Of all the arguments for the Obama administration's green-energy loan program, one of the worst is that federal aid leverages private capital.Consider Fisker Automotive. In August 2009, this wannabe plug-in electric hybrid car company was hard up for cash to pay suppliers and faced potential layoffs.A green-energy loan was the only hope, Fisker executive Bernhard Koehler explained in an email to the Department of Energy — because it would help bring in private money. “We are oversubscribed in this equity round with the DOE support — and nowhere without it,” Koehler pleaded.A month later, in September 2009, the Energy Department approved a $529 million low-interest loan. Vice President Joe Biden stood before the proposed site of a Fisker plant in Delaware and described the department's program as “seed money that will return back to the American consumer in billions and billions and billions of dollars of good new jobs.”Sure enough, private money started flowing in to Fisker by the tens of millions. Apparently, investors liked the idea of a firm that enjoyed access to cheap government funding. Fisker attracted $1.1 billion in private investment, the vast majority of which took place after it got the DOE loan.Alas, government loans could not overcome Fisker's fundamental problem: no experience mass-producing automobiles, let alone the complex battery-powered luxury cars that it proposed to sell for more than $100,000. Today, the company is nearly bankrupt; taxpayers are on the hook for $171 million; and private investors are probably nearly wiped out. (The story is well told, with documents, at PrivCo.com.)In other words, that's more than a billion dollars in capital that can't create jobs elsewhere in the economy — but might have, if the government had not propped up and promoted Fisker.A committee of the Republican-majority House is searching for proof that Fisker got its loan because of its political connections. It's certainly true that the Silicon Valley venture capital (VC) firm Kleiner Perkins Caufield Byers was Fisker's biggest backer, and that KPCB's lineup includes such Democratic heavies as John Doerr and Al Gore.I doubt the committee will find a smoking gun, though. This is a story of self-serving groupthink, not a blatant quid pro quo. Fisker's fool's gold took in members of the U.S. elite, from Leonardo DiCaprio to KPCB “strategic limited partner” Colin Powell. For the private investors, Fisker was about getting rich while feeling virtuous. For the Obama administration, it was about doing something for green jobs. The former will be held accountable financially; the latter, politically.That doesn't make the Fisker debacle a victimless episode or a disaster only in the sense of opportunity cost. State university endowments and charitable foundations had exposure through KPCB investment funds. The College Illinois fund, a state-run prepaid tuition plan used by 30,000 families, sank $10 million into Fisker. It did so at the urging of Advanced Equities Inc. (AEI), a Chicago-based firm that Fisker paid to raise private capital after the Energy Department loan.AEI did not enjoy a sterling reputation. A 2008 Forbes article portrayed it as an oft-sued operation, notorious for foisting dubious VC deals on its clientele. An anonymous ex-employee called it “a bucket shop.”AEI eventually raised more than half of Fisker's private capital. “They are good at what they do,” Fisker board member (and KPCB partner) Ray Lane (no relation) told the Wall Street Journal. (Through a spokeswoman, Lane declined a request for an interview.)San Diego businessman Daniel Wray typifies the investors AEI pulled in. He spent $210,000 on preferred shares prior to January 2012 — when AEI told him his stake would be downgraded to common stock unless he ponied up $84,000 more within a week. Wray is suing, claiming that AEI took him by surprise — though it must be said that such “pay to play” gambits are not unprecedented in the VC biz, especially in “late-stage” start-ups desperate for cash, as Fisker was in early 2012.Last September, Advanced Equities paid the Securities and Exchange Commission $1 million to settle fraud charges related to its fundraising for another KPCB-backed green start-up, Bloom Energy. Allegedly, one of AEI's top officials told would-be investors that the CIA had ordered $2 billion of its fuel cells, which it hadn't. Advanced Equities shut down last year.Government can efficiently affect energy usage through fuel taxes and basic research. When it intervenes on behalf of specific technologies and specific companies, however, bad things happen — resource misallocation, windfall-seeking, even, sometimes, corruption.
Charles Lane is a member of The Washington Post's editorial board.