May 25, 2013
Political Football Over Disaster Relief: Another Argument for Public Banking
Posted on Jan 4, 2013
By Ellen Brown, Web of Debt
For federal aid programs:
* Victims are required to first apply for 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.
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 provided further FEMA aid. Disaster loans are made through FEMA on the basis of credit history, and favorable interest rates are available only if the applicant cannot get credit elsewhere. That means favorable interest rates are offered only if an applicant cannot qualify for credit through a commercial bank. When the banks got in trouble themselves, the Fed dropped the Fed funds rate (the rate at which they borrow from each other) to nearly zero. But no such relief is extended to disaster victims.
There is no FEMA money for small businesses other than loans, and businesses have difficulty taking on debt when they don’t know when they will be able to reopen. The small business 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 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.
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