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September 25, 2014


The impossible happened. The two parties agreed on something, even in the midst of the bitter campaign season of 2012. Left and right and polluters and environmentalists came together in a rare show of bi-partisanship to enact sweeping changes in the National Flood Insurance Program, a program floundering in debt (note its $18 billion loan from our Treasury after Katrina as set out in Part I of this essay) and headed toward fiscal and ecological oblivion. The vote in the House in favor of such an overhaul was 406 to 22! Even the bankers and insurers were on board for the changes in the program’s structure. David Conrad, a consultant for the Association of Floodplain Managers, had this to say about the vote: “Everyone was like, Wow! We had been talking about reform for 15 years, and rationality finally caught up with the Congress.” The politicians had finally matched actuarial risk and premiums, and in the process had ended taxpayer welfare payments to beachfront zillionaires. Good work, pols!

How could this have happened? Well, someone finally started applying one of the fundamental principles of insurance, that insurance rates are reflections of actuarially-computed risk. Zillionaires with million dollar homes on or near the beach and who were paying four hundred dollars a year in premiums (with the rest of us paying for their losses that such puny premium payments didn’t begin to cover) were riding the gravy train, as set forth in Part I of this offering. The program’s losses and premiums paid were so out of sync that it was clear that rates had been set by politicians in the back rooms out of sight of actuarial science, and Congress finally rebelled. It was a new day; the politicians on both sides of the aisle had had their eureka moment and we taxpayers had won one (for a change).

Are you ready for some back to the future? Less than two years later, that (nearly) same Congress in another show of bi-partisanship gutted the reforms just made, reforms enacted by Congress on which the ink was barely dry. Democrat Maxine Waters of California and (now deposed) Republican Eric Cantor of Virginia, otherwise polar political opposites, came together to work for the bill gutting the earlier reform law, even though Waters was a sponsor of the earlier reform bill! California and Virginia have lots of beachfront properties and zillionaires with lots of money available in campaign contributions to lather on their congressional lackeys. Waterfront living has its benefits with a bit of campaign grease.

The new law gutting the not-so-old law reinstates subsidies for the zillionaires at taxpayer expense and even provides for refunds to the zillionaires for the increased premiums they had to pay in the less than the two years between the reform law and the law reversing the reforms. Real risk as related to actuarially-computed loss has been removed by the politicians and you and I as taxpayers are back on the hook again to pay for the bulk of the zillionaires’ losses (and even their refunds), and worse, in an era when climatologists say the frequency of major storms will increase due to climate change.

Perhaps even worse yet is the likelihood that such a reinstated subsidy environment will, of course, encourage new building, thus increasing the exposure to hurricanes and tsunamis and taxpayer exposure to yet heavier subsidies to the rich and superrich. The squeaky wheel got the grease, as the old saying goes, and we taxpayers have neither wheel nor grease. We can’t afford lobbyists; our resources are needed to subsidize the rich and superrich in such atrocities as this and, of course, the really major subsidies we must pay for corporate tax tricks under the internal revenue and bankruptcy codes.

Finally, and before leaving this “reform” law reforming the first reform law in favor of commentary, I note that the new law is a payoff on rates to the favored class but does nothing to address the flood program’s escalating debt. In other words, the Congress took care of its rich patrons but left the program’s escalating debt to fate. With the Wall Street banks’ bailout giveaway as an example, I smell another “emergency” bailout by you and me when the next Katrina hits – and it (and more) will. It appears the Congress has (in political fashion) joined Wall Street banks in their money crapshoots (which you and I also fund). Thanks, Congress: Just what we needed – more and heavier subsidies to the rich. . .

Further commentary follows this part in Part III. Stay tuned.   GERALD   E

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