Two -- technically unrelated -- news stories this week have got us wondering what's wrong with this picture?
(1) The Treasury Department this week is going to announce which banks will be allowed to repay bailout money. The New York Post reports the banks shedding the "TARP" funds include Goldman, JPMorgan, American Express Co, Morgan Stanley, State Street Corp and U.S. Bancorp.
One goal of TARP -- Troubled Asset Relief Program -- is to encourage banks to resume lending to businesses and to each other, thereby getting the economy humming again.
So if the banks are repaying the Treasury Department, they must be loosening credit, right? Let's shift to #2.
(2) In Pipestone, as I wrote this morning, 160 people will be out of work by September because the India-based windmill manufacturer, Suzlon, can't get credit, according to MPR's Mark Steil, who writes:
Renewable energy consultant Martin Pasqualini with CP Energy Group says money is tight throughout the wind industry. He says some of the biggest financial backers of the wind energy industry were also some of the biggest firms to collapse in the credit crisis.
"Lehman had been a tax equity investor. AIG had an ambitious program in place to do large scale investing when they virtually came unwound. We also effectively lost Wachovia," says Pasqualini.
Wachovia struggled and was eventually purchased by Wells Fargo. The financial sectors problems meant plans for many wind farms were shelved. Pasqualini says he excepts construction this year of new wind turbines to fall significantly.
The "other side" of the story:
The layoffs are said to be "devastating" to Pipestone, but the Worthington Daily Globe says it depends on who loses their jobs.
Though Suzlon's manufacturing facility is in Pipestone, the company has also been busing in employees from Sioux Falls, S.D., Worthington, and other area cities.
The impact on Pipestone would be smaller if most of the workers who lost positions came from other cities -- though the impact on southwest Minnesota and the tri-state area would be the same.
That the company had to bus in workers from outside the area suggests a shortage of a trained workforce in Pipestone. And, indeed, the unemployment rate in the county in April -- the latest month for which data is available -- is far below the national and state rate.
Still, the windmill manufacturer's credit woes, and the banks' desire to give the money back to the federal government, makes one wonder whether TARP has really served its purpose?
MPR's Midmorning will attempt to answer that question on Wednesday morning at 9.
TARP simply describes the opaque covering that has been drawn over this entire economic mashup. Nobody knows what is really happening but pols of both parties ran over the cliff of panic last fall (pun intended) and now we have this huge mess.
I'll take some of the money that the banks are being asked to give back. I'd even work for it.
Actually, the busing is normally framed in terms of a lack of housing in Pipestone, though it's also partly that Suzlon draws in employees from a very wide geographical area.
I don't think the problem alt energy companies face is being unable to borrow, but unable to find investors. The incentive programs that were boosting investment in alt energy have been, to my understanding, in the form of tax credits. So companies that want to install a a large number of turbines, for example, have to find investors with huge tax liabilities, in order to take advantage of the tax credits. This is what the dude meant when he said "Lehman had been a tax equity investor."
So the problem faced by Suzlon & others isn't necessarily that they can't get a loan, but that their clients can't find investors with large enough tax liabilities. The 'credit crisis' is only 'causing' this problem because the banks that used to do that investing aren't making a profit any longer - and thus don't have a need for tax credits & thus don't have a need to invest in alt energy products.
Lesson learned: tax credits are only an incentive if you owe taxes.