Katrinas Economic Consequences


A handful of insurers write coverage protecting municipal bondholders against default by the issuing municipalities.

Last year, Orleans Levee District needed to refinance $36.3 billion in past indebtedness incurred to repair levees and breakwaters. The District's underwriters sold bonds for "forward delivery" in that amount insured by MBIA, the biggest muni insurer.

Payment of the bonds was to be financed by a special tax on real property located within the District. I doubt they'll be collecting much -- or any -- of that tax for quite a while.

Now, MBIA is invoking the "material change" clause of its contract to cancel coverage. The deal is off and the underwriter can't deliver the bonds.

The District is responsible for 190 floodgates and 129 miles of levees and floodwalls.

"New Orleans levee bonds pulled as MBIA won't insure"
September 10, 2005)

The article also says that rating agencies have downgraded $10 billion of previously issued bonds of municipalities apparently in the Gulf Coast region.
** The airline industry is seeking $600 mil in tax relief, arguing that bankruptcy, due to higher fuel costs, is the alternative.

** Disruption of the Ports of New Orleans is shifting freight hauling business to the railways and interstate truckers. The latter two didn't have the excess capacity abruptly to take on all this new business. Freight rates are going up.

** Corn, wheat, and soybean farmers are suffering as a result of inability to move exports of these items through the Ports.

** There's a shortage of building materials.

** It's been noted elsewhere recently, pre-Katrina, that American households now have a negative savings rate. I don't think that's likely to improve in the near future. Households will be paying an additional "$140 billion in increased energy costs next year.

Katrina's impact on US economy far-reaching - and still evolving
Sunday, September 11, 2005


I have read elsewhere that domestic manufacturers of some types of integrated circuit chips are experiencing hardship because of interruptions in the supply of bottled hydrogen gas.
** Katrina represents the biggest losses to the property and casualty insurance industry in history. It is bigger than the $32 billion lost through 9/11.

** Some of the underwriters at Lloyd's of London and Bermuda-based underwriters have been "badly affected."

** Premiums are expected to "rise sharply."

** Somebody leaked to The Observer correspondence from the UK Financial Services Administration inquiring, of insurers, the effect of anticipated Katrina claims on their solvency.

"Fears grow for Katrina insurers" by Richard Wachman. 11 September 2005


Book Reviewer
Good coverage of this aspect in The Economist

extract from article at http://www.economist.com/agenda/displayStory.cfm?story_id=4382412


Who pays?
Any help offered also has a price. Jim Doyle, Wisconsin’s governor, is hoping that Mr Bush will extend the state of emergency from southern states to northern ones, so that they too can receive federal aid for taking in thousands of people. That may be too much to hope for.

Late last week, Congress agreed to provide $10.5 billion. But with FEMA spending $500m a day on relief and recovery, it was clear that this would not last long. On Thursday, Congress approved an additional $51.8 billion which the White House had requested. Together, Florida’s four hurricanes in 2004 cost the federal government $14 billion, while insurers paid out much more. This time, the ratio will be reversed.

The insurance industry is in shock. Loss-adjusters still cannot get close enough to assess much of the damage; hundreds of them have fanned out across the region, trying to work their way in from the edge to the centre of the catastrophe. Latest estimates suggest that the damage to homes, businesses and infrastructure is around $100 billion, with private insurance claims as high as $35 billion. Some property owners without flood insurance (which mortgage lenders require of most people living in flood-plains) will get relief from a federal disaster-loan programme. Only about half of property owners in New Orleans hold flood coverage, and even fewer in hard-hit patches of Mississippi and Alabama.

America’s insurers have had some bruises of late: 2004 was the worst year for catastrophes on record, and this year will surpass that. Stricter underwriting means that the industry as a whole is in better shape than it was in 2001, but Katrina will hit profits. Reinsurers, the big firms that provide a safety net in major disasters, will take the brunt of the burden. For now, the majors contend they can handle the fallout from Katrina, but losses—including those for interrupted business—are mounting by the day.

The broader economic fall-out of Katrina remains uncertain. Traditionally, big hurricanes—for all their devastation—have had only a small effect on the macroeconomy. Katrina, though, may well be a different case.

Forecasters have cut their expectations for GDP for the rest of the year—the Treasury by half a percentage point, the Congressional Budget Office (CBO) by slightly more. But some have raised them for 2006 as reconstruction efforts boost output. The CBO fears that, from now to the end of the year, 400,000 jobs may be lost, though employment is “likely to rebound” later. The big unknown remains fuel costs and the risk that soaring prices for petrol, let alone physical supply shortages, will hit consumer spending hard.

Financial markets certainly seem gloomier about the country’s growth prospects. Before Katrina hit, futures prices suggested the central bank would continue its upward march in interest rates over the next few months. Now, the markets reckon the Federal Reserve will cut this process short. But this week the president of the Chicago Fed sounded a different note, emphasising the risk of higher inflation.

And the fiscal impact could end up being sizeable. Some politicians talked of spending more than $150 billion on recovery and relief. Washington’s budget boffins worry that all kinds of other requests will be attached to money for Katrina relief, such as (paradoxically) drought relief for farmers in the mid-west. Moreover, the political aftermath of the hurricane may dampen lawmakers’ already tepid enthusiasm for budget-cutting. The 2006 budget—agreed in principle but not in detail—is supposed to include $35 billion in budget cuts over next five years, including in Medicaid, the federal-state health-care programme for the poor. Politicians will be loth to do any such trimming when America’s vulnerabilities, in almost every region of social policy, have been so ruthlessly exposed.


I think this will increase pressure on the White House to produce a workable timetable to leave Iraq - and when they go, we should too.....apart from the simple cash drain, Mr Bush will NOT want to limp into the history books with a legacy of failure and mismanagement....

Le Chevre
** Grain exports through the Ports of New Orleans still halted.

** Agri-business giant Cargill, Inc. has 300 barges of grain and fertilizer stranded on the Mississippi River.

** Warehouse space for bulk commodities such as Cargill's stuff is very tight.

** Space on the Mississippi barges themselves in short supply.

** Wholesale seafood prices up sharply.

** This situation is producing hardships in the wheat-growing districts of Kansas.

** They are diverting some freight that would otherwise have moved through New Orleans to Memphis, Dallas, and Atlanta.

** CSX must fix five bridges before it can fully restore rail service to N.O.

"Katrina pushing up prices across the board
From seafood to transportation, we're all paying more" by Kent Bernhard, Jr. 13 September 2005
Very speculative question: at what point will the demands from the home front gain greater gravity than the "war against terror" and force US reposturing ? (Reposturing is not necessarily a euphamism.)
Out of idle interest you understand NWD , have there been any no-bid reconstruction contracts awarded yet?
PartTimePongo said:
Out of idle interest you understand NWD , have there been any no-bid reconstruction contracts awarded yet?
All the usual suspects have no-bid contracts - eg the Shaw Group and KBR. I think if you looked at the Iraq no-bid list and the Katrina no-bid list you would be hard pressed to spot the differences...

The Onion has a slightly more satircal look at the contracts being awarded to Halliburton / KBR etc
Why am I totally not surprised?
So obviously there are no construction companies at all in the Southern US of A , with the expertise ,willingness and capacity to take on this rebuilding effort. Now I'm sure I heard that used when Halliburton and KBR were granted no-bids in Eye-rak.

You must have a very backward country there NWD , when there is only one construction company up to the task of re-building anything.

The public have got so used to it. they don't even bother hiding it any more.
PartTimePongo said:
The public have got so used to it. they don't even bother hiding it any more.
There has been a trend of progressive concentration of ownership of mass media. The handful of survivors routinely and habitually betray the public trust through what they choose not to mention.

They are choosing not to mention how Katrina-related federal contracts are let.

Many folks here operate on the assumption that if something isn't mentioned on CNN, Fox, et al, it didn't happen.
and I believe Rita is about to go from storm to Hurricane and make landfall in the Keys? Are FEMA pre-positioned yet?

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