Wednesday, May 19, 2010

Legislation of the Day

On April 27th, the House Financial Services Committee approved the Homeowners’ Defense Act of 2009, and sent it to the House floor. The bill, H.R. 2555, would authorize the Secretary of the Treasury to guarantee debt of certain state catastrophic natural disaster insurance. In effect, see Section 202, it's a guarantee for earthquake and hurricane insurance, making the Federal government "the insurer of last resort for nearly every disaster-prone home in the country." Though the bill modestly limits (Section 202) the obligations to $5 billion for earthquakes and $20 billion for all other natural disasters, the legislation would allow the Feds to backstop (see Section 304) an "aggregate potential liability . . . sold in any single year" of up to $200 billion.

If passed, the law would be an "implicit subsidy [making] it practical for developers to build in currently wild or lightly developed coastal areas where conventional private companies won't write policies." As Heritage's David John and Matt Mayer conclude, the legislation is:
nothing less than a blatant attempt to have the taxpayers assume much of the risk for property losses caused by hurricanes and similar disasters. In essence, under the HDA taxpayers across the country would be subsidizing the owners of large beach houses.
The bill was introduced by Democrat Florida Congressman Ron Klein. In an amazing coincidence, his district covers coastal areas from Palm Beach to Boca Raton. Another irrelevant fact is that the sole qualifying state catastrophic insurance programs are in Florida and California.

We've seen this movie before--starring Fannie Mae and Freddie Mac, which bombed at at least $400 billion of taxpayer expense. Implicit Federal backing has a way of becoming explicit.

Closer yet is the National Flood Insurance Program (NFIP), with losses often exceeding revenues, necessitating repeated Federal bailouts. Because hurricanes and earthquakes re-occur, the Federal program encouraged developing risky land. So, one problem with NFIP was:
many "repetitive-loss properties," which are properties that had claims in excess of $1,000 twice over a 10-year period. These properties represent almost 30 percent of all claims.
Why not rebuild when you've got nothing to lose?

In the current recession, more Federal debt is crazy. Passage of this bill would prove that our government is too stupid to learn.


suek said...

On the other hand, if you anticipate the destruction of the economy so that you will have to just write off any obligations, why not?

Or...just change the law if it gets too expensive to pay people what you've promised them.

Promises are cheap when there's nothing to enforce them...

Geoffrey said...

Besides the excellent points made, there's New Orleans. A disaster waiting to happen, built on land ten feet below sea level.

Hey, I know! Lets build homes in dormant volcano's! Think of the view!

30 years ago my Mom came to visit us in SoCal. At the time, she lived in Ft. Lauderdale, which allowed no building on the beach.

She took one look at the homes in Malibu on the beach and asked, "What, are these people crazy?"

Seth said...

It sure is becoming tiresome that our feckless leaders so enjoy making a taxpayers' dutch treat of disasters resulting from the irresponsibility and idiocy of... well, idiots.

I know exactly what Geoffrey's talking about. There are houses here in seismic L.A. that stick almost completely out over the edges of very high, steep hills, suspended by some pretty flimsy looking pairs of stilts, and houses perched at the rims of deep wooded valleys with little to support them other than the makings of oozing mud, just add a good downpour.

If someone plans to buy or build a house in a precarious location and they can't find an insurance company that will insure it, or an insurance company is willing to take the gamble, then they should "own" the results, be they good, bad or indifferent.

OBloodyHell said...

> In the current recession, more Federal debt is crazy.

I hear Obama is really good friends with the money's printer. He swears he can get the USA a great discount on it.

OBloodyHell said...

> She took one look at the homes in Malibu on the beach and asked, "What, are these people crazy?"

Not really, the crazy thing in Cali is earthquakes, not hurricanes. Building on the beach is only slightly worse than anywhere else.

In Florida, the hurricanes hit often enough that this is a relevant concern, however.

And I don't know what part of Ft. Lauderdale she was in, but I grew up in that general area -- they've been building high-rise condos on the intracoastal island chain (basically "on the beach") from Miami north to Jupiter throughout that area since the 60s.

As a matter of fact, that area often has "two coasts" -- one thin island chain around a half to a qtr mile wide, and in inner waterway that's maybe up to a mile across, then a second "coast" which people build on and clearly is also subject to hurricane swell.

Moreover, you should grasp that the highest point in all of peninsular Florida is only 300 ft above sea level. And much of the area now considered "Miami" is reclaimed swampland at or below sea level.

Rick Caird said...

No Miami is not at or below sea level, All you have to do is look at the Miami river or the canals to see where sea level is. There are no lift stations except for sewer.

Carl said...

I do think OBH misses the point. Whether or not Miami is below sea level, the point is that many of the beach areas are risky places for houses. While I have no problem with individuals making decisions based on private insurance, I do object to subsidizing them.

BTW, I used to live within a few miles of Rep. Klein's district.

Carl said...

Geoffrey: Malibu might be marginally less crazy: earthquake prone, perhaps, but not hurricane.