings us to this week's other news: Microsoft still tries to make money by selling consumers products they want, though it has launched some stinkers in this regard—the "Kin" cellphone line comes to mind. But its latest stinker was more up Mr. Gore's alley: a multimillion-dollar investment in trying to moment a government antitrust crackdown on Google.

That effort went conspicuously bust Thursday when the Federal Trade Commission let Google go with token remonstrances about its business practices.

Given the elastic principles of antitrust, there was nothing terribly far-fetched about Microsoft's effort to frame Google as a public utility that must be closely regulated. Many stranger things have passed muster in the intellectual cult of trustbusting. Where Microsoft went wrong was in failing to orchestrate the multiple points of pressure to convince five commissioners of the FTC that their own interests would be served by bringing a case.

If you think these things don't matter as much as the alleged merits of a case, think again. Recall the long drum roll of societal vilification that preceded the Justice Department's cautious decision to file a complaint against Microsoft. As FTC chief Jon Liebowitz acknowledged this week, antitrust agencies live to bring "big cases." The FTC staff, whose revolving-door career interests would be enhanced by a Google prosecution, was an easy sell. Less so the agency's political appointees who must decide yea or nay. The media wasn't clamoring for a Google crackdown. Congress was less than enthusiastic. The Obama White House, known to be close to Google, was disturbingly mute.

Antitrust is supposed to be entirely about clinical economics but never is. FDR's antitrust chief Thurman Arnold once said that antitrust was a collective squeal of resentment against businesses that annoy us with their success. Google hasn't been sufficiently annoying.

Notice, by the way, that the astute Arnold went on to found Arnold & Porter, one of the great Beltway law firms—and as much a model in its time of Beltway influence-peddling as Al Gore is today.

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Wall Street Journal - January 2, 2013

Crony Capitalist Blowout

In praising Congress's huge new tax increase, President Obama said Tuesday that "millionaires and billionaires" will finally "pay their fair share." That is, unless you are a Nascar track owner, a wind-energy company or the owners of StarKist Tuna, among many others who managed to get their taxes reduced in Congress's New Year celebration.

There's plenty to lament about the capital and income tax hikes, but the bill's seedier underside is the $40 billion or so in tax payoffs to every crony capitalist and special pleader with a lobbyist worth his million-dollar salary. Congress and the White House want everyone to ignore this corporate-welfare blowout, so allow us to shine a light on the merriment.

U.S. Sen. Max Baucus Senate Finance Chairman Max Baucus got the party started this summer when he said he would subject 75 special-interest tax breaks to a "tax reform" review. That was pretty funny. Nearly every attempt by Tom Coburn (R., Okla.) and others to pare back the list was defeated in a bipartisan rout.

The Senators even voted down, 14-10, an amendment to list the corporate interests that receive tax perks on a government website. This "tax extenders" bill passed Mr. Baucus's committee, 19-5 (see the table nearby), and then sat waiting until Harry Reid and the White House stuffed it wholesale into the "fiscal cliff" bill.

Thus Michigan Democrat Debbie Stabenow was able to retain an accelerated tax write-off for owners of Nascar tracks (cost: $78 million) to benefit the paupers who control the Michigan International Speedway. New Mexico's Jeff Bingaman saved a tax credit for companies operating in American Samoa ($62 million), including a StarKist factory.

Distillers are able to drink to a $222 million rum tax rebate. Perhaps this will help to finance more of those fabulous Bacardi TV ads with all those beautiful rich people. Businesses located on Indian reservations will receive $222 million in accelerated depreciation. And there are breaks for railroads, "New York Liberty Zone" bonds and so much more.

But a special award goes to Chris Dodd, the former Senator who now roams Gucci Gulch lobbying for Hollywood's movie studios. The Senate summary of his tax victory is worth quoting in full: "The bill extends for two years, through 2013, the provision that allows film and television producers to expense the first $15 million of production costs incurred in the United States ($20 million if the costs are incurred in economically depressed areas in the United States)."

You gotta love that "depressed areas" bit. The impoverished impresarios of Brentwood get an extra write-off if they take their film crews into, say, deepest Flatbush. Is that because they have to pay extra to the caterers from Dean & DeLuca to make the trip? It sure can't be because they hire the jobless locals for the production crew. Those are union jobs, mate, and don't you forget it.

The Joint Tax Committee says this Hollywood special will cost the Treasury a mere $248 million over 10 years, but over fiscal years 2013 and 2014 the cost is really $430 million because it is supposed to expire at the end of this year. In reality Mr. Dodd will wrangle another extension next year, and the year after that, and . . . . Investing a couple million in Mr. Dodd in return for $430 million in tax breaks sure beats trying to make better movies.

Then there are the green-energy giveaways that are also quickly becoming entitlements. The wind production tax credit got another one-year reprieve, thanks to Mr. Obama and GOP Senators John Thune (South Dakota) and Chuck Grassley (Iowa). This freebie for the likes of the neediest at General Electric and Siemens—which benefit indirectly by making wind turbine gear—is now 20 years old. Cost to taxpayers: $12 billion.

Cellulosic biofuels—the great white whale of renewable energy—also had their tax credit continued, and the definition of what qualifies was expanded to include producers of "algae-based fuel" ($59 million.) Speaking of sludge, biodiesel and "renewable diesel" will continue receiving their $1 per gallon tax credit ($2.2 billion). The U.S. is experiencing a natural gas and oil drilling boom, but Congress still thinks algae and wind will power the future.

Meanwhile, consumers will get tax credits for buying plug-in motorcycles ($7 million), while the manufacturers of energy-efficient appliances ($650 million) and builders of energy-efficient homes ($154 million) also retain tax credits. Manufacturers like Whirlpool love these subsidies, and they are one reason that company paid no net taxes in recent years.

The great joke here is that Washington pretends to want to pass "comprehensive tax reform," even as each year it adds more tax giveaways that distort the tax code and keep tax rates higher than they have to be. Even as he praised the bill full of this stuff, Mr. Obama called Tuesday night for "further reforms to our tax code so that the wealthiest corporations and individuals can't take advantage of loopholes and deductions that aren't available to most Americans."

One of Mr. Obama's political gifts is that he can sound so plausible describing the opposite of his real intentions.

The costs of all this are far greater than the estimates conjured by the Joint Tax Committee. They include slower economic growth from misallocated capital, lower revenues for the Treasury and thus more pressure to raise rates on everyone, and greater public cynicism that government mainly serves the powerful.

Republicans who are looking for a new populist message have one waiting here, and they could start by repudiating the corporate welfare in this New Year disgrace.

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