In Pennsylvania, fracking might not be the winning issue US presidential candidates think it is

Issued on: 13/10/2020 

Lois Bower-Bjornson, southwestern Pennsylvania field organiser with Clean Air Council, points out a fracking well site just over the hill from her home in Scenery Hill, Pennsylvania. 

© Colin Kinniburgh

Text by:Colin KINNIBURGH


In the battle for the White House, Pennsylvania and fracking have become all but synonymous. Yet in one of the state’s largest gas-producing counties, FRANCE 24 found residents’ relationship with the industry to be far more vexed than the national debate suggests.






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Rose Friend’s family has a long history with natural gas. For decades, the family’s home in rural Washington County, Pennsylvania, got a free supply of the fuel from a local conventional well, as compensation for one of the several active gas lines running across the property.

It was a straightforward, convenient arrangement for the family, and a testament to the region’s longer-running relationship with fossil fuels. Alongside coal, which powered the area’s iconic steel mills, oil and natural gas production in southwestern Pennsylvania dates back to the late 19th century. For Friend, who grew up ploughing the land with horses, and whose nephew worked in the coal mines, the benefits of the area’s abundant energy reserves were obvious.

Then, around the mid-2000s, a new variable entered the equation. In Friend’s case, it was a company called Atlas America, which was looking to capitalise on a lucrative new industry: hydraulic fracturing, commonly known as fracking. The technology allows drillers to extract oil and gas from deep inside underground rock formations by injecting them at high pressure with water and a cocktail of chemicals.

Atlas was an early player in what would soon prove to be a fossil fuel resurgence. In 2007, when Friend first signed a contract with the company, it was one of the many companies seeking to gain a stake in the Marcellus shale, the gas-rich formation on which her home sits.

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Since 2014, fracking has allowed the United States to become the largest oil and gas producer in the world. Pennsylvania alone produced more natural gas in 2019 than any country besides Russia and Iran – some 195 billion cubic metres, according to figures published by the US Energy Information Administration (EIA) and Enerdata.

The site opposite Friend’s home, however, lay untouched for a decade after Atlas first approached her. By that time, the company had been sold to Chevron and then again to EQT, now the largest gas producer in the country. And that’s when the trouble started.

“They just moved in,” said Friend, who is in her eighties. “It was totally crazy. I looked out my window one day and they were cutting all my hedges down!”

Rose Friend has spent has much the last two years battling with a natural gas company that she says built a road across her property without her agreement. Still, she says fracking is “necessary”, and plans to vote for Donald Trump. © Colin Kinniburgh

Without warning, she says, the company started chopping down decades-old trees along her road, in order to clear access to a well pad on the neighbouring property. That began a more than two-year-long battle between Friend’s family and EQT, as the company sought to build an “impoundment” – a kind of storage pond for fracking wastewater – on her land, as well as the road.

The family says the company’s activity threatened not just their immediate environment, but also a Native American burial ground on the site, which had been registered with the state’s historic preservation commission since the 1980s and prompted multiple archaeological teams to intervene in their dispute with EQT.

Standing on the gravel road that EQT built across their land, overlooking the Hunter well pad, Karen LeBlanc is furious with the company and politicians alike over what she describes as their dishonesty. She plans to vote for Trump, but says, “Truly, it’s not to do with the fracking”. © Colin Kinniburgh

Ultimately, Friend and her daughter Karen LeBlanc were able to prevent the company from building the impoundment, but not the gravel road that now cuts across what they describe as the “best” of their farmland. The access road is essential for EQT, as the fracking process requires hundreds if not thousands of truck trips per well to bring materials in and out.

One day, LeBlanc says, one of those trucks blocked her mother’s car in when she needed to go to chemotherapy for her colon cancer. Another day, she says, a bulldozer ran over the active gas line that supplied free gas to the family’s home. The line cracked, cutting off Friend’s gas and leaking all night.

To this day, the family says, they haven’t reached an agreement with EQT or received any compensation for the damage to their property. LeBlanc’s anger at the company is palpable.

“It was important that they let [my mother] retire here with some kind of dignity, and putting this road here didn’t allow that,” she said.

EQT did not respond to a request for comment.

‘Fracking is necessary’

Still, Friend doesn’t harbor any ill will toward the industry as a whole.

“I think that fracking is necessary,” she said. “But done the correct way and regulated.”

Leblanc agrees.

“If they can find some way to stop contaminating the water, stop contaminating the air… that’s what they need to work for,” she said.

That’s essentially the position of local Democrats, several of whom FRANCE 24 interviewed just a few hours before meeting LeBlanc and Friend.

Yet both mother and daughter support Donald Trump, as a Trump-Pence yard sign outside Friend’s house makes clear. When asked why, she stressed the president’s signature campaign themes.

“I just don't like the way Biden’s headed... with Kamala Harris, and all the socialism,” Friend said.

“They want to take away your guns, and I have lots of guns,” she continued, with a laugh. “They’re very pro-abortion, and that is a big thing with me.”

A Trump-Pence yard sign outside Friend’s home. The house has been in her family for over 100 years. © Colin Kinniburgh

LeBlanc agreed, calling Trump the “lesser of two evils”. She said she’s not a single-party voter, and previously supported Pennsylvania’s Democratic Governor Tom Wolf. But her distrust of the political class pushed her towards Trump.

“Truly, it’s not to do with the fracking,” she said. Her mother agreed.

‘JOBS!’

In the increasingly fevered battle for the White House, Pennsylvania and fracking have become all but synonymous. The state went to Democratic presidential candidates from Bill Clinton to Barack Obama, but flipped to Trump by 0.7 points in 2016 – a key step to his Electoral College victory.

The result there could prove just as decisive this year. And if there’s one thing Trump and Biden’s campaigns agree on, it’s that they can’t win the state without standing by natural gas.

“How does Biden lead in Pennsylvania Polls when he is against Fracking (JOBS!), 2nd Amendment and Religion? Fake Polls. I will win Pennsylvania!” he wrote on October 6.



How does Biden lead in Pennsylvania Polls when he is against Fracking (JOBS!), 2nd Amendment and Religion? Fake Polls. I will win Pennsylvania!— Donald J. Trump (@realDonaldTrump) October 6, 2020

Vice President Mike Pence also pressed the issue at last Wednesday’s vice-presidential debate with Kamala Harris, insisting that Biden would ban fracking if elected. Biden has made it clear he has no such plans – bucking pressure from environmental groups and the progressive wing of his party, who say that continued oil and gas drilling are incompatible with a livable climate. Yet the Republicans have succeeded in putting their opponents on the defensive, forcing Harris to repeat twice that Biden “will not end fracking”.

Bob Sabot, supervisor of North Franklin Township, a suburb of the county seat of Washington, says that fracking has become a “dangerous issue” for Democrats, “because Donald Trump has politicised it so much”.

Biden’s official climate plan does not mention fracking explicitly, but says that if elected, he would ban “new oil and gas permitting on public lands and waters”. Sabot stands by this position.

“He wants to make sure it’s clear that in the future we are going to move in a different direction,” he said. “Cause … if we don’t start to deal with climate issues, we are going to continue to see wildfires and hurricanes, and oceans are going to continue to rise.”

Bob Sabot, supervisor of North Franklin Township, a suburb of the county seat of Washington, says that frac.king has become a “dangerous issue” for Democrats © Colin Kinniburgh

“Joe Biden wants to use fracking as a change of type of fuel to the future,” he continued. “Biden does not want to throw people out of work. He does not want to close the fracking industry and the coal mines.”

The actual number of jobs that fracking brings to the Pennsylvania are highly disputed. The Trump campaign says that shutting down the industry would “kill 609,000 jobs” in the state, citing a study from the country’s largest business lobby, the US Chamber of Commerce.

However, the national Bureau of Labor Statistics (BLS) counted less than 20,000 jobs directly linked to shale industry in Pennsylvania in 2019 – just 0.3 percent of all jobs in the state.

Industry proponents typically argue that such figures do not account for indirect or “induced” jobs supported by the industry, which are notoriously difficult to count. (The Chamber of Commerce provides no sources or methodology for its job estimates.)

What’s clearer from the employment numbers is the boom and bust nature of the industry, which shed some 10,000 direct jobs in just two years when oil and gas prices crashed in 2015-16. They haven’t recovered since.

Larry Maggi, a Democratic Commissioner for Washington County, is confident that the energy sector will bounce back.

“We are just in a down cycle since one or two years,” he said. “No matter who is president, we are going to come out of it.”

As for environmental concerns, Maggi maintains that fracking today is “done safely” in the state.

“We’ve been able to collaborate with the energy sector here without sacrificing our environment,” he said.

‘Lies and lies and lies’

LeBlanc, the Trump supporter, doesn’t share his assessment.

“They don’t need to preach how safe it is when you can see how many other lies I’ve caught them in,” she said of EQT. “We’ve seen video of the emissions coming from there. We’ve seen the water leaking out… It’s lies and lies and lies.”

Lois Bower-Bjornson has seen the videos too – a lot of them. A school classmate of LeBlanc’s, she is a dancer by trade and an anti-fracking activist by “necessity”. She now works as the southwestern Pennsylvania field organiser with Clean Air Council, serves on the board of the Washington County-based Center for Coalfield Justice and gives tours of local fracking sites to anybody who’s willing to listen.

She’s collected testimony from a wide swath of her neighbours who’ve been harmed by fracking, and brought their stories to state and national regulators. Besides Friend and LeBlanc, she’s worked with people like Janice and Kurt Blanock, who lost their son to a rare bone cancer called Ewing’s Sarcoma in 2016, when he was just 19; his case and a string of other diagnoses of the same cancer in the area led the state to open an investigation into possible links to fracking.

Bjornson’s own children have experienced a range of symptoms that she attributes to the many gas wells within walking distance of her home in the town of Scenery Hill.

“My third son has the absolute worst health impacts, because he was the youngest and he grew up in it more, she said. “He will have severe nosebleeds, sometimes two a day, to the point that he has clots coming out of his nose and out of his mouth.”

. © Yona Heloua

Studies conducted in both Pennsylvania and Colorado have linked headaches, nosebleeds and respiratory symptoms to local pollution created by shale gas wells.

Bjornson is disgusted with the way the natural gas industry operates in her state, and at the ways that it has influenced politicians of both parties, including Biden himself. But she agrees with pro-gas Democrats on at least one thing: “They’re not banning fracking here. It’s not happening.”

She agrees that calling for a ban would doom Biden’s chances in the state, too. And she cautions liberals from states like New York, which have banned fracking, and want to “shame” Pennsylvania for not doing the same.

“You can sit up there on your little high horse, and say stupid stuff like that, but this is what we have to work with,” she said. “And that’s not our fault.”

Economics could trump politics

The sentiment may sound surprising coming from someone who has been wrangling with the industry for the better part of the past decade. Yet for Bjornson, it makes sense that the fracking fight doesn’t fall along straightforward partisan lines.

“People want to make this political when it’s not a political issue. It’s a human rights issue. It’s a, hey, species issue,” she said, referring to the threat of climate change. “Do you want to live? That’s what it is.”

Statewide, a CBS/YouGov poll conducted in August found that a slim majority (52 percent) “oppose the process of fracking”, with Black, Democratic and young voters most likely to oppose it.


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Bjornson has seen that split even in predominantly rural, white, conservative Washington County, where she says the issue is “straight down the middle, completely divisive”.

Those divisions may only deepen if the industry’s current financial woes continue. Over the years, Bjornson says she’s encountered a few people who have profited handsomely from fracking, whether by finding a high-paying technical job or earning hefty royalties from drilling underneath their land. Others “made a lot of money, and now aren’t making any money because of the price of gas”.

Wall Street is flashing warning signs, too, as author Bethany McLean and others have explained. Oil giants Chevron and Shell are in the process of selling off their assets in the region. EQT disclosed a major writedown of its assets in January.

That was even before Covid-19 hit, contributing to an unprecedented oil price crash in April and casting further uncertainty over the market.

Ultimately, it’s these economic forces, not politicians, that may decide the future of fracking in the state. The question is: if Pennsylvania’s gas industry goes the way of coal and steel, will either party be able to offer a viable alternative?

Are we headed for a strategy of shock?

Do it now. Right away

What happens next? Will the world be saved, but only for the rich few, as in 2008; and will digitisation and surveillance become the new order?

by Serge Halimi 

Bernhard Lang · Getty

When this tragedy is over, will everything just go back to the way it was? For 30 years each new crisis has raised unreasonable hopes that the world would return to reason, come to its senses, end the madness. We have dreamed of containing, then reversing, a sociopolitical dynamic whose deadlocks and dangers were finally understood (1). We hoped that the Black Monday stock market crash of 1987 would end runaway privatisation, and that the financial crises of 1997 and 2007-08 would halt happy globalisation. They didn’t.

The 9/11 attacks led to criticism of US hubris and distraught questions like ‘Why do they hate us?’ Those didn’t last either. Even when they are heading in the right direction, ideas alone are never enough to get things done. That needs people. But it’s best not to rely on the politicians who were responsible for the disaster in the first place, even if those pyromaniacs are skilled at making sacrifices for the greater good and pretending they have changed, especially when their lives are at risk, as are ours today.

Most of us have never experienced a war, a military coup or a curfew first-hand. At the end of March, nearly three billion people across the world were under lockdown, many in extremely trying conditions; most were not writers watching the camellias bloom in the garden of their country house. Whatever happens in the next few weeks, Covid-19 will be our first experience of a global threat — not something you forget quickly. Even our current political leaders will have to take some account of that (see The unequal cost of coronavirus, in this issue).

The crisis will make knowing whether it is still possible to exist without the Internet either more pressing, or totally irrelevant

And so they are doing. The European Union has suspended its budget rules; France’s president Emmanuel Macron has postponed a pensions reform that would have penalised hospital staff; the US Congress has voted to send most Americans a cheque for $1,200. But, after 2008, neoliberals accepted a spectacular increase in debt, fiscal stimulus measures, the nationalisation of banks and a partial reintroduction of capital controls, all to save their economic system. Austerity then allowed them to take back everything they had given away during the general panic, and even achieve some ‘advances’: employees would now work harder and longer, under more precarious conditions; ‘investors’ and rentiers would pay less tax. The Greeks paid the heaviest price, as their public hospitals, short of funds and drugs, saw the return of diseases everyone thought eradicated.

A good day to bury stuff

What seems to be the road to a total rethink may in fact lead to a ‘strategy of shock’. In the hour after the 9/11 attacks on the World Trade Center in 2001, a special advisor to a British government minister circulated a memo saying, ‘It’s now a very good day to get out anything we want to bury.’ She might not have been thinking of the ongoing restrictions that would be imposed on public freedoms in the name of fighting terrorism, let alone the war in Iraq and the disasters that Anglo-American enterprise would bring. Twenty years on, you don’t have to be a poet or a prophet to imagine the shock strategy that is on its way.

Besides the ‘stay at home’ and social distancing directives, all our social interactions may be turned upside-down by the rapidly advancing digitisation of society. The crisis will make knowing whether it is still possible to exist without the Internet either more pressing, or totally irrelevant (2). In France, everyone must already carry their ID at all times; very soon, a mobile phone will be not just useful but a requirement for monitoring purposes. Since banknotes and coins are potential transmitters of infection, credit and debit cards are now guardians of public health; they will also make it possible to list, log and archive every purchase. The decline of the inalienable right to anonymity (if no laws are broken), as seen in China’s ‘social credit’, or surveillance capitalism, is becoming part of our consciousness and our lives. Our only reaction is naïve astonishment.

Even before Covid-19, it was already impossible to catch a train in France without providing your personal details. To access a bank account online, you had to let the bank have your mobile phone number. If you went for a walk, you were sure to be caught on CCTV. The health crisis has moved things on. In Paris, drones monitor areas closed to the public. In South Korea, sensors alert the authorities if someone has a temperature that makes them a danger to the community. In Poland, people in self-isolation must have an app on their phone to confirm they are at home, or put up with unannounced police visits (3). The public widely supports surveillance measures in a time of crisis, but the measures always survive the crisis.

This crisis may turn out to be a dress rehearsal for sweeping aside the last resistance to digital capitalism, and the coming of a society without human contact

The coming economic revolution will contribute to a world where freedom is further restricted. Millions of food shops, cafés, cinemas and bookshops have closed to prevent infection. They cannot do home delivery, and are not lucky enough to sell digital products. How many will reopen when the crisis is over, and what state will they be in? The outlook is better for distribution giants like Amazon, which is hiring hundreds of thousands of delivery drivers and warehouse staff, and Walmart, hiring another 150,000 ‘associates’. Who better understands our tastes and choices? This crisis may turn out to be a dress rehearsal for sweeping aside the last resistance to digital capitalism, and the coming of a society without human contact (4).

Unless protests, actions, political parties, peoples and states change the script. Many say ‘Politics doesn’t concern me’, until the day they realise it is political choices that force doctors to decide which patients live or die. That day has come. It is worse in central Europe, the Balkans and Africa, whose medical professionals have for years moved to safer countries where they are better paid; the situation there too is a result of political choices. We probably understand this better today: staying at home also makes us stop and think. And want to take action. Right away.

Everyone understands the costs

Contrary to Macron’s suggestion, it is no longer a matter of ‘re-examin[ing] the development model our world has followed’. We already know it needs changing. Right away. And since ‘delegating our protection to others is folly’, let us end strategic dependencies that exist only to preserve ‘free and undistorted competition’. Macron has said that France must make a break, but he will never make the crucial one. We should not just provisionally suspend, but condemn outright the European treaties and free trade agreements that have sacrificed national sovereignty and made competition the supreme objective. Right away.

Everyone now understands the cost of delegating the provision of millions of face masks and pharmaceuticals, which hospital patients and staff, and distribution and supermarket workers, depend on for their lives, to supply chains that stretch around the world and operate on zero inventory. Everyone understands the cost to the planet of deforestation, offshoring, waste accumulation and mass travel. Paris welcomes 38 million tourists a year, more than 17 times its population, and boasts of it.

Protectionism, environmentalism, social justice and public health have come together. They are key elements of an anticapitalist political coalition that is powerful enough to impose a programme of breaks. Right away.

Serge Halimi

Serge Halimi is president and director of Le Monde diplomatique.

Translated by Charles Goulden

Climate change and soaring flood insurance premiums could trigger another mortgage crisis

Officials fear “a huge foreclosure crisis” from FEMA flood insurance reforms.


By Jie Jenny Zou Feb 25, 2020


This story is part of a partnership with the Center for Public Integrity and WNYC/Gothamist.

NEW YORK CITY — When Hurricane Sandy hit in 2012, Thalia Panton watched in disbelief as floodwaters careened down her quiet, tree-lined street in Canarsie, Brooklyn. Sparks flew from downed electrical lines as the rapids rose past her thighs.


The water receded as quickly as it appeared. But the damage was done. When the skies cleared, Panton was left with $60,000 in losses. The basement had flooded, damaging musical instruments her husband and son use for their gigs as well as electrical equipment that kept the house running. Panton and her neighbors didn’t get flood insurance until after Sandy because Canarsie wasn’t considered a major flood risk at the time of the storm.


Seven years later, as even more communities reckon with rising sea levels and catastrophic storms, the Federal Emergency Management Agency is encouraging homeowners and renters to “buy as much flood insurance as they can.” The agency provides more than 96 percent of all flood coverage through its National Flood Insurance Program, making it the sole option for most Americans.

Thalia Panton says flood waters from Superstorm Sandy reached the step she is standing on, resulting in $60,000 in losses. Jorge Garcia for Vox/CPI

Posters offering cash for houses are on nearly every street corner in Canarsie, an area that has long been a bastion of black homeownership. Jorge Garica for Vox/CPI

But FEMA is revamping the debt-ridden program to make it operate like a private insurer, raising concerns that coverage could become unaffordable for many higher-risk areas across the country. Agency officials have not said how many Americans could be affected. Private insurers champion the reforms as a way to modernize the NFIP, but the industry also stands to profit. Insurers are now competing directly with FEMA. Companies have also sold the agency on expensive deals with dubious benefits for taxpayers.

New York City officials warn that skyrocketing flood insurance premiums could trigger a foreclosure crisis in neighborhoods like Canarsie, which never recovered from the 2008 housing crash and was a hotbed of predatory loans that targeted black homeowners. Annual premiums in Canarsie — now an average of $600 — could jump to a range of $3,000 to $6,000 as soon as 2022 and become mandatory for more residents.

That expense could be out of reach for many in Canarsie already struggling to keep up with housing costs. “People are just going to be slowly picked off,” said Zachary Paganini, an urban geography researcher at the City University of New York. By forcing communities of color to shoulder the economic burden of escalating flood risk, the government is worsening inequality, he said.

While insurance is marketed as a way for households to bounce back, experts point out the policies do little to prevent disasters. Hundreds of thousands of homes could regularly face flooding from sea level rise by 2050, according to estimates. Heavier rains will threaten properties far from oceans. As the cost of flood protection soars, insurance could be what pushes people from their homes long before climate change does.
New flood reforms could mean less risk for the government, but also less protection for communities

Hurricane Sandy still haunts Ronald Temple’s home seven years later. A discolored line in his basement is a reminder of how floodwaters crept toward the ceiling, knocking out the heat for several grueling winters until he could afford to replace the equipment. On sunny days, unexplained puddles seep from the floor, a problem Temple says has only worsened since the storm. And in October, he discovered a rusted sewage pipe that will cost $10,000 to replace — a defect he blames on saltwater corrosion that isn’t covered by his flood or homeowners insurance.

“I’m really seriously thinking about moving,” said Temple, who immigrated from Sierra Leone in 1981 and has lived in Canarsie since 1997. His home borders a salt marsh that spills into Jamaica Bay, which divides Brooklyn from the southern edge of Queens. Canarsie wasn’t included in the city’s mandatory evacuation zone, but residences here were among an estimated 80 percent of homes on Brooklyn’s waterfront that were damaged during Sandy.

FEMA’s “advisory” flood map suggests far more risk in Canarsie than the “current” map, which would make flood insurance mandatory for more people and likely increase rates. FloodHelpNY.org

FEMA flood maps at the time of the storm, which were based on historical experience, classified fewer than 40 of Canarsie’s 12,000 buildings as high flood risk, which mortgage lenders typically require to carry flood insurance. Revised figures now suggest more than 5,000 buildings are at risk. The number of flood policies in Canarsie has increased since 2012, but the area remains underinsured.

“We’re not talking about people who have irresponsibly built a beach house because they want to have a second home on the shore — these are generational neighborhoods,” said Elizabeth Malone, a program director and insurance specialist at Neighborhood Housing Services of Brooklyn, a housing advocacy organization.

Roughly 85 percent of Canarsie’s residents are black, and the area is often seen as a bastion of black homeownership, which is on the decline in New York City. The neighborhood’s high number of single- and two-family homes gives it a sleepy, suburban feel. But just past the manicured lawns and paved driveways are signs of economic distress.

Bright yellow posters offering cash for houses can be found on nearly every street corner. Many residents — including a large share of immigrants and retirees — settled in Canarsie during the 1990s and 2000s at the height of subprime lending, receiving risky, high-interest loans. The area still has a large number of foreclosures compared to the rest of the city. Sandy likely played into that problem, experts say, causing some homeowners to default on their mortgages because they were unable to rent out flooded basements.

Many of Malone’s clients in Canarsie are choosing to forgo flood insurance because of the cost, she explained, not because they don’t believe the risk is real. Escalating flood risk could also cause home values to plummet, leaving families owing more on their properties than what they’re worth. “We will be underwater financially,” she said, “long before we are underwater physically.”

Annual flood premiums in Canarsie — now an average of $600 — could jump anywhere from $3,000 to $6,000 as soon as 2022. Jorge Garcia for Vox/CPI

Canarsie has a high number of single- and two-family homes and is 85 percent black, with many residents longtime homeowners. Jorge Garcia for Vox/CPI

Complicating matters is the NFIP’s hazy fate. The program began in 1968 primarily because private companies were unwilling to insure floods. Since then, the NFIP has been America’s primary flood insurer, backing more than 5 million homes and businesses. Policies provide limited coverage for structural and equipment damages as well as loss of contents. But the program requires periodic congressional approval, putting it at the mercy of partisan politics. As a result, policy rules and conditions have continually shifted.

“They’ve been kicking the can for almost two years now,” Jainey Bavishi, director of the New York City Mayor’s Office of Resiliency, said of the standstill over flood insurance. Congress has been unable to reach consensus on the direction of the program, which some see as a lifeline and others as a liability. The NFIP has been temporarily extended 15 times since 2017, most recently in December, in lieu of a bill spelling out the program’s future. Previous attempts have been jarring: Congress tried to reform the NFIP in 2012, only to renege on most of those changes just two years later.

Right now, what NFIP customers pay is impacted by their location on a FEMA flood map and whether their property is eligible for subsidies. In most cases, mortgage borrowers in higher-risk zones must carry insurance and pay higher premiums. But structures built before the NFIP program designated an area as high risk often receive subsidized rates, a congressional compromise not to penalize owners for construction that complied with existing standards.

“WE WILL BE UNDERWATER FINANCIALLY, LONG BEFORE WE ARE UNDERWATER PHYSICALLY.”

In 2015, New York City officials appealed new FEMA flood maps that would drastically expand high-risk areas, making flood insurance mandatory and more expensive for thousands of New Yorkers. FEMA is working with the city to finalize new maps, but it’s unclear what they will look like and how long the process will take.

Risk Rating 2.0, an initiative that FEMA began working on in 2017 and plans to implement in October 2021, could have further effects on costs here and in other higher-risk parts of the country. Under the initiative, premiums will be priced to fully reflect flood risk, a move FEMA says would make the NFIP more financially sound but experts worry could make coverage less accessible. The revamp is part of a long-simmering effort to transform the program so it operates more like a private insurance company.

The NFIP is also relying on private consultants and proprietary computer models used by top insurance companies — a first in the program’s 50-year history. The overhaul marks a radical departure from the current pricing structure. FEMA has divulged little about the initiative, worrying lawmakers and housing advocates who say the agency is keeping the public in the dark.

FEMA has yet to provide specifics about premium changes. But New York City and outside experts say the agency’s decision to set prices based on risk signals big increases for higher-risk communities — the places that need flood insurance most.

In an interview, FEMA Deputy Associate Administrator David Maurstad said the goal of Risk Rating 2.0 is to deliver “rates that are fair, easy to understand and better reflect a property’s unique flood risk,” which can also help the public figure out whether an area is safe to live in.

The initiative will reduce premiums for policyholders of “lower-value homes” who are “paying more than they should be paying,” he said, and those who take measures to flood-proof their properties like elevating homes on stilts.

But Maurstad was less clear about the fate of high-risk, coastal areas like Canarsie, where property values are high but rising premiums could easily upend fragile households. “There comes a time when you have to evaluate the program and make these types of hard changes because they’re important for the sustainability of the program,” he said. Only Congress has the authority to make NFIP policies affordable, he added.
New York City officials fear a “huge foreclosure crisis” from flood reforms

What worries New York City officials is that communities like Canarsie could be left on their own to shoulder rising costs. “If we transition to risk-based pricing immediately, it would lead to a huge foreclosure crisis, and that’s exactly what we do not want to do,” Bavishi said. “We feel very strongly that this is at its core about environmental justice.”

City officials are lobbying Congress to provide vouchers or some other discount on NFIP premiums for those who cannot afford them. FEMA itself has acknowledged how cash-strapped Americans are — a 2018 agency survey found many US households would not be able to cover a $500 emergency expense.

Under the current NFIP, retrofitting a building is one of the few ways to qualify for premium reductions. A city study estimated a typical Canarsie homeowner would have to shell out up to $100,000 to modify a home, which would entail making the basement uninhabitable. The expense is out of reach for nearly everyone but real estate developers, who are increasingly building in the city’s most flood-prone areas.

Scholars like Paganini point out NFIP’s “one size fits all” approach means “working-class people increasingly can’t afford the cost of living by the coast, but wealthier populations can.” The program also ignores the impact of discriminatory mortgage lending on communities of color.

Instances of “environmental gentrification,” where luxury development displaces low-income residents following a natural disaster, have played out in post-Hurricane Katrina New Orleans and storm-prone Miami-Dade County in Florida.

In New Orleans, many low-income housing developments with higher population densities have been replaced by two-story, townhouse-style buildings, leaving many residents impacted by Hurricane Katrina unable to return. Bottom: B.W. Cooper housing project. Top: The Marrero Commons housing development, which replaced B.W. Cooper. Mario Tama/Getty Images

The Natural Resources Defense Council, an environmental group, supports FEMA’s pricing shift as a way to communicate risk to the public, but only if premiums are made affordable through some kind of program and the agency ramps up investment in flood prevention.

“You can have as much insurance as you want — the water doesn’t care,” said Anna Weber, a policy analyst for the group. NFIP shouldn’t punish vulnerable communities for living in risky areas, especially when racist real estate practices like redlining have long steered people of color into undesirable neighborhoods, Weber said. “Flood insurance has the potential to be the linchpin in our climate policy. Right now, it’s a liability.”

FEMA often cites a study showing every $1 spent on disaster mitigation returns $6 in benefits. But the agency spent $8.3 billion on such efforts from 2007 to 2016, a small portion of its total budget over the same period. Agency pamphlets outlining “low-cost” do-it-yourself projects to minimize flood risk tell property owners to “consult local architects, engineers, contractors, landscapers, or other experts in design and construction,” as well as secure “permits or other regulatory approvals” before making any changes.

Such an undertaking isn’t an option for Thalia Panton. Now retired, she lives on a fixed income — a chunk of which goes toward the $60,000 debt her family racked up from Sandy. Flood insurance has done little to alleviate the anxiety she feels when menacing clouds gather in the sky and start pelting the cement with rain.

Thalia Panton on her front porch. Jorge Garcia for Vox/CPI

“I haven’t been made whole, and I guess I’ll never be made whole,” Panton said. Her voice hardens when she’s asked whether she has considered leaving Canarsie. “I have no interest in selling my home, and I don’t want flood insurance to force me out. I don’t think that it can. I will find a way around it.”
Companies profit as flood insurance goes private

The NFIP was financially solvent for much of its history. But since Hurricane Katrina in 2005, it’s accumulated billions of dollars in debt, borrowing more and more from the US Treasury as disasters hit.

The insurance industry, whose abandonment of the flood market nearly a century ago was a major reason the NFIP was created, now see the program’s woes as an opportunity to make money.

Much of what FEMA has been doing to recast its flood insurance program in recent years follows recommendations from the insurance industry. If the NFIP operated more like a private insurer, upping its rates, it would be easier for companies to compete for the less risky and more profitable policies they wanted. The NFIP would also pay for deals the industry has been trying to strike with the program for years.

Reinsurance, for instance. Every year, to avoid being overwhelmed by claims, private insurers like State Farm transfer some of their risk to reinsurers like Munich Re, handing over a cut of premiums in exchange.

The Reinsurance Association of America lobbied Congress in 2012 and 2014 to confirm FEMA’s authority to purchase reinsurance and to take out catastrophe bonds, a newer form of risk transfer. “Cat bonds” are high-stakes gambles that Wall Street players like hedge funds make on Mother Nature. If a storm devastates, investors could lose their cash, which goes toward paying claims. But if a storm underwhelms, investors keep their cash and take a hefty profit, leaving insurers to foot bills on their own.

Consumer advocates warned that a government agency entering into these deals amounted to easy Wall Street profits that would cost taxpayers money. Robert Hunter, a former NFIP risk manager and Texas insurance regulator, said reinsurance makes “no sense” for FEMA, which can borrow from the Treasury at low interest rates set by the federal government.

By comparison, reinsurance prices are set by private companies that need to turn a profit and tend to raise rates after major disasters. And countries that have relied on cat bonds have found the deals don’t always pay out as expected.

Nevertheless, Congress urged FEMA to see if reinsurance and cat bonds could work for the NFIP. For answers, the agency turned to Guy Carpenter, a company that brokers those very deals.

The resulting FEMA report in August 2015 found reinsurance would be more expensive than borrowing from the Treasury but could encourage private insurers to start competing with the NFIP, offering flood policies of their own. This could help the federal government reduce its share of flood risk over time as private insurers step up, the report found.

Months earlier, Guy Carpenter unveiled a new specialty practice to sell insurance products to big government clients to “relieve the burden on taxpayers” — meaning the company stood to profit if FEMA took its recommendation.

That’s exactly what happened.

Kenneth Davis shows a reporter the damage in his basement from flooding after Superstorm Sandy on November 3, 2012, in Canarsie. Davis said the flooding happened within 10 minutes, tossing heavy items, including an upright piano, from one side of the room to the other. Bebeto Matthews/AP

By September 2016, Guy Carpenter had its first deal with FEMA. It’s been involved in all the NFIP’s private sector deals since, helping the program secure nearly $6 billion in coverage for potential storm losses through reinsurance and cat bonds.

FEMA’s Maurstad said the deals have strengthened the NFIP’s finances and helped it avoid accumulating more debt. Guy Carpenter declined requests for an interview. Its parent company, Marsh & McLennan Companies, is now expanding its insurance offerings to include private flood policies that compete with the NFIP.

Consumer advocates wonder what FEMA expected other than a sales pitch. “Guy’s constantly involved in big deals for reinsurers,” said Hunter, now director of insurance at the Consumer Federation of America. “Of course they’re going to say, ‘Here’s a wonderful idea.’”

Frank Nutter, president of the Reinsurance Association of America, defended the new direction of flood insurance. Private insurers will provide consumers with more choice, he said, which could encourage greater adoption of flood coverage. Both reinsurance and cat bonds are reliable transactions that have helped the NFIP become more financially sound, he added.

But it’s not clear whether the benefits outweigh the costs. FEMA has paid roughly $886 million in premiums to the private insurance industry so far. This doesn’t include additional millions in commissions and fees FEMA has paid to a long list of contractors like Guy Carpenter to execute each deal, which the agency declined to fully disclose.

In the four years FEMA has purchased reinsurance, it has collected payment once. The agency recouped $1 billion in 2017 after hurricanes Harvey, Irma, and Maria. Neither of the agency’s two cat bonds to date has resulted in a payout.

David Birnbaum, executive director of the Center for Economic Justice, argued that FEMA’s deals are about political expediency, not taxpayers. “If I can operate the NFIP using reinsurance and not have to go to the Treasury to borrow more money, that’s accomplishing two things,” he said. “It means I don’t have to involve Congress, number one, and number two, I don’t have to publicize that we’re losing money.”
“There’s no incentive for insurers to encourage to build back better”

Pressure to privatize the NFIP has been mounting for years, but efforts have sped up under the Trump administration. In 2017, Congress canceled $16 billion of the program’s debt at the insistence of the White House, which claimed debt forgiveness was necessary to keep the NFIP running and “enable the private market for flood insurance to expand.”

The White House’s Office of Management and Budget provided a laundry list of NFIP reforms to help “stimulate development of private insurance markets,” many of which have now found life in Risk Rating 2.0.

More options for flood insurance could be good for some customers. But consumer advocates worry private insurers will “cherry-pick” the NFIP by insuring only low- to moderate-risk policies, which generate bigger profits. The NFIP could enter a “death spiral,” Birnbaum said, leaving it on the hook for the riskiest and least profitable policies.

That could further jeopardize the program’s stability and the availability of flood insurance for those most at risk — people living in places like Canarsie.

Houses on Avenue L in Canarsie, Brooklyn. Jorge Garcia for Vox/CPI 

The corner of Rockaway Parkway and Glenwood Road, near Canarsie’s subway station. Jorge Garcia for Vox/CPI

Cherry-picking appears to be happening in Florida, which has heavily promoted private flood policies. Data shows private insurers covered 8 percent of policies statewide but only paid 3.8 percent of flood claims from 2018’s Hurricane Michael, which suggests they are backing less risky properties. Guy Carpenter itself agreed cherry-picking was inevitable, noting in its 2015 FEMA report that private insurers as “profit-seeking entities” were mostly interested in “lower risk, high net worth property owners.”

To gain an advantage, some insurers are hiring the same firm FEMA is using to revamp the NFIP. KatRisk produces catastrophe models, proprietary programs that price and assess risk. The firm’s models are being used by FEMA to develop Risk Rating 2.0 as well as private insurers in North Carolina looking to offer flood coverage for the first time. KatRisk co-founder Dag Lohmann said his firm aims to be “impartial and independent” and provides all users with “the same scientific input.”

Operating the NFIP like a private insurer comes with downsides that FEMA itself has outlined. A 2011 report by the agency found privatization scored poorly on affordability and ranked as the worst option for reducing public exposure to floods. That’s because, experts believed, the private sector could undermine efforts to make properties less flood-prone.

Adaptation efforts have already suffered as a result of insurance, according to research by Paul O’Hare, a researcher at Manchester Metropolitan University in the UK focused on climate resilience. He found homes in the UK that repeatedly flooded were often reconstructed the same way each time and insurers routinely denied requests by homeowners to rebuild to a higher standard.

“There’s no incentive for insurers to encourage to build back better,” O’Hare said. Similar issues plague NFIP policyholders in the US.

The mismatch speaks to a larger issue of who is responsible for protecting communities from future disasters. By recommending that property owners buy as much insurance as they can, FEMA puts the onus on individuals. But that distracts from what experts say is really needed to reduce flood risk: large-scale government action.

Sitting in her neighbor’s living room one autumn night, Thalia Panton and other Canarsie homeowners commiserated about their uncertain futures and the little government support they’ve received. Federal officials recently greenlit construction of a six-mile-long sea barrier along the eastern shore of Staten Island, another area in New York City hit hard during Sandy. But discussions about a far less extensive barrier to protect communities like Canarsie are in their infancy.

“It’s been seven long years,” Panton said, “and not a lot has happened.”

Jie Jenny Zou is a reporter with the Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, DC.

Jorge Garcia is an independent photographer based in Brooklyn, New York. In 2015, he founded the NYC Street Photography Collective.

Listen to the accompanying episode on WNYC here:

Beware a new wave of populism, born out of coronavirus-induced economic inequity

Big businesses and governments are fast making themselves inviolable. There could be a backlash


Nick Cohen Sat 18 Apr 2020 THE GUARDIAN 
 

Protesters ‘Rally Against Capital’ in London in February 2020. Photograph: Ollie Millington/Getty Images
SEE SOME PROTESTERS WERE ALREADY MASKED AGAINST COVID-19

Aglobal wave of injustice could follow the global pandemic. Pre-existing tendencies towards monopoly, Chinese dominance and predatory capitalism will explode unless governments take measures to contain them. I accept that it is hard to imagine public fury at a rigged economy when voters are rallying to their leaders and lockdowns are enjoying overwhelming support. Solidarity cannot last, however, as the crisis accentuates the division between insiders and outsiders.

You see them now. Employees with staff jobs, and the ability to work from home, are coping, for the moment. A few might experience lockdown as something close to a holiday and rhapsodise on the joys of home baking and box sets. As insiders stay inside, they save the money they would have spent in shops, restaurants, hotels and travel agents - the places where the insecure, the luckless nine out of 10 in the bottom half of earners who cannot work from home, once made their livings.


What applies to individuals applies to corporations and private equity funds that are strong enough to buy up distressed assets at a fraction of their pre-crisis value. I sat up and paid attention last week when I heard Sebastian Mallaby of the US Council on Foreign Relations warn that private equity is likely “to play both sides”: soaking up government largesse and profiting from market mayhem. It won’t, he concluded, “look great when we consider the political economy of the pandemic a year from now”.

You catch a glimpse of the future in the manoeuvres of the US private equity firms thinking of deploying hundreds of billions of dollars they hold in reserve as high-interest loans to struggling companies. The arguments this month about a Chinese state-owned investment firm buying up the British chip manufacturer Imagination Technologies are a further harbinger of a possible world to come. The Chinese Communist Party’s “2025 Made in China” strategy sees it leapfrogging the west by taking over companies and establishing a global lead in smart manufacturing, digitisation and emerging technologies. Covid-19 gives the party the opportunity it needs. Funds and states are operating in a market where the tendency towards monopoly was already established.

The 2008 crash, like recessions before it, concentrated economic power, as large firms used their resources and access to finance to ensure their survival. But, unlike in the last century, a multitude of rival businesses did not emerge once recession had passed, to provide competition and new employment opportunities for workers wanting to raise their wages by switching firms. In 2016, according to the Resolution Foundation, Britain’s 100 biggest firms accounted for 23% of total revenue across the economy, up by a quarter since 2004. As the economic crisis we are entering looks worse than 2008, worse indeed than anything anyone alive can remember, the rise of corporate giants seems assured. Big governments – and this crisis is making governments bigger than ever – will welcome them, because they want the convenience of dealing with big businesses, not with tens of thousands of small and medium-size firms.

Complaints about tax-exile billionaires wanting other people’s money are a warning

Do you begin to see how popular fury might build? Vulture capitalists swooping on undervalued assets. Chinese communists, who censored news of Covid-19 rather than alerting the world, benefiting rather than suffering. Big business trampling over all who might challenge it. It’s not a recipe for social peace.

Superficially, the crisis of 2020 does not appear anything like the financial crisis of 2007-08 and not only because it threatens to bring an incomparably greater level of impoverishment. Then there were human villains: bankers and captured regulators who broke the financial system, northern Europeans who congratulated themselves as they let southern Europe collapse. Now there’s just an invisible infectious agent that wants only to replicate itself. The similarities remain striking, for all that. Gordon Brown and Alistair Darling, like leaders across the west, weren’t interested in jailing bankers or making them pay back their bonuses. Their sole concern was to stop the collapse of the banking system. The morality of the bailout could wait – forever, as it turned out. Everywhere in the west, the public reaction was the same. Democracy was a racket. Taxpayers had to rescue the richest people in the world and then suffer years of stagnant wages and cut public services to meet the bill. If you need a one-line explanation for populism, this is the best there is.

Yet again, vast amounts of public money are being committed, but instead of stagnation we face catastrophe. Nervous commentators rererence how the Great Depression of the 1930s fuelled nazism and communism, as 2008 fuelled populism, and dread what awaits us. They should know there is no necessary link between economic and political failure. Far from enabling tyranny, the economic crisis of the 1970s, for instance, saw the end of the rightwing tyrannies in Spain, Portugal and Greece and the beginning of the decline and fall of the Soviet empire. Our future depends not only on the work of scientists but on the efforts of governments to stop democracy turning into a swindle.

The EU says countries must ensure that big business doesn’t use state funding to buy out rivals and adds that nation states should take stakes in companies threatened with Chinese takeovers. However the UK’s relationship with the EU ends, that’s good advice.

Governments should not forget natural justice as they did in 2008. Complaints about tax-exile billionaires in the Richard Branson mould wanting other people’s money are a warning, not a tabloid distraction. If, as seems likely, the government moves from subsidising wages to direct loans to big business, the first question must be what do taxpayers, employees and wider society gain in return.

Sociologists talk of the “Matthew effect”, an idea lifted from Saint Matthew’s account of the most unChristian words Jesus uttered: “For to everyone who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.” Our task is to make sure this miserable prophecy is not now vindicated.

• Nick Cohen is an Observer columnist

French protesters decry racism, other systemic injustices
By THOMAS ADAMSON and BOUBKAR BENZABAT

1 of 13  https://apnews.com/d664869156264bd45cb61793592f7224
People march during a protest in Paris, Saturday, June 20, 2020. Multiple protests are taking place in France on Saturday against police brutality and racial injustice, amid weeks of global anger unleashed by George Floyd's death in the US. Banner reads "Let us breathe". (AP Photo/Rafael Yaghobzadeh)


PARIS (AP) — Hundreds of people in protested Saturday in Paris against racism and police violence and in memory of Black men who died following encounters with French police or under suspicious circumstances.

The protesters marched to the former home of Lamine Dieng, a 25-year-old Franco-Senegalese man arrested in 2007 who died in a police van. Thousands of other protesters marched Saturday in Paris and cities around France in support of undocumented migrants.

“I hope, that this is not just a moment of brief awareness,” Dieng’s sister Ramata Dieng told The Associated Press. “We have dreamed for a long time of seeing this many people mobilizing on this issue.”

Ramata Dieng, center, the mother of Lamine Dieng, a 25-year-old Franco-Senegalese who died in a police van after being arrested in 2007, stands during a protest in her's son's memory in Paris, Saturday, June 20, 2020. Multiple protests are taking place in France on Saturday against police brutality and racial injustice, amid weeks of global anger unleashed by George Floyd's death in the US. Banner reads "Let us breathe". (AP Photo/Rafael Yaghobzadeh)

“This can’t stop at indignation. It’s fine to be indignant but we must move to the next step and the next step is to put implement the tools, have laws voted on so that police are no longer above the law,” she said.

The French government agreed earlier this month to pay 145,000 euros ($162,000) to Dieng’s relatives in a settlement via the European Court of Human Rights, after the family tried for more than a decade to hold police accountable for his death.

Many at Saturday’s protest linked it with the case of of George Floyd, an African American man whose death on May 25 in the U.S. city of Minneapolis galvanized protesters around the globe to rally against racism and police brutality.

“George Floyd was the hair that broke the camel’s back in the United States, but it’s not just George Floyd,” demonstrator Lylia Boukerrouche.

“In France, though it’s different, it’s a similar situation. It was a colonial state, and we see that today police violence occurs against Blacks and Arabs, the descendants of immigrants,” Boukerrouche added.
Some demonstrators carried placards bearing the words “Justice For Ibo,” a reference to Ibrahima Bah, 22, who died in an October motorbike crash in the Paris suburbs of Villiers-le-Bel wile allegedly trying to escape a police check. Bah’s family blames the police for his death.

The protests Saturday in Paris for Dieng and undocumented migrants were authorized by French authorities, who have been exercising caution over protests in recent weeks as the country emerges from coronavirus restrictions.

Other protests on Saturday in the French capital were banned, including an anti-racism demonstration near the U.S. Embassy by the Black African Defense League, and another protest linked to recent violence involving Chechens in the French city of Dijon. Activists gathered anyway.

People march holding a banner that reads "No country without justice- Truth and justice for all the victims of police crimes" during a protest in memory of Lamine Dieng, a 25-year-old Franco-Senegalese who died in a police van after being arrested in 2007, in Paris, Saturday, June 20, 2020. Multiple protests are taking place in France on Saturday against police brutality and racial injustice, amid weeks of global anger unleashed by George Floyd's death in the US. (AP Photo/Christophe Ena)

Separately, a small group of activists staged a flash protest Saturday outside the French Health Ministry in support of state medical workers, who are demanding higher pay and more hospital staff after France’s once-renowned health care system struggled to cope with the virus crisis following years of cost cuts.

The protesters sprayed red paint on the ministry building, symbolizing blood, and on a mock medal.

French activists of Attac stage a flash protest outside the French Health Ministry in support of medical workers, in Paris, France, Saturday, June 20, 2020. French hospital workers and others are protesting to demand better pay and more investment in France's public hospital system, which is considered among the world's best but struggled to handle a flux of virus patients after years of cost cuts. (AP Photo/Rafael Yaghobzadeh)

Philippe Marion in Paris contributed.

9/11

Not September 11, 2001 but November 9, 2007 which can also be written 9/11.

The day the U.S. stock market crashed from its current consumer credit crisis.

Stocks fell for a third session on Friday after a disappointing outlook from Qualcomm Inc triggered more weakness in technology shares and helped send the Nasdaq down to its biggest weekly point loss since the September 11, 2001, attacks.

I just thought the coincidence of the dates was one of those interesting occult significators that occurs as part of the psychology of the market. A market in a recession that many dare not admit is happening.

Adding to the negative tone, Fannie Mae , the largest source of mortgage financing in the United States, posted a third-quarter net loss that was double its loss from a year ago. Its shares ended the session down 1.6 percent at $49.00, after earlier dropping 10.6 percent to a fresh 52-week low at $44.54.

And Wachovia Corp , the fourth-largest U.S. bank, shook up financial markets some more by reporting a potential $1.7 billion loss on mortgage-related debt. Wachovia's stock fell more than 5 percent to a 52-week low at $38.05, but then rebounded to finish the day up 0.9 percent at $40.65.

And while Wall Street will continue its daily boom and bust cycle it is now part of global stock market, one which means that crashes occur not just on the street but around the globe as we witnessed with the bank crash last month in England.

The Economist cites various phenomena that are contributing to converging global markets. Among them: reduced controls on capital, a larger number of cross-border listings, and multinational mergers.

In just the past few months alone, some of the world's biggest stock exchanges have announced agreements or mergers to integrate trading systems. Back in April, NYSE Group merged with European market Euronext to create what is now NYSE Euronext. The European Union's internal market commissioner, Charlie McCreevy, said that the NYSE/Euronext union marks the beginning of stock market mergers and "at some point we will see moves toward a common pool of liquidity."

Furthermore, many companies are listed in multiple global markets in order to gain access to foreign capital. Just as some foreign companies appear on U.S. exchanges -- like GlaxoSmithKline (NYSE: GSK), Novartis (NYSE: NVS), and CNOOC (NYSE: CEO) -- U.S. companies such as IBM (NYSE: IBM), Home Depot (NYSE: HD), and General Electric (NYSE: GE) are listed on the Frankfurt and London exchanges.

Finally, a few major international mergers have taken place in the past five years, including Alcatel-Lucent and Arcelor Mittal. The effects of such unions increase global market correlation because the newly formed companies are known in multiple countries and generate revenues in multiple markets.

CIBC joins the writedown parade
Bank will take a $463-million hit in fourth quarter on its exposure to U.S. mortgage market

The credit crunch, which has been hammering the largest U.S. financial institutions, is increasingly taking its toll on Canadian banks.

Canadian Imperial Bank of Commerce yesterday said it will take a $463-million fourth-quarter charge on its exposure to the U.S. mortgage market, bringing its total writedowns to the market to $753-million in the past six months.

In other developments late yesterday, Bank of Montreal's shares fell almost 5 per cent - much of that decline in the final hours of trading - as that bank contends with its exposure to structured investment vehicles, or SIVs. And Royal Bank of Canada's stock closed yesterday near its 52-week low.

In the sector at large, tens of billions of dollars have already dropped off the banking system's balance sheets, and the dominoes continue to fall.

It is America's Main Street, which has kept the U.S. economy going on cheap credit and the resulting consumption, is now drowning in the quicksand of rising rates, personal bankruptcies and foreclosures. Whose impact will continue through out 2008.

And both the pro-business types and the left agree that the American financial markets have an addiction to being bailed out.

The U.S. Federal Reserve Board acted "like a bartender" in lowering interest rates and its actions are contributing to a stock market bubble in the U.S., Marc Faber, the Hong Kong-based publisher of The Gloom, Boom & Doom Report, said.

"Each time you bail out, it becomes bigger and bigger, and the credit problems become much, much larger," said Faber, managing director of Marc Faber Ltd. The Fed "feeds its customers with booze, and when they get totally drunk and are about to fall off their chairs, the bartender gives them more booze to keep them going. One day, it will lead to the ultimate breakdown."

"The best for the system would be if a major player would go bust," Faber said. "Then there would be an example for investors and for the players, the Wall Street establishment, the banks, to be more prudent."

As most people now realize, the mortgage industry is on life-support. Many of the ways that the banks were generating profits have vanished overnight. The “securitization” of debt (mortgages, car loans, credit card debt etc) has ground to a halt. What had been a booming multi-billion dollar per-year business is now a dwindling part of the banks’ revenues. Investors are steering clear of anything even remotely associated to real estate.

Bloomberg News ran a story last week which sheds more light on the jam the banks now find themselves in:

Banks shut out of the market for short-term loans are finding salvation in a government lending program set up to revive housing during the Great Depression. Countrywide Financial Corp., Washington Mutual Inc., Hudson City Bancorp Inc. and hundreds of other lenders borrowed a record $163 billion from the 12 Federal Home Loan Banks in August and September as interest rates on asset-backed commercial paper rose as high as 5.6 percent. The government-sponsored companies were able to make loans at about 4.9 percent, saving the private banks about $1 billion in annual interest.

Is it possible that anyone with a pulse and a minimal ability to reason couldn’t see the inherent problems of building a financial edifice on the prospect that millions of first-time homeowners with bad credit history and no collateral would pay off there mortgages in a timely and responsible manner?

No. It is not possible. The real reason that the subprime swindle mushroomed into an economy-busting monster is that the markets are no longer policed by any agency that believes in intervention. The pervasive “free market” ideology rejects the notion of supervision or oversight, and as a result, the markets have become increasingly opaque and unresponsive to rules that may assure their continued credibility or even their ability to function properly.

The “supply side” avatars of deregulation have transformed the world’s most vital and prosperous markets into a huckster’s shell-game. All regulatory accountability has vanished along with trillions of dollars in foreign investment. What’s left is a flea-market for dodgy loans, dubious over-leveraged equities and “securitized” Triple A-rated garbage.

U.S. Financial business is crying for state intervention while their political cronies in the Republican party deny their citizens universal health-care, child care, pharma-care, and secure pensions because that smacks of socialism. But socialism for the rich is okay.

See:

Bank Smack Down

Purdy Crawford Rescues the Market

Sub Prime Exploitation

Canadian Banks and The Great Depression

Wall Street Deja Vu

Housing Crash the New S&L Crisis

US Housing Market Crash

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