Emails raise fresh questions on Obama energy loan (Reuters)

WASHINGTON (Reuters) – An Obama administration appointee at the Energy Department pressed White House analysts to sign off on a $535 million loan to Solyndra even though his wife worked for the failed solar panel maker's law firm, according to internal emails made public on Friday.

The revelation adds new drama to a political battle over the administration's backing for Solyndra, which has filed for bankruptcy and has been raided by the FBI. The newly disclosed emails reveal "a disturbingly close relationship" between the White House, campaign donors and wealthy investors relating to Solyndra, a senior congressional Republican said.

The emails show frequent inquiries from Steven Spinner, who was an adviser to the Energy Department on its use of economic stimulus funding to spur clean energy technology, on the Solyndra loan, according to a report in the New York Times.

On September 29, the Energy Department had posted a "fact check" on Spinner's involvement in the Solyndra case on its website, explaining that he started his job after the company received conditional approval for its loan application.

The department said Spinner "was recused from engaging in any discussions on decisions affecting specific loan applications in which his spouse's law firm was involved out of concern for the appearance of a conflict of interest."

Allison Spinner is a partner at the law firm Wilson Sonsini Goodrich & Rosati, which represented Solyndra.

Energy Department spokesman Damien LaVera said on Friday that the department's ethics officer had cleared Spinner to "oversee and monitor the progress of applications," although he was not allowed to make decisions on loans or their terms.

LaVera added that Allison Spinner had "agreed not to participate in or receive any financial compensation from her law firm's work on behalf of any loan program applicant."

Allison Spinner did not work on the Solyndra matter and the firm created an "ethical wall" between her and any of its work on Energy Department issues while her husband worked for the government, according to Courtney Dorman, a spokeswoman for Wilson Sonsini Goodrich & Rosati said.

While Steve Spinner was at the department, Allison Spinner had agreed to not work on Energy Department issues for clients, and the firm did not discuss or disclose related issues or documents with her, Dorman said.

Steven and Allison Spinner did not respond to requests for comment.

'BREATHING DOWN MY NECK'

The White House, which has aggressively defended decisions made on the loan guarantee, turned over the emails on Friday to the House of Representatives Energy and Commerce Committee, which has been probing the loan for the past eight months.

"The paper trail released by the White House portrays a disturbingly close relationship between President Obama's West Wing inner circle, campaign donors, and wealthy investors that spawned the Solyndra mess," Representatives Fred Upton, the panel's chairman, and Cliff Stearns, the head of the investigation, said in a statement.

The emails show Spinner discussed the pending final decision often with Solyndra officials, Energy Department colleagues, and the White House budget office, the New York Times said.

"I have the O.V.P. and W.H. breathing down my neck on this," Spinner wrote, referring to the office of the vice president and the White House in an email to an Energy Department loan officer.

Spinner, who advises clean tech companies in San Francisco, was an Obama fundraiser during the 2008 presidential campaign, the newspaper said.

Other emails showed top Treasury Department officials were alarmed about an Energy Department decision to restructure the company's debt earlier this year, when it ran out of cash.

The plan allowed some $75 million in private investment to be ranked ahead of the government in the event of bankruptcy. That private fund was backed by a prominent Obama fundraiser, George Kaiser.

IN THE DARK

Mary Miller, Treasury's assistant secretary for financial markets, emailed the White House budget director two weeks before Solyndra filed for bankruptcy, complaining the Energy Department had kept Treasury in the dark.

The loan was provided by Treasury's Federal Financing Bank but was guaranteed and monitored by the Energy Department.

Treasury Department lawyers did not think the law allowed for the government loan to be subordinated, Miller said in an August 17 email to Jeffrey Zients, deputy director of the White House Office of Management and Budget.

"In February, we requested in writing that DOE seek the Department of Justice's approval of any proposed restructuring. To our knowledge, that has never happened,'" Miller said in the email, excerpts of which were provided by House Republicans.

She also complained that "DOE has not responded to any requests for information about Solyndra" despite requests dating to July 2010.

But emails provided by the administration showed that top staff at the Energy Department discussed the concerns with the chief financial officer of Treasury's Federal Financing Bank.

"Ultimately, DOE's determination that the restructuring was legal was made by career lawyers in the loan program based on a careful analysis of the statute," an Energy Department spokesman said.

A Treasury spokesman declined to elaborate on the contents of Miller's email.

The House Energy and Commerce Committee has now requested Treasury turn over all documents related to the Solyndra loan guarantee.

The panel has collected tens of thousands of pages of documents from the Energy Department and White House, and has requested information from two private investors in Solyndra.

The committee has also asked the Energy Department for information on 27 other guarantees backing about $16 billion in loans. The panel is slated to hold another hearing on its findings next Friday, October 14.

(Editing by Will Dunham)

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Fresh credit warnings as US lawmakers trade blame (AFP)

WASHINGTON (AFP) – Standard & Poor's warned Sunday that there was a one in three chance of a further US credit downgrade, as lawmakers traded blame for the failure to rein in the country's massive debt.

The ratings agency docked the United States from a sterling AAA to a AA+ rating on Friday largely because of the failure of bitterly divided US leaders to reach a consensus on containing the country's spiraling debt.

"If the fiscal position of the United States deteriorates further, or if the political gridlock becomes more entrenched, then that could lead to (another) downgrade," S&P ratings head John Chambers told ABC television.

"The outlook indicates at least a one in three chance of a downgrade" over the next six to 24 months, he said on the network's political talk show "This Week."

He added that in the past it has taken countries nine to 18 years to regain a AAA rating, and warned that "it would take, I think, more ability to reach consensus in Washington than what we're observing now."

But despite early signs that Friday's downgrade could roil world markets and warnings of a new recession by a former top White House economist, senior Democratic and Republican lawmakers continued to trade blame.

Senator John Kerry, a moderate Democrat, called Friday's move a "Tea Party downgrade," referring to the ultra-conservative anti-tax movement, and said a debt deal reached last week after weeks of heated negotiations fell short because some Republicans "were willing to shoot the hostage."

"What we need is a Washington that stops this bickering," Kerry told NBC's "Meet the Press."

The deal to cut some $2.5 trillion over 10 years in exchange for raising the congressionally-set debt ceiling fell short of the S&P's call for the United States to cut $4 trillion over the same period.

Senator John McCain, a moderate Republican also appearing on Meet the Press, blamed President Barack Obama, saying he had failed to put forth a specific plan for reining in debts and deficits.

"I agree that there is dysfunction in our system, but a lot of it has to do with the failure of the president to lead," he said.

He then echoed Kerry's call for civility, saying: "Lately the Democrats have been calling us terrorists, so we need to lower that level of rhetoric."

Obama's former top economic advisor Larry Summers, appearing on CNN's "State of the Union," meanwhile warned of a new recession and attacked the S&P downgrade as an unwarranted piling on atop an already weak economy.

Summers insisted the country could pay its bills and repeated allegations from administration officials that S&P's decision to downgrade was linked to a $2 trillion accounting error and its use of a faulty baseline.

McCain, however, defended the S&P, saying: "Don't shoot the messenger."

"Is there anybody that believes that S&P is wrong in their assessment of the fiscal situation of this country?" he asked.

Washington has been deeply divided over how to reduce its more than $14 trillion debt without further hobbling the sluggish economic recovery, and even the limited debt deal came after a bruising partisan battle.

Obama and his Democratic Party have called for a "balanced approach" in which the government would raise taxes on the rich and major corporations while making some cuts in entitlement programs.

The Republicans, particularly those close to the Tea Party, have adamantly ruled out any new tax revenues, which they say would slow the recovery and stifle job creation.

The S&P has declined to take sides on the debate over tax revenues and spending cuts, saying it is more important that Washington reach a durable consensus that would reassure world markets.

Markets had closed by the time the downgrade was announced on Friday, but there were early indications that the S&P move, along with spreading eurozone debt contagion, could make for a rough Monday opening.

The Israeli market fell some six percent Sunday and Gulf markets tumbled on opening, although they later trimmed some losses.

Fears of a global meltdown, which some analysts see as potentially worse than the 2008 collapse, sent vacationing world leaders scrambling in a flurry of phone calls from London to Paris to Washington to try to stem the tide.

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Euro zone makes fresh bid to tackle Greek crisis (Reuters)

BRUSSELS/BERLIN (Reuters) – Euro zone countries continued to grapple with the thorny issue of involving the private sector in tackling Greece's debt pile as they prepared for a meeting to decide support for the country next week.

"The principle of having a euro chiefs' meeting is accepted by the main players, including Germany," said one EU diplomat, adding that it was likely to happen next week despite earlier signals from Berlin that there was no rush to finalize a second package of aid.

First, however, countries have to agree how to involve private sector investors in tackling Greece's debt burden, a key demand of Germany before it signs off more support for Athens and a step the International Monetary Fund said on Wednesday must be taken.

"Comprehensive private sector involvement is appropriate, given the scale of financing needs and the desirability of burden sharing," the IMF said in its latest review of the debt-choked country.

"Greece's debt service capacity may also need to be bolstered by combining appropriate PSI and official support," IMF officials wrote, referring to private-sector involvement.

Ratings agency Fitch cited continued uncertainty about private-sector participation and foot-dragging on giving more aid to Greece, when it downgraded the country further into junk territory.

Euro zone leaders' agreement to meet followed warnings they needed to act quickly after markets were rattled by the failure of finance ministers to reach agreement earlier this week.

Italian central bank chief Mario Draghi, soon to take the helm of the European Central Bank, and Ireland's premier both said a definitive plan was needed and quickly -- echoing a strongly-worded attack from Greece's prime minister earlier in the week.

The spotlight was taken off the euro zone, at least temporarily, after the Federal Reserve Chairman Ben Bernanke said the central bank could resort to more monetary stimulus if a sluggish U.S. economy weakens further.

Ratings agency Fitch had also countered the bleak outlook in Europe following an earlier downgrade of Ireland to junk status by Moody's when it said Italy could keep its credit status by sticking to fiscal targets.

But many remained on edge after a market attack on Italy and concerns that it too could need assistance, something that would overwhelm the euro zone's existing rescue funds.

"Moody's problem is not with Ireland, Ireland's problem is with Europe," Prime Minister Enda Kenny told parliament, as the cost of insuring Irish debt climbed.

"There is no point in having a meeting that won't bring about a conclusion in a comprehensive sense to something that is not going to go away unless it is dealt with."

WRANGLING

Should the leaders meet, they will need to pin down how private owners of Greek government bonds can be persuaded to shoulder a portion of the cost of a new package for Greece, a key demand of Germany.

They will weigh up the potential impact on markets if securing such involvement is declared a debt default by ratings agencies, as expected.

But countries had appeared to be subsiding into a bout of internal wrangling and risk creating a no-win situation.

"Markets reacted very badly after euro zone finance ministers could not reach an agreement," an EU diplomat said, referring to a finance ministers' meeting on Monday. "If they cannot agree, we take the fight to the highest level."

Herman Van Rompuy, the presides over meetings of EU leaders, had originally informed ambassadors he wanted to hold a summit on Friday evening.

But Europe's biggest economic power, Germany, which one EU official said was angry about being "backed into a corner", was reluctant, pushing the date of the gathering into next week.

STRESS TESTS

Another concern of leaders are the results of stress tests of European banks.

That could have a further impact on Italy, where bank stocks and the bond market have been hit by growing concerns that the euro zone's third-largest economy could be next in line after Greece, Ireland and Portugal to suffer debt contagion.

Draghi said Italian banks would comfortably pass the tests but echoed Kenny's call for a comprehensive EU response to the spreading debt crisis.

"We have to recognize that management of the financial crisis has not gone smoothly with partial and temporary interventions," he said in a speech.

"We must now bring certainty to the process by which sovereign debt crises are managed, by clearly defining political objectives, the design of instruments and the amount of resources," he said.

There are two main proposals on the table for securing the private sector's involvement in reducing Greece's debt burden.

One would be to buy back Greek bonds at a discount. Another is to swap Greek debt for longer-dated securities with a lower coupon.

However, it remains unclear how a buy-back of Greek bonds would be financed. It could involve using the 440 billion euro European Financial Stability Facility (EFSF).

The ECB remains vehemently opposed to any Greek plan that ratings agencies would be likely to see as a default.

ECB policymaker Jens Weidmann said the EFSF should not be used to buy bonds in the secondary market and it would be unacceptable for the ECB to accept Greek debt as collateral if the country were in default.

"The money of the (EFSF) bailout should not be used for the purchase of government bonds in the secondary market," he told Die Zeit newspaper. "Containment of the crisis should not mean that we undermine our principles. We must draw a red line."

But Germany's finance ministry said funds from the euro zone's rescue mechanism could in theory be used by members of the bloc to buy back their own bonds, suggesting a shift in Berlin's stance.

(Additional reporting by Julien Toyer and Luke Baker in Brussels, and by Noah Barkin and Gernot Heller in Berlin; editing/writing by Mike Peacock)

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