Notes from Atlantis

Random Thoughts from the Crescent City

Wednesday, March 01, 2006

Notes from Atlantis 14

[This entry was originally dated February 12, 2006]

Dear Folks,

I’ve been meaning to write to you all about the so-called “Baker bill” for quite some time, but I wanted to make sure I had all my own facts as correct as I could make them. I don’t know if I’ve gotten everything right yet, but here’s my understanding of the whole deal (those of you who know more, please respond and tell me where I’ve made mistakes):

As I understand it, the Baker bill would create a separate entity on the federal level that would be empowered to issue bonds, backed (up to a specified point) by the U.S. Treasury. These bonds would then be bought by investors, and the resulting large sum of money (Baker says it could come to as much as $30 billion) would be used to help flooded-out homeowners in Louisiana. This is necessary because a lot of homeowners down here now own property that’s more (or less) worthless, but they still owe substantial mortgages on these places, places which are now (at least for the time being) uninhabitable. If they don’t get some kind of help, a lot of these people will have to default on those mortgages and declare bankruptcy. This will hurt then, and it will also hurt the banks. Plus it’ll still leave those same damaged houses just standing there, and vast areas of the city will remain in ruins.

As I understand it, the Baker plan would offer homeowners 60% of the value of their homes pre-Katrina, and it would also pay off all (or some) of the outstanding mortgages. I’m not clear how it would work for people who had private insurance: presumably there would be some provision to avoid double-dipping here, but I’ve heard the opinion expressed that those who did have insurance would be penalized as opposed to those who didn’t. I’m really not sure how this argument would hold up, so perhaps someone will explain it to me.

In any event, homeowners would then have money in their pockets to rebuild, or to move elsewhere, or to move to higher ground in the city. Since a lot of New Orleans’ residents apparently want to stay here, it’s hoped this would help to shrink the city’s “footprint”, as people bought new houses on higher ground. Again, I’m not quite sure this would happen, but that’s the idea, anyway. The banks down here wouldn’t be left holding onto properties they don’t want (as they would in the event of foreclosure) and they’d have more funds to lend out as building loans, etc. The Baker fund would then re-sell all the damaged properties it had bought up as large block lots to developers, who could then build new housing, parks, or whatever on those tracts of land. The money thus made by the Baker fund would go to paying off the original bonds.

As I understand it, Baker claims his proposal to be in large-part self-funding, since he believes his group could sell off most of the land it bought and thus recoup its money. There would presumably be some oversight built in to avoid graft (although graft, like hurricanes, happens...) and the whole entity would have a designated cut-off date, so it wouldn’t go on being a government boondoggle in perpetuity.

Anyway, that’s the idea. And President Bush and his “recovery czar”, Donald Powell, say they hate it. According to Power (in an opinion piece published today in the Washington Post and elsewhere) there are three things wrong with the Baker plan: it doesn’t represent a plan developed by Louisiana FOR Louisiana (not true, Baker is a Louisianian, and the plan has the support of all Louisiana’s major lawmakers). It creates a new federal bureaucracy (since when has this been a problem for any administration since FDR)? It could end up costing too much (hmm, let me see...didn’t this administration just request $200 billion more for the Afghanistan and Iraq wars?) And the “heavy hand of government” would impede the involvement of the private sector (which would make a lot of sense if the private sector were currently clamoring to invest in New Orleans’ most devastated areas...which they’re not).

The main benefit of the Baker bill is, in fact, that it buys the city time it might not otherwise have. If New Orleans has to wait for the private sector to come to our aid, that will only happen AFTER vast numbers of people have declared bankruptcy and decamped...by which point the city will have lost huge numbers of its residents and may, indeed, be financially dead.

So here’s what I see. First of all, there does seem to be some need for more money down here. If Mississippi is using the $5.3 billion it received to bail out 35,000 homeowners and Louisiana has six times that amount of needy homeowners, surely they need more than $1 billion more (Powell and Bush have said that the $6.2 billion currently apportioned for Louisiana in Community Development Block Grants will be enough to fix the problem). The Brookings Institute basically came to the same conclusion, in a report released yesterday (so I’m in good intellectual company). They see no way for Louisiana to rebound without some (more) substantial federal help. I know a lot of people elsewhere in the country view this as so much whining on our part, but I’d submit that someone who screams for help after a major accident isn’t so much whining as...well, screaming. The ideology of small government/big government breaks down in the face of something as large as the semi-destruction of a major city. If the federal government is good for ANYTHING, presumably it’s to keep all parts of the United States safe and functional. We have federal funding for roads because roads are just too important, and affect all the states. Likewise a major city is, ultimately, a federal responsibility.

Not to mention the fact that it was the FEDERAL levees and canal walls which failed, which caused 90% of this whole mess in the first place. Since when is the federal government exempt from the ethical and legal constraints that prohibit hit-and-run drivers from leaving the scene of a crime? But I digress...

So here’s the real scenario that scares me, if the Baker bill goes down: that through inertia (in DC) and despair (down here) lots of areas WILL get blighted and won’t be salvageable, even down the pike. Okay, yeah, sure, fifty years from now some ballsy Robert Moses-type may bulldoze the whole area and build Jones Beach South...but for the foreseeable future New Orleans could become like Chang and Eng, the original Siamese twins: a living city chained in perpetuity to the dead corpse of its other half.

Please tell me I’m wrong. I’m scaring myself!

If the federal government isn’t willing to support the Baker bill, as written, or make changes in it to address its concerns, it should step up to the plate and tell us how it WILL deal with this very real and terrible problem. Yes, a lot of New Orleans is fine. Please come down for Mardi Gras and spend huge sums of money! But that won’t do it alone. Please help us, which means demanding that your congressmen and senators help us.

Yours, still hopefully,

Ad’n

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