Government Picking Winners and Losers: What Trump and Obama Have in Common That Should Worry Every Investor

The More Things Change, the More They Stay the Same

Remember Solyndra? Of course you do. Nobody knew what that company was before Barack Obama handed it $535 million in federal loan guarantees. Two years later it was bankrupt, and Mitt Romney was doing campaign events in front of a boarded-up warehouse. The whole thing had the fingerprints of George Kaiser all over it, a billionaire whose family foundation was Solyndra’s largest institutional investor and who donated heavily to Obama’s campaign. I said it at the time on radio: that was the most profitable investment anyone could have made. Give money to Obama, get government money back in spades.

Now we have a new administration, and the game has not changed. The players have.

41 Companies and Counting

The Trump administration has taken equity stakes in 41 companies using taxpayer dollars. I want to be very clear about something. This is not capitalism. Not by any stretch of the imagination. When government starts directing capital toward preferred companies, it crowds out legitimate private investment and distorts the competitive landscape. The companies that do not have political connections get left behind. The ones that do get a leg up that has nothing to do with their product, their management, or their business model.

This is the return of Solyndra, just rebranded and scaled up.

Why Congressional Hearings Are Theater

Here is something I want you to burn into your brain as an investor and as a citizen. Congressional investigations are a show. Full stop. Republicans spent 18 months going after Solyndra. They subpoenaed the White House. They hauled company executives before Congress, some of whom invoked the Fifth Amendment. What happened?

Absolutely nothing.

And here is the reason why. Politicians on both sides understand the game. Republicans were outraged about Solyndra right up until the moment they were in power and could direct capital the same way. Democrats will put on their own show hearings about Trump’s 41 companies the moment they retake power. And those will go nowhere too. On purpose.

• Congressional hearings are designed for television, not accountability
• Both parties benefit from the ability to direct government capital to allies
• The investigations serve as a warning to the other side, not a genuine check on power
• Taxpayers fund the losses while political donors often capture the gains

What This Means for Your Portfolio

If you are building a portfolio and you are not factoring in political risk, you are flying blind. When government picks winners, it creates artificial valuations in sectors that become dependent on federal money. When the political winds shift, those valuations collapse.

Here is what you need to watch:

• Sectors receiving heavy government backing can experience inflated valuations driven by subsidies, not fundamentals
• Companies with strong political connections may outperform in the short run but carry enormous tail risk
• Crony capitalism distorts price discovery, which is the mechanism that tells you what something is actually worth
• The cycle of investigation and counter-investigation creates policy uncertainty that is bad for long-term planning

The Lesson Nobody in Washington Wants You to Learn

Both parties have participated in this. Both parties will continue to participate in this. The difference is only in the branding and the beneficiaries. When you hear a politician screaming about waste and cronyism in the other party, ask yourself one question: what were they doing when they had the power?

Solyndra was a disaster. Directing taxpayer money into 41 companies with political stakes attached is a larger version of the same problem. The investigations will come, the hearings will be televised, and nothing will change. What you can control is whether your investment strategy accounts for the distortions that this kind of government interference creates in the market.