$29 billion Vaporized
As is well-known, Spain is one of the countries in the euro area’s periphery that has been thoroughly bankrupted by its decision to join the euro area and enjoy an artificial credit expansion-induced boom as its interest rates initially collapsed. This was aided and abetted by the ECB, which sat idly by as the euro area’s true money supply exploded into the blue yonder with annualized growth rates ranging from 6% to 18% during the boom years.
Tower at Abengoa solar plant in Sanlúcar la Mayor, near Seville in Spain.
Photo credit: Marcelo Del Pozo / Reuters
And why not, the bizarre “inflation target” set by the bureaucrats was after all almost hit most of the time (HICP annualized growth actually fluctuated between 2% and 4% during the boom period, so they missed their target “slightly”). Currently the ECB is trying to make up for this faux-pas, by redistributing wealth from the region’s battered savers to its over-indebted governments and insolvent banks by means of expanding the money supply even more and suppressing interest rates well into total economic perversion territory.
This strategy will “buy time” and ensure that assorted bankruptcies will eventually turn out to be even more profound and devastating than they might have been otherwise. But who are we to criticize our well-versed central planning bien pensants? Haven’t they proved over and over again what geniuses they are?
In the meantime the fall-out from the preceding boom-bust sequence continues to make landfall, and not surprisingly, one of the capital-wasting boondoggles most beloved by Europe’s central planners, social engineers and wealth redistributors has just crashed and burned in Spain.
This lengthy intro was necessary to properly set out the background: since Spain’s government and banking system are de facto insolvent and their temporary rescue has been tied to conditions, Spain can no longer subsidize many of the pet projects of social engineers and the vast hordes of cronies they have hitherto kept in bread by enlisting the involuntary help of taxpayers. In a way, it is a case of socialism running out of people to loot.
Solar energy has surely come a long way in recent years, as technological progress has undoubtedly improved its economics. Evidently though, the improvement isn’t sufficient yet to make it actually viable. One would think that it makes sense to deploy it in places that are sunny most of the time (such as, well, Spain), but even there, it evidently depends on subsidies.
People often forget that it actually costs energy to produce solar panels. Whether they will in turn produce enough energy during their lifetime to make this investment viable remains questionable. It remains questionable precisely because so many companies in the sector depend both directly and indirectly on a vast variety of government subsidies (including the introduction of inane trade barriers to the detriment of consumers).
With the subsidization scam in Spain reaching its limit, it turns out that not even sunny climes can keep solar boondoggles afloat. In the current case, a cool $29 billion (€27.3 bn.) in liabilities have just been exposed to intense vaporization danger, as “green energy” company Abengoa has finally filed for bankruptcy.
It is the by far biggest bankruptcy in Spain’s history. 24,000 employees will have to look for a new job. The sovereign wealth fund of oil junkie Norway holds 2.7% of the company’s shares, an investment it will now have to write off. More than 200 banks are creditors of Abengoa, with total exposure of €20.2 billion. Abengoa’s business activities are described as “renewable electricity generation, converting biomass into biofuel and desalination of seawater” – practically a what’s what list of businesses that cannot possibly survive without subsidies.
Abengoa incidentally provides an excellent illustration of Austrian Business Cycle Theory, as more than 20 giant ongoing construction projects the company has initiated will remain incomplete. These empty shells are testament to the fact that there is a big difference between money and real capital. Banks and investors had no problem providing the company with money (much of it created from thin air), lending it huge sums. But the economy’s pool of real funding has proved unable to support the company’s investments.
Inconvenient Truths and Inconvenient Timing
Although Abengoa will be excluded from the IBEX-35 Index as of today – after losing 70% of its value since Wednesday alone (“survivor bias” strikes) – its management is apparently still “not giving up hope”, as the European press reports. How come the company’s managers remain hopeful?
It turns out that Abengoa is “tightly interwoven with politics and the political class in Spain”. What a surprise! Reportedly it is “primarily the ruling conservative Partido Popular of Mariano Rajoy for which the mega-insolvency comes at a highly inopportune time”.
This appears to be a case of poetic justice. As an aside, it also serves as a reminder that so-called “conservatives” in Europe (and not only there) are in reality socialists as well, only of a slightly different type, with a different redistribution focus; the entire system is socialistic in its basic outlook. And they are of course specialists in cronyism and running the consumer and taxpayer looting scheme widely referred to as the “state capitalist” system. The free market gets lip service at best.
Even Spain’s king was roped in. King Juan Carlos (fourth from left) walks with Abengoa Chairman Felipe Benjumea in front of solar panels during the inauguration of a solar tower in southern Spain.
Photo credit: AP Photo
Citi Group has been greatly embarrassed as well. It has been the lead underwriter raising fresh capital for Abengoa at €2.80/share in July – a mere four months ago. As the Guardian reports:
“Days after the Citi-led share sale in the summer, the Spanish company revealed it was seeking to raise €650m of capital and dispose of €500m of assets. Then it alerted the market that its free cash flow for the year would be as much as €800m lower than previously forecast.”
Whoa! This actually sounds like fraud to us, but one must keep in mind that this approach to ripping off investors seems to be par for the course in Spain, as demonstrated by various sagas that emerged during the banking crisis (Bankia and its callous capital raising activities robbing widows and orphans – most of them its own clients – being a prime example). As one industry observer drily commented:
“One banker said on Wednesday that Citi had made a “big, big mistake”, promoting the share sale without having more information on problems that lay ahead.”
No kidding baby.
US taxpayers are on the hook as well in this “Spanish Solyndra”. According to the US media:
“When the Free Beacon interviewed a pair of former Abengoa managers last year, one predicted that the company would go under. “This company eventually will go bankrupt. The question is at what expense to the United States people and government,” said Mike Alhalabi, formerly the senior lead mechanical engineer at Abener, a subsidiary of Abengoa.
The cost to U.S. taxpayers could be enormous. Abengoa has received nearly $3 billion in loan guarantees from the Department of Energy, as well as more than $100 million in federal grants.
Both the Department of Labor and U.S. Immigration and Customs Service have been tight lipped about the investigations, but Alhalabi and other former Abengoa employees have alleged extensive violations of U.S. labor and immigration laws and the terms of their stimulus loan guarantees that required them to give priority to American job applicants.”
A great opportunity for young entrepreneurs …
That assorted bureaucrats are “tight-lipped” about the investigations should be no surprise. They first need to make 100% sure that their behinds are covered. After all, “green energy” is a major pet project of the zombie faction currently running Washington. A wise bureaucrat will avoid drawing its ire and seek ways to use the boondoggle’s discovery to increase his bureaucracy’s power and funding.
Reaping great reward is after all the usual outcome of bureaucratic failure, as inter alia consistently demonstrated by the “national security” apparatus and the monetary authority. More on the consequences of Abengoa’s insolvency for US tax serfs can be read at “watchdog.org”.
Businesses that cannot possibly survive without subsidies are ipso facto not economically viable. In spite of all the high-minded pronouncements about the “need to save the planet” and how this valiant effort can allegedly be “combined with economic growth”, their existence serves primarily one function: to distribute money looted from taxpayers and consumers to assorted cronies of the political class, who in turn provide the latter with kickbacks. That is all there is to it.
How it works, in one picture.
Surely no-one is so naïve as to believe that modern-day politicians, whose horizon and time preferences never stretch beyond the next election date, are really concerned about what might happen to the planet a century hence (not to mention that the entire “climate change” religion seems to be little more than an elaborate hoax). With Abengoa’s bankruptcy we are once again presented with a bill that serves as a stark reminder how much scarce capital has been wasted on such schemes.
Ultimately it is little more than a modern form of highway robbery, clad in highly effective propaganda. Many people feel guilty about “consumerism”, believing that it must be true that prosperity and progress are somehow sinful. In reality, environmentalism has long become the home of a great many authoritarian leftists after they lost their former sugar daddy in Moscow in 1990.
They are trying – very successfully it saddens us to admit – to undermine free market capitalism by appealing to people’s sense of guilt and their innate need to receive absolution for their sins. And they have of course found out that their new sugar daddy is much better than their old one, as there is far more wealth ready to be looted and everybody involved is quite happy to get a cut. Occasionally reality has a habit of interfering, but that won’t stop them, at least not yet.
It is high time that the victims wake up to these scams and begin opposing them.
Charts by: ECB, BigCharts
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
3 Responses to “Giant “Green Energy” Boondoggle Flops in Spain”
Most read in the last 20 days:
- Ganging Up on Gold
So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
- Gold Sector Correction – Where Do Things Stand?
Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit. Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India The commitments of...
- Australian property bubble on a scale like no other
Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs: Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included: the record run up in commodity prices and subsequent correction; the associated...
- Pope Francis: Traitor to Western Civilization
Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis. At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”* Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
- A Looming Banking Crisis – Is a Perfect Storm About to Hit?
Andy Duncan Interviews Claudio Grass Andy Duncan of FinLingo.com has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove. Andy Duncan of FinLingo.com (left) and Claudio Grass of Global Gold (right) Andy Duncan: How do you see the...
- Bubble Dissection
The Long Term Outlook for the Asset Bubble Due to strong internals, John Hussman has given the stock market rally since the February low the benefit of the doubt for a while. Lately he has returned to issuing warnings about the market's potential to deliver a big negative surprise once it runs out of greater fools. In his weekly market missive published on Monday (entitled “Sizing Up the Bubble” - we highly recommend reading it), he presents inter alia the following eye-popping...
- US Stock Market - a Spanking May be on its Way
Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though. Time for some old-fashioned...
- Doomed to Failure
Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years. What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out. Unfortunately, this may not be possible the way things are going. As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
- Meet Your New Stimulus Allocation Czar
March Towards Midnight The march towards midnight is both stirring and foreboding. Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom. Thoughts of imminent mortality haunt each bite. Tic-toc, tic-toc... As far as the economy’s concerned, there’s no stopping its march towards midnight. The witching hour’s rapidly approaching. We intend to savor each moment and make the best of...
- Are the Deep State’s Drones Coming for You?
What’s Aleppo? Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP DELRAY BEACH, Florida – Biggest foreign policy blunder...
- Interview with Doug Casey
Natalie Vein of BFI speaks with Doug Casey Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
- Evacuate or Die...
Escaping the Hurricane BALTIMORE – Last week, we got a peek at the End of the World. As Hurricane Matthew approached the coast of Florida, a panic set in. Gas stations ran out of fuel. Stores ran out of food. Banks ran out of cash. A satellite image of hurricane Matthew taken on October 4. He didn't look very friendly. Image via twitter.com “Evacuate or die,” we were told. Not wanting to do either, we rented a car and drove to Maryland. “We’ll just...