In
a shameless display of putting politics before
human needs, the US Congress began 2013 still
scrapping over a US$60 billion Hurricane Sandy
relief bill fully nine weeks after the disaster
hit. And if the Katrina experience is any
indication, the bill may not bring adequate relief
to struggling and displaced homeowners even when
it is finally passed.
The damage wrought
by Sandy to New York and New Jersey coastal areas
was similar in scale to that to New Orleans from
Hurricane Katrina in 2005. Just two weeks after
Katrina hit, Congress approved $62.3 billion in
emergency appropriations, along with numerous
subsequent emergency funding requests to cover the
damages, which topped $100 billion. Yet as noted
on the Occupy Sandy Facebook page, federal relief
funds post-Katrina were gutted in favor of
"privatizing and outsourcing relief, making room
for predatory lenders, disaster capitalists, and
gentrification developers".
[1]
Most people believe they are protected
from disaster by their insurance policies or by
the Federal Emergency Management Agency (FEMA).
But many Sandy victims have found that their
insurance policies included obscure provisions
that excluded coverage, depending on such things
as whether the disaster was officially classified
as a "hurricane" or a "tropical storm," and
whether the damage was from "wind" or "flood." And
the only aid they have been offered by FEMA,
working in partnership with Small Business
Administrative Disaster Assistance, is the
opportunity to take on more debt. [2] According to
a report by Strike Debt:
[T]he vast majority of FEMA's
resources and efforts are spent on public
assistance grant programs that provide
infrastructure restoration. Individual victims
of disaster are mostly offered personal loans to
help them "get back on their feet." Although
these loans might seem good on the surface, they
have many features of predatory subprime lending
techniques and ultimately make long-term
financial burden the precondition for
"recovery." [3]
Disaster victims are
now being expected to shoulder relief expenses
that used to be shared publicly. It is a failing
of our austerity-strapped federal disaster relief
system that it offers little real help to
individuals; and it is a failing of our private,
for-profit insurance system that the legal duty of
management is to extort as much money as possible
from customers while returning as little as
possible to them, in order to maximize shareholder
profits.
Most Sandy victims are left
stranded The report by Strike Debt was
based on observations made at a community meeting
in Midland Beach, Staten Island, on November 18,
2012, as well as on interviews with FEMA and Small
Business Association (SBA) representatives,
volunteer workers, local business owners, and
residents throughout New York City.
According to the report, there are three
main sources of financial support being offered to
Sandy victims: insurance, grants, and loans.
Federal support is available only once private
insurance has been exhausted. For federal aid
programs, according to the report:
Victims are required to first apply for SBA
loans before qualifying to apply for FEMA aid,
placing the economic cost of the disaster on the
individual victim.
Aid programs favor those who can take on debt,
further exacerbating pre-existing inequalities
among residents.
Federal programs are inflexible and fail to
meet even basic individual and community needs.
Relief options are not clearly communicated or
well understood. Policies are so complex that even
lawyers are confused. Except for temporary living
costs, FEMA grants are accessible only after the
homeowner, renter or business applies for an SBA
loan. If the applicant qualifies for a loan, he or
she is not likely to be offered further FEMA aid.
Disaster loans are made on the basis of credit
history, and favorable interest rates are
available only if the applicant does not have
"credit available elsewhere". That means favorable
interest rates are offered only if an applicant
cannot qualify for credit through a commercial
bank.
There is no FEMA money for small
businesses other than SBA loans, and businesses
have difficulty taking on debt when they don't
know when they will be able to reopen. The SBA
application is reported to be at least 30 pages
long, and is often difficult to complete because
flooding has destroyed much of the required
paperwork.
Many homeowners were strained
by mortgages that prior to the storm and following
the 2007-08 financial crisis were larger than the
value of the mortgaged property, and their
properties have now depreciated to the point of
having no market value at all. They have no choice
but to try to rebuild, but how can they take on
more debt?
The focus on lending, says the
Strike Debt report, moves money from the victims
of disaster into the hands of loan servicers, who
make enormous profits off these loans.
A better model That is the state
of disaster relief in most parts of the country,
but one state has developed a different model -
North Dakota - the only state in the union to have
its own state-owned bank. The Bank of North Dakota
(BND) has a mandate to serve the public interest,
and it has no shareholders other than the state
itself. That gives it wide-reaching flexibility in
emergencies, allowing it to act quickly to
catalyze and coordinate resources.
The
BND's emergency capabilities were demonstrated in
1997, when record flooding and fires devastated
Grand Forks, North Dakota. [4] The town and its
sister city, East Grand Forks on the Minnesota
side of the river, lay in ruins. Floodwaters
covered virtually the entire city and took weeks
to fully recede. Property losses topped $3.5
billion.
The response of the state-owned
bank was immediate and comprehensive,
demonstrating a financial flexibility and public
generosity that no privately-owned bank could
match. Soon after the floodwaters swept through
Grand Forks, the BND was helping families and
businesses recover. Led by then-president and CEO
John Hoeven (future North Dakota governor and US
senator), the bank quickly established nearly $70
million in credit lines - to the city, the state
National Guard, the state Division of Emergency
Management, the University of North Dakota in
Grand Forks, and for individuals, businesses and
farms.
It also launched a Grand Forks
disaster relief loan program and allocated $5
million to help other areas affected by the spring
floods. Local financial institutions matched these
funds, making a total of more than $70 million
available.
Besides property damage,
flooding swept away many jobs, leaving families
without livelihoods. The BND coordinated with the
US Department of Education to ensure forbearance
on student loans; worked closely with the Federal
Housing Administration and Veterans Administration
to gain forbearance on federally backed home
loans; established a center where people could
apply for federal/state housing assistance; and
worked with the North Dakota Community Foundation
to coordinate a disaster relief fund, for which
the bank served as the deposit base.
The
bank also reduced interest rates on existing
Family Farm and Farm Operating programs. Families
used these low-interest loans to restructure debt
and cover operating losses caused by wet
conditions in their fields.
To help
finance the disaster recovery, the BND obtained
funds at reduced rates from the Federal Home Loan
Bank. These savings were then passed on to
flood-affected borrowers in the form of lower
interest rates.
The city was quickly
rebuilt and restored. As a result, Grand Forks
lost only 3% of its population between the 1997
floods and 2000, while East Grand Forks, right
across the river in Minnesota, lost 17% of its
population.
Bringing real security to
communities Just as we can rely on our
local public fire department to be there for
emergencies, so a public bank can be relied on to
lend a true helping hand when private banks,
insurers, and FEMA may not. Unlike private
insurers that are prone to withdrawing coverage on
obscure technicalities, a publicly-owned bank is
not beholden to shareholder profit-seeking; and
unlike federal disaster relief agencies, a public
bank is not dependent on a penny-pinching congress
for funds.
Like private banks, it has the
ability to create money in the form of bank credit
on its books, and it has access to very low
interest rates. But private banks have a business
model that requires them to take advantage of
these low rates to extract as much debt service as
the market will bear. A public bank can pass these
low rates on to disaster victims and local
governments.
When the biggest private
banks needed an emergency bailout, trillions of
dollars in nearly-interest-free money came
flooding their way. Why? As Senator Dick Durbin
said of congress in 2009, "Wall Street owns the
place." The private banking industry also owns all
12 branches of the Federal Reserve. If we the
people want the sort of security in emergencies
that is available to Wall Street banks, we need to
own some banks ourselves.
Just as Occupy
Sandy has pre-empted the official rescue agencies
through community organizing, so a Public Bank of
New York or New Jersey could pre-empt the vulture
Wall Street banks and finance the state's own
rebuilding. Twenty states have now introduced
bills of various sorts to establish their own
banks. For more information on the campaign in
your state, see here.
Ellen Brown is an attorney and
president of the Public Banking Institute, PublicBankingInstitute.org.
In Web of Debt, her latest of 11 books, she
shows how a private cartel has usurped the power
to create money from the people themselves, and
how we the people can get it back. Her websites
are WebofDebt.com and
EllenBrown.com.
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