Political Football Over Disaster Relief: Another Argument for Public Banking

In a shameless display of putting politics before human needs, Congress began 2013 still scrapping over a $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.”

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.  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.”

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 were underwater prior to the storm, 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: Disaster Relief in North Dakota

That is the state of disaster relief in most parts of the country, but one state has developed a different model – North Dakota. North Dakota is 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. 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 U.S. 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 U.S. 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 Sen. Dick Durbin said of Congress in 2009, “Wall Street owns the place.” The private banking industry also owns all twelve 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.  In Web of Debt, her latest of eleven books, she shows how a private banking oligarchy has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com, http://EllenBrown.com, and http://PublicBankingInstitute.org.

17 Responses

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  5. Ellen, your blog is great and Web of Debt is the best book on the subject (I have read them all, and I’m currently writing one of my own). However I disagree with your views on insurance. I’m an insurance agent, and while I would be the first to admit it’s far from perfect, it shouldn’t be compared to the banking industry. Coverage for flooding needs to come from a flood policy, that’s the way it’s been for decades. It’s far from “obscure policy language,” people have to sign a form stating that they understand flooding is NOT covered under a homeowners policy.

    Any homeowner who is not in a flood zone (determined by FEMA’s maps) can buy a flood policy for less than $350 annually. Most people ask only one question to their homeowners insurance agent: how cheap can we get it? They don’t want to hear about options, what is covered or what isn’t, etc. I live in Florida and at least 80% of my clients have no interest in flood insurance (um, we do live on a peninsula). Anyway I’ll stop there. Thank you for the blog, keep up the good work!

    • $350 dollars a year for flood insurance as long as you’re not in an area with any likelihood of being flooded? What a deal! For the insurance companies — free money! Sounds a lot like banking to me, which will only lend you an umbrella if the sun is shining. I think it’s justifiably comparable with banking — a rather similar extortionist racket. Competition? Not much–about as much as banks show in the interest rates they pay for savings deposits.

  6. Spring floods have been regular feature of the Grand Forks area since the disappearance of glacial Lake Aggassiz. about 8200 years ago. During the 18th and early 19th century towns were established along the Red River of the North to take advantage of its limited navigation possibilities, which were soon made meaningless by the advance of the railroads. Nevertheless, towns like Whapeton, Fargo, Hillsboro and Grand Forks, ND and Minnesota cities on the east side of the river, Moorhead, Ada, East Grand Forks, etc. remain in the immediate flood plain of the present river. Why? So the local population can enjoy the outdoor exercise of throwing sand bags every April? Living next to a river, especially one that flows north, will annually present the possibility of spring flooding, just as sleeping on the freeway will likely result in death. Providing the funds to repair Grand Forks was a waste of resources better spent in moving the town to higher ground, since at some time in the near future, perhaps 4 months from now, a similar inundation might well occur. Floods are not random events, like tornadoes, hurricanes and earthquakes. It’s quite easy to predict where they will take place. The idea that subsidizing habitation or business in a flood-prone area makes sense is simply silly.

    Furthermore, the logic behind Cleveland’s veto of the Texas Seed Bill in 1887 is pertinent to this situation and many other recent disasters. http://en.wikisource.org/wiki/Cleveland's_Veto_of_the_Texas_Seed_Bill

    • As a resident of Grand Forks let me expose on the errors of your logic: 1. Higher ground? What is that? Have you ever been in the area? We live in a very flat area, there is no higher ground. 2. We built a massive dike system that has eliminated the likely hood of a 500 year flood flooding the area. In fact most of the communities along the Red River have done the same (except Fargo). 3. Throwing sandbags is darn good exercise! Brings people together too 🙂

  7. Thank you, Ellen, for this discussion of Sandy, and another reason why we should have our own public banks.

    For all people living in coastal areas, we need to look at Sandy as if it were happening to ourselves, not to others. The people who experienced Sandy are us. Many New Yorkers and many in New Jersey didn’t think this megastorm would be in their backyard, and didn’t evacuate. Climate change is real and is happening, and doesn’t care whether its victims are republicans or democrats. Dysinformation spread by the fossil fuel companies to the contrary, to me, Sandy is only the beginning of many more erratic and humongous disasters to come, due to environmental plundering and desecration.

    How long can we wait for aid from the government? Imagine that the federal government will be bogged down for some time to come under perhaps greater and more paralytic political dysfunction. Consider how long Congress took to come up with an aid bill, and how paltry it was.

    The people of North Dakota got it right with their public bank, BND, which belongs to the people, and can help with disaster aid and rebuilding their infrastructure. We need public banks like BND in our local towns, cities, and municipalities where we can help each other. To be sure, we’d be better off living in a place that won’t have catastrophic tornados, earthquakes, floods, mudslides, nuclear power plants, volcanos or Yellowstone calderas, and I truly hope that those who are able to, can relocate and find safer places to live. But for most of us, unless we can board a spaceship and move off the planet, or dive underground and live in fortified bunkers, we need to get ready for more extreme weather, and a more difficult environment to live in.

    Public banks like BND can help communities rebuild their infrastructure, offering low-interest loans to small businesses and students, and can even help to create jobs. They are not government banks or private banks. They work for the people who create them.

  8. What a great idea, Ellen. Thanks for your suggestion on how to solve the fiscal cliff problem. For those who missed it like myself, here is the petition information:

    With the creation and Treasury deposit of a new platinum coin with a value of $1 trillion US Dollars, we would avert the absurd-yet-imminent debt ceiling faceoff in Congress in two quick and simple steps! While this may seem like an unnecessarily extreme measure, it is no more absurd than playing political football with the US — and global — economy at stake.

    Created: Jan 03, 2013
    One can click on the link below to go to the whitehouse.gov petition webpage where this is located.


    Wow! It looks like a lot of people are enthusiastically signing it.

  9. It is very inspiring to hear the voice of Makana singing “We Are the Many”. There is a beautiful video on vimeo which expresses the hopes and dreams of the 99% in America and across the globe. It kind of feels like a 1960s redux of Bob Dylan’s great music, plus what has happened during the last four or five decades.

  10. Ellen Brown’s arguments against such phenomena as:
    “When the biggest private banks needed an emergency bailout, trillions of dollars in nearly-interest-free money came flooding their way. Why? As Sen. Dick Durbin said of Congress in 2009, “Wall Street owns the place.””

    But there seems to be no uptake by government or media. I am certainly not an economist or financial expert, however, her arguments appear sound. Thus, I wonder:
    1. if Ellen Brown’s arguments are technically sound and are squelched by government and private banking;
    1a. then, if so, how would govt and private banking go about such squelching, and further
    1b. if they did indeed squelch Brown’s arguments, I would guess that squelching would have been made public by some activist or by Brown herself?
    2. if maybe Brown’s arguments on the surface are sound, but experts in the fields of economics and finance do not take them seriously thus, no action is taken on her recommendations.

    I have no ability to judge 1 or 2 and would like to read some evaluations of Brown’s ideas by some sort of economic experts. As for me, I can only deduce that her suggestions are not implemented because of 1 or 2, but would like to know which, either 1 or 2 (or both).

  11. I think those are questions that many who read her articles have wondered about. I know I have. Although I am not an economist or financial expert, I DO have my eyes wide open. I can’t speak for everyone else but if I had to venture a guess, I would think that most of her readers are very aware of these things.

    To your number ‘1’ question, I believe and I think: yes it is technically sound, yes it is squelched by government, and yes it is squelched by private banking AND lobbyists.

    To your number ‘1a’ question, I believe and I think that it is done by disinformation to obfuscate and confuse the public with mass misinformation for the purpose of maintaining the power of the status quo and their control.

    To your number ‘1b’ question, her arguments ARE publicly responded to by herself and others. Check out her links.

    As to your number ‘2’ question, I think that many experts in the fields of economics and finance DO take her seriously. I also think it scares all those who have something to lose, which would be most private banks. Considering that collectively private banks around the world are sitting on trillions of dollars of their tax payers’ money and doing nothing with it that benefits their citizens, it’s logical to ask ‘why is that’. One might suppose, and be correct, that they would do ANYTHING to maintain control of that money, for the benefits derived from that control.

    She has written much on this subject in her blogs and books. Check out her Article Archives on the top right side of her blog.

    Of course these are my personal opinions only. I also believe that there is NOTHING that is said, written, pictured, emailed, blogged, etc. etc., that is NOT captured and recorded somewhere by the powers that be. So keep that in mind.

  12. “Thank you, Ellen, for this discussion of Sandy, and another reason why we should have our own public banks…but why not address the
    State banks would only be able to work with money already issued by the Sovereignty.
    The flaw to the entire society lies in the absence of a CENTRAL BANK that is a public bank, a bank that operates “for the people”.
    Read More: http://bit.ly/MlQWNs
    Getting back to Sandy Relief.
    Please challenge, improve or endorse a ways and means that could not only supply money needed now but also allow for structural changes that may prevent future recurrences.
    Read: “QE 4 Disaster Relief”
    $1 trillion.
    No deficit spending.
    No approval needed.
    No inflation.
    A Noble Prize worthy proven method. A way to give the 10 states $500 billion to “storm proof” their areas at no cost to the taxpayers.
    At the same time allowing homeowners and business’ to rebuild better
    so as to prevent future recurrences.
    Read more:http://bit.ly/MlQWNs “QE 4 Dister Relief $1 trillion” by justaluckyfool

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