A New Wall Street Looting Scheme: Disaster Savings Accounts

As famed short seller David Einhorn says, no matter how bad you think it is, it’s worse. We’ve got proof of his dictum in the form of a new looting scheme, the Disaster Savings Account Act. Since the financiers haven’t yet gotten their hands on Social Security, they are looking for new worlds to plunder. Here’s the blurb from one of its promoters:

An Open Letter to the House and Senate:
Support Measures to Encourage Private Disaster Mitigation

Dear Member of Congress,

We write to urge you to support the Disaster Savings Account Act introduced by Rep. Dennis Ross, R-Fla., and Sen. Jim Inhofe, R-Okla. The act, which allows individuals to deduct up to $5,000 per year to spend on disaster mitigation or recovery, is a strong step toward ensuring Americans are kept safe from natural disasters and extreme weather events.

In 2011 and 2012 alone, 25 separate disasters each caused more than $1 billion in damage. Since 1996, there have been 15 natural disasters that have cost the Federal Emergency Management Agency more than $500 million, with totals for several of those events running into the billions. This pattern is unsustainable. By encouraging individuals to use their own dollars to prepare for disasters, the Disaster Savings Account Act reduces future financial liabilities for the federal government and, most crucially, saves lives by guaranteeing communities are better prepared before disaster strikes.

With the anticipated rollback of 2012’s reforms to the National Flood Insurance Program, it’s more important than ever to take steps to prevent damage from flood events. NFIP is already $25 billion in debt, and future storm events will further erode its balance sheet. But increased mitigation can help reduce this impact.

Beyond stemming the impact from floods, the Disaster Savings Account Act will diminish the effects of many other catastrophic events, from wildfires to tornadoes to hail storms. Already, California is experiencing its driest year yet, increasing the risk of wildfires, while 46 tornadoes have ripped across the South and Midwest. As of March 12, ten disaster areas already have been named in 2014.

The stakes are incredibly high. Motivating individuals to assess their natural disaster risks and prepare accordingly should be a top priority. While it isn’t the federal government’s role to come into communities and mitigate against every possible disaster, offering incentives to those looking to prepare privately is a reasonable step for Congress to take.

Therefore we ask that you support the Disaster Savings Account Act and move the legislation to passage.


Lori Sanders
R Street Institute

This is an unvarnished effort to use climate change as a cover to funnel more money to Wall Street via a tax break, which of course will prove useful only to people with discretionary income, as in top 20% earners. So of course, as is always the case with neoliberal programs, lower income people must be made to suffer because they deserve it.

And the excuse is that this sop to Wall Street will help cut disaster relief spending. First, that is never gonna occur. Not helping people in distress, is a great way to assure unfavorable media coverage. Remember what Katrina did for Bush?

Second, aside from the cynical political interest angle (and we are starting with the cynical elements because this proposal is so barmy), there is a much bigger reason government steps in when disasters strike: they can mobilize resources. What do you think someone is going to do with their disaster savings account when they are stuck with roads washed out, no electricity, and no working gas pumps on any routes out? You need government intervention to help with evacuation and trucking food and other needed support and services (like the equivalent of MASH units in really serious events, say a large earthquake in a densely populated area).

Moreover, the “every man for himself” approach which these accounts presuppose almost assures worst-case outcomes: looting and/or overly aggressive defensive responses to suspected looters (you can imagine someone coming to check and see if people are safe being shot for their intended act of concern) and public health issues (failure to drain water properly and cordon off various risks, like hazardous stored chemicals; the need to provide sanitary facilities, etc).

So please, e-mail or call your Congressman and Senators and tell them what a horrid idea this is and how you are firmly opposed to this ham-handed subsidy to Wall Street.

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  1. salvo

    yep, abusing the fear of the consequences of climate change as the next rent extraction model, it’s the next logical step one would expect

    1. Mark P.

      Actually, Jamie Dimon — for one — has been playing the climate change card with monotonous regularity since at least 2008. One of the first arguments out of Dimon’s mouth in the wake of the GFC was that the big banks (like his) must remain untouched by regulation so they can save the world as carbon trading exchanges.

      1. 0jr

        all carbon trading exchanges did was enable countries and companies that did not pollute to sell to countries that did and enable them to pollute even more when they otherwise would have been prevented from doing so

  2. abynormal

    may the hunger of a million mosquitoes ravish on their gSachs

    WALL STREET, n. A symbol for sin for every devil to rebuke. That Wall Street is a den of thieves is a belief that serves every unsuccessful thief in place of a hope in Heaven. Even the great and good Andrew Carnegie has made his profession of faith in the matter.

    Carnegie the dauntless has uttered his call
    To battle: “The brokers are parasites all!”
    Carnegie, Carnegie, you’ll never prevail;
    Keep the wind of your slogan to belly your sail,
    Go back to your isle of perpetual brume,
    Silence your pibroch, doff tartan and plume:
    Ben Lomond is calling his son from the fray —
    Fly, fly from the region of Wall Street away!
    While still you’re possessed of a single baubee
    (I wish it were pledged to endowment of me)
    ‘Twere wise to retreat from the wars of finance
    Lest its value decline ere your credit advance.
    For a man ‘twixt a king of finance and the sea,
    Carnegie, Carnegie, your tongue is too free!
    —Anonymus Bink/Devils Dic.

  3. ep3

    yves, to me, this sounds like a “bailout” for insurance companies. Yes, I agree with your theory on the nature of this. But as the move to privatize everything continues full force, now your insurance company (beyond health. I am talking auto, home, boat, etc.) can say they are only covering claims within a certain criteria. When the homeowner has a small water accident, he will say to himself “well, if i file a claim for this damage with my insurance, my deductible is $500 AND my rates will skyrocket, when the actual claim may be only $3,000”. So this person will say that this account would be worth it to cover those claims that his homeowners should cover.
    Here’s a personal example. As everyone knows roads in michigan are horrible. I am driving and a stone flies up and puts a crack in the windshield. My deductible is $500, yet the cost of the window is $800. When I ask my agent, they say “oh yes, your rates are going to go up”. So I bite the bullet and cough up another $300 just to save making the claim where the insurance company will surely raise my rates beyond the $300.
    So I see this bill targeting ppl who think along that logic, but it is also giving a handout (in the form of less claim payout and continued ability to deny claims while raising rates) to the insurance industry.

    1. Yves Smith Post author

      You are missing part of the plot.

      There’s a Federal guarantee program in place for flood insurance in flood prone areas now, so private insurers are not bearing that risk.

      Property & casualty policies are annual, so there’s no long-term bailout risk issue here, unlike with banking or with long-term types of policies, most important, life insurance. Insurers are completely capable, and have been, jacking up rates or simply refusing to write policies for homes in areas they think are too risky. But that leaves homeowners unable to get mortgages, since lenders require homeowners’ insurance that covers certain risks. So that kills home prices, which leads to upset from constituents. When changes to the flood insurance program were proposed (in a bill called Biggert Waters, we wrote about it), literally thousands of constituents would write their reps.

      And Wall Street is the one that would benefit from this program. These accounts would invest in stocks and bonds, just like IRAs.

      1. allcoppedout

        I actually managed to read the letter as innocuous until Yves’ ‘spreadsheet’ above and other comments. Not sure how I could have read it so dumb. There is an insidious quality in such presentations, like the ‘level playing fields of free trade’ somehow discounting you intend to put your own soccer team out with a couple of line backers licensed to kill.

  4. MikeNY

    So, the solution to even global warming is to cut taxes.

    These people sure do stay on point.

    1. diptherio

      Perhaps we can use this strategy ourselves…how about we get a law to provide tax cuts to climate change activists (or is it anti-climate change activists?). Every hour you spend protesting a pipeline or demanding more green-energy development funding from Congress, you get 1% off your tax bill.

      Just a thought…

      1. MikeNY

        Funny you mention that, dip.

        A veterans’ group in my hometown recently brought a proposal to the Board of Education to exempt combat veterans from paying school taxes. I contacted the BOE and explained that, if they passed the proposal, I would present my own proposal to exempt “political activists who oppose feckless imperial wars of adventure” from paying school taxes.

        The BOE punted on the proposal, and is sending it to a general vote along with this year’s school budget.

  5. Teejay

    From Wikipedia we learn that the R Street Institute spun off from the Heartland Institute less than a month after the disasterous billboard campaign against global warming using Ted Kaczynski (aka the unabomber). The RSI author lobbying congress previously worked at the American Enterprise Institute and before that the Mercatus Center at George Mason University. By pulling back all these curtains we find the Koch Brothers. Ta dah! They (or one of their foundations) funds the Heartland Institute, the American Enterprise Institute, The Mercatus Center and Lori Sanders was a participant in the Charles Koch Institute’s Koch Associate Program there (it ‘s unclear if Koch is the R Street Institute’s sugar daddy as well). Are the Koch’s seeking to profit on both ends of the environmental harm they cause. Higher profits by not having to clean up or prevent their messes in the first place. No externality consequence for me but for thee. And profiting off of these disaster accounts as well as reducing tax revenues.

    Back ground on the Heartland campaign fiasco: http://www.eenews.net/stories/1059963972

  6. Chris

    One of the sponsors is Inhofe. Who professes vociferously that he doesn’t believe in global warming.

    In addition – why in the world would anyone spend anything from their fund before claiming the maximum available from the relief agencies first?

  7. vlade

    Not surprised. UK gov’t in its budget just upped ISA (individual saving account) allowance to GBP15k. it used to be about 10k, only half of which could be in cash, now all 15k can be in cash. 15k annual allowance is 1,250GBP per month – after tax. Median UK income is 1750 a month after tax. Hence more 50% of the population can’t afford to save this much.

  8. Brooklin Bridge

    […]Since the financiers haven’t yet gotten their hands on Social Security, they are looking for new worlds to plunder

    If their hands are not deep into the pockets of entitlements, it’s certainly not for lack of trying. Here’s an article from The Guardian. Note the title, “What The Experts Think of Entitlements” http://www.uschamberfoundation.org/blog/2013/09/what-experts-are-saying-entitlements

    The experts? Pu-lease! The Guardian (moins Glen Greenwald) seems to be just another digital rag like Huffington Post.

  9. R Foreman

    Hmpf.. Republicans.. can’t live with ’em, can’t throw ’em to the crocodiles (or could we?).

  10. allcoppedout

    Tried that with our Republican throw-backs Osbourne and Cameron. The crocs threw a prodigal son party.

  11. Dan Kervick

    I guess I missed the part where this was presented as having something to do with global warming.

    It’s another radical right privatization scheme. These guys won’t be satisfied until they have put government completely out of business.

  12. Albert Leo

    “By encouraging individuals to use their own dollars to prepare for disasters” — OK, sounds possibly reasonable. Maybe. Why isn’t this a collective issue?
    “most crucially, saves lives by guaranteeing communities are better prepared before disaster strikes.” — Guaranteeing? Really? “Saves lives”, sounds good, why is it coming from someone who doesn’t give a damn about saving (others’) lives?

    It’s just another way for those with excess funds to “invest” to suck another 5% (+/-) out of the economy as a whole, out of the other 99%. 5% at a time adds up to total ownership. Jesus was right to drive out the moneylenders.

    1. redleg

      Note the individual focus of the bill and the “communities are better prepared” description. Individual preparedness has nothing to do with how a community prepares, responds to,or recovers from disasters.
      There is a body of work out there, both trade journals and peer reviewed scientific/engineering research, that documents this.

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