Hurricane Katrina Stupidity Hurricane Katrina Stupidity: The Train They call the City of New Orleans
by Mike "Mish" Shedlock
Whiskey & Gunpowder
Illinois, USA
September 1, 2005 Mike Shedlock examines Hurricane Katrina Stupidity: The assorted bureaucratic failures and foul-ups that led to the devastation being as bad as it was. Greg's Note: Mike "Mish" Shedlock takes a hard look at the good, the bad, the ugly, and the stupid about Hurricane Katrina and the devastation it caused in New Orleans and elsewhere. Following is Part 1. It will focus on the good and the stupid. Part 2 will focus on the bad and the ugly. Part 2 will also take a look ahead and see what the impacts down the road will be. Be sure and stay tuned for Part 2!
It's time to discuss the good, bad, ugly, and the just plain stupid about what happened in New Orleans. We also need to look ahead at how this will impact our economy looking forward.
Before attempting to undertake that task, let me first send out some heartfelt condolences to anyone who has been touched by the tragedy we calmly name Katrina. Many people have lost their homes, businesses, livelihood, and even their lives in this tragedy. Anything that anyone can do to help out will be appreciated, probably in more ways than any one of us not affected can imagine.
Let's first dispense with the good. This is easy, because, quite frankly, there isn't any. Oh, sure, some material supply company or some refiner stock you own might rise in price, but, at best, that will be a temporary gain. Point-blank, no matter what economic cheerleader clowns, such as Joe Battaglia on CNBC are saying, there simply is no good that comes out of these disasters. If there were a net positive effect, we should all be wishing for more hurricanes.Hurricane Katrina Stupidity: No Silver Lining If you want serious economic commentary I suggest following Paul Kasriel at the Northern Trust. This is what Kasriel had to say in "Hurricane Katrina Had No Silver Lining!": "Inevitably, some perky economic analyst is going to say that despite the death and destruction Hurricane Katrina visited on the poor souls who populate Gulf coasts of Alabama, Mississippi, and Louisiana, it had a "silver lining," as it will stimulate economic activity via new building, cleanup, etc. Balderdash! Katrina contained no silver lining. Firstly, there is never any silver lining to the death and injury of human beings. Secondly, although there will be expenditures made to clean up the mess and rebuild damaged/destroyed structures, there will be other expenditures not made that otherwise would have. I doubt that folks will be going to the movies or on vacation as much now that they have to spend more on rebuilding. There will be a change in the composition of spending, not in its total. Government disaster aid represents a redistribution of income. So the givers of aid spend less and the receivers spend more -- net, net, a wash. ~~~~~~~~~~~Special~~~~~~~~~~~~~~ Banned From the General Public Since February 1946: These Secret Mega-Deals for the Wealthy - Set up by the Savviest, Most Respected Financial Gunslingers in the World - are About to Be Exposed to a Select Group of Very Special Individuals... In the past, these kinds of monster deals were only available to the private privileged few - the most influential, well-heeled and wealthy individuals in the world. We mere mortals could not participate. We were banned from the big boys' inner circle. That has now changed. Please look here for more: http://www.agora-inc.com/reports/VPI/WVPIF836/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Thirdly, there has been a loss of real wealth. Katrina represented accelerated depreciation. Structures and other tangible assets were destroyed. That means that the services or "income" these tangible assets produced -- shelter, transportation -- have disappeared. The production of capital assets entails the postponement of current consumption. So some people are going to have to defer current consumption so that finite resources can be used to reproduce capital assets. If hurricanes or other natural disasters contained economic silver linings, we wouldn't have to wait for Mother Nature's serendipities. We could create man-made ones. Short of wars, which destroy not only physical capital but human capital, too, we could blow-up neighborhoods after giving residents a "heads up" to gather their mementos and vacate their homes. Wow! Think of all the economic activity we could generate. This concept of manmade disasters as good for the economy sounds silly, doesn't it? No sillier than the analysts who will declare that there is an economic silver lining in Hurricane Katrina." I doubt Paul Kasriel even had time to finish that piece before stupidity from Joe Battaglia and others was gushing from every orifice. Speaking of stupidity, let's now skip to the "Just Plain Stupid" section of tonight's commentary.
Ben "Helicopter Drop" Bernanke, chairman of the Council of Economic Advisers and perhaps next in line to replace Greenspan as Fed chairman had this to say:
"Even the worst affected states like Louisiana and Mississippi should see some benefits in time... Reconstruction will add jobs and growth to the economy."
Does anyone want "benefits in time"? Should we all be praying for such benefits? Bernanke is, quite frankly, clueless. What that means is that unless someone even more clueless can be found, he will most likely become our next Fed chairman. Of course, there could be an accident and someone competent might actually be nominated, but I would not count on it. Hurricane Katrina Stupidity: Misplaces Priorities
Speaking of stupidity, let's take a look at our priorities: This is what Walter Maestri, emergency management chief for Jefferson Parish, La., had to say way back on June 8, 2004:
"It appears that the money has been moved in the president's budget to handle homeland security and the war in Iraq, and I suppose that's the price we pay. Nobody locally is happy that the levees can't be finished, and we are doing everything we can to make the case that this is a security issue for us." Another commentator noted:
"The cost of the Iraq war forced the Bush administration to order the New Orleans District Office not to begin any new studies, and the 2005 budget no longer includes the needed money."
According to the above link, the U.S. Senate was seeking to restore some of the Southeast Louisiana Urban Flood Control Project (SELA) funding cuts for 2006. ~~~~~~~~~~Special~~~~~~~~~~~~~~~~~~
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In 2001, the New Orleans district spent $147 million on construction projects. When fiscal year 2005 wraps up Sept. 30, the Corps expects to have spent $82 million, a 44.2% reduction from 2001 expenditures.
In "The FEMA Phoenix," an article about the Federal Emergency Management Agency (FEMA), The Washington Monthly reports:
"Because FEMA had 10 times the proportion of political appointees of most other government agencies, the poorly chosen Bush [Sr.] appointees had a profound effect on the performance of the agency. Sam Jones, the mayor of Franklin, La., says he was shocked to find that the damage assessors sent to his town a week after Hurricane Andrew had no disaster experience whatsoever. 'They were political appointees, members of county Republican parties hired on an as-needed basis...They were terribly inexperienced.'" The difficulties of coordination seem to indicate we've returned to the bad old days where the FEMA administrator position is given away on the basis of political favor, rather than hard experience.
Gee, it seems we did not have an exit strategy for either Iraq or New Orleans. Then again, the Fed does not have one for the housing bubble, either. We just keep blowing bigger and bigger and bigger bubbles hoping for some kind of miracle down the road. It should be very clear by now that we have a genuine shortage of "exit strategies." I suggest Wall Street hop on that idea, since there are probably billions of dollars that can be made off it. The beauty of it all is that none of them even has to work! Hurricane Katrina Stupidity: Why the Levees Failed
Mish telepathically receives another question: What hurricane forces were these levees designed to protect against? WOW! That sounds like a good question, so let's take a look.
Here is a Q&A to the U.S. Army Corps of Engineers:
"Q: Why did the levees fail? "A: What failed were actually floodwalls, not levees. This was caused by overtopping, which caused scouring, or an eating away of the earthen support, which then basically undermined the wall. These walls and levees were designed to withstand a fast-moving Category 3 hurricane. Katrina was a strong 4 at landfall, and conditions exceeded the design..."
"Q: Why only Category 3 protection? "A: That is what we were authorized to do."
Not doing that levee work makes you wonder what New Orleans might be like today if we'd been spending billions of dollars a month right here in the United States, instead of in Iraq. Sign Up for Whiskey & Gunpowder
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One can only wonder what else are we not doing here that will eventually come back to bite us. Hurricane Katrina Stupidity: Building on a Flood Plain
Bear in mind there is another side to this story, so I will present it. Building on a flood plain in a hurricane zone is just plain stupid. New Orleans was a disaster waiting to happen. Now taxpayers are going to bail out another government stupidity, and that stupidity is called flood insurance. There should be no government-sponsored flood insurance. If people want it, they should pay for it at market prices. It's high time we stop allowing the building in flood zones, but if anyone insists, then it is high time it is 100% at their sole risk.
This disaster there is a perfect example of the hubris inherent in man trying to control nature. In attempting to control river flooding, we caused the destruction of flood plain marshes and islands that would have helped prevent the hurricane flooding that we saw. As a direct consequence of our attempt to control Mother Nature, New Orleans actually sinks a fraction of an inch every year. Over time, that adds up. DrStool on CapitalStool.com had this to say: "As a commercial real estate analyst, I would say for sure that NO, will not be rebuilt. "There is nothing there to rebuild. It would be completely infeasible to rebuild tens of thousands of living units that do not pay enough rent to cover the cost of construction.
"The federal government is already broke. It cannot foot the bill for the hundreds of billions, perhaps a trillion, that would be required to rebuild the areas that have been destroyed. First of all, they haven't even stopped the basin from filling up. Assuming they can solve that problem, just exactly how are they going to drain a huge lake that's below sea level, when the pumps have all been destroyed?
"New Orleans is only part of the problem. There's Biloxi, Pascagoula, Mobile, Gulfport, etc., etc., etc. As the magnitude of the problem and the fact of our inability to adequately cope with the idea of a couple million homeless refugees here within our own borders become clear, there will be a sober re-evaluation of what the future holds for all of us in the United States.
"New Orleans is ruin. It may forever remain a monument to man's monumental stupidity." DrStool is a bit more pessimistic than I, but he has a point. Unfortunately, it is an unpopular point. Point-blank, there is no economic justification for rebuilding a city on a flood plain subject to not only river flooding, but hurricane flooding. Furthermore, prevention of the former is at the expense of more damage down the road from the latter. The proper solution, which undoubtedly will not be taken, since it makes economic, as opposed to sentimental sense, is to keep New Orleans a port subject to periodic flooding by the river, remove the levees and let the river return the silt marshes that protect the city from hurricanes, at the expense of more periodic river flooding. Only those structures that are safe from periodic flooding should be allowed to stay. Perhaps portions of New Orleans can be saved, but anything that was more than 50% destroyed should be abandoned to nature. I say let's rebuild, but do it somewhere else. Remember, this was a Category 4 storm when it hit, not a Category 5. To attempt to rebuild New Orleans in these conditions when it is sinking every year is foolhardy. Like it or not, it's time to cut our losses and move on. Regards,
Mike Shedlock - "Mish" Greg's endnote: Oh longsuffered Whiskey reader, were you forced to deduce a one-word opinion of the general world-outlook shared by the various WnG writers and collaborators, your word would most likely be one of these: "distrustful" "cynical" "contrarian" "curmudgeonly" or maybe even "dark." Accurate, but not altogether true. In fact, we're lighthearted, jovial, and some of us are even kind. And just to show you that that's the case, I'd like to present you with another book one member of our cabal has just written, with the uplifting title "Demise of the Dollar." Look here, and you can grab an ultra-cheap copy of the book that trounced Harry Potter last weekend - oh yeah, it's also #5 on the NYT bestseller list: http://www.agorabookpublishing.com/bin/s/x/am.html Read More Mish Here: 08/29/2005 - Concern Over Oil
By popular request, Mike "Mish" Shedlock takes a good, hard look at oil. Are oil prices too high? Is there an inventory supply glut? Should oil prices be targeted via interest rate policy? Mish attempts to address these questions and more starting with a brief discussion about "peak oil." 08/23/2005 - Are You Missing the Real Estate Boom part II
Mish takes a look at lending practices and fraud in the real estate business. This is part 2 of a 2-part expose addressing lending practices, fraud, and credit rating agencies. This part takes a good hard look at credit rating agencies and Fannie Mae, and also includes an earnings report surprise from a mortgage loan originator. 08/18/2005 - Are You Missing the Real Estate Boom?
Mish takes a look at lending practices and fraud in the real estate business. He even has a national mortgage broker willing to speak on the record about some of the fraud that he has seen. Right now, no one cares. Rest assured that nearly everyone will care when this trash heap explodes. Following is Part 1 of a two-part expose. | 
