Friday, July 30, 2010
| Make Florida More Hurricane-Resistant
published: Sep 28, 2009
by: Eli Lehrer and John Hallman
As hurricane-ridden September passes by, much of the news in Florida appears good: Hurricanes, so far, have stayed away from U.S. coastlines, the Legislature has passed a few common-sense reforms to the state's property insurance system and state CFO Alex Sink says that the state's troubled Hurricane Catastrophe Fund (Cat Fund) has gained a firmer fiscal footing. more... |
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| A catastrophe waiting to happen
published: Sep 15, 2009
by: Jonathan Orszag
This month marks the fourth anniversary of Hurricane Katrina. That raises a simple question: Are we prepared as a Nation for the next mega-catastrophe (one, perhaps, worse than Katrina) that will inevitably strike our country? more... |
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| The Meltdown Next Time: The financial danger nobody knows about.
published: Sep 12, 2009
by: Eli Lehrer
When the insurance giant American International Group was threatened with collapse in late 2008, its credit default swap business and other international operations were cited as the heart of its troubles. But the largest consequence of AIG's uncontrolled failure on consumers' pocketbooks could have come from the domino-like collapse of its businesses writing insurance on boats, cars, homes, lives, and just about everything else. If these businesses fell apart as a result of AIG's overall collapse, the argument went, the contagion could have brought a collapse of everything from retirement savings plans to auto insurance claims payments from companies unconnected to AIG. (In theory, the operations were firewalled from AIG's other operations, but the extremely slow rate at which they've found buyers indicates that many had significant exposure to the company's other woes.) more... |
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Tell the President and Congress what you think.
Get monthly updates about Beach House Bailouts
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No to Bailing Out Beach Houses |
by: Alexa Shrugged
published: Jun 08, 2009
Looks like Congress is again cooking up a bill that would send over taxpayer money to cover the poor financial decisions of others.
Looks like Congress is again cooking up a bill that would send over taxpayer money to cover the poor financial decisions of others.
It's officially called the ''Homeowners' Defense Act'' but Competitive Enterprise Institue (CEI) has dubbed it the ''Beach House Bailout:''
So how did we get here?
Higher premiums serve to discourage investment and development in disaster-prone areas, such as Florida with it's hurricane season, however the higher prices are not politically popular and may appear unfair when the seas are calm and the weather clear. That may cause the government to attempt to drive prices down artificially, which serves as a market signal for more investment and development on the high-risk lands.
In Florida, politicians created a state-run insurance company with artificially low property insurance premiums backed by an implicit guarantee which encouraged people to build, like the celebrities building elaborate mansions on beaches in hurricane paths. This distortion in the marketplace drove many private insurance companies out of the state, leaving the state of Florida as the largest insurance provider.
When natural disasters hit, like a hurricane, the damage costs are higher, and thus insurance claims greater, than they would have been if the original premium signals had been obeyed and the beach houses not been built. Instead of spreading the risk throughout the private insurance sector, taxpayers are left footing the bill for massive claim payouts.
To cover their behinds so their constituents don't hold them accountable on this self-inflicted mess, many politicians like those in Florida want to spread the risk throughout the rest of the country through the ''Homeowners' Defense Act,'' i.e. pass the buck on and seek a federal bailout. Of course, this would merely recreate the Florida model on a massive scale: the federal government will interfere with the free market and provide a guarantee and national taxpayers will be on the hook for payouts.
This idea is attractive to other states and localities that face increased natural disaster risks, but is unfair to low-risk states and taxpayers who choose to live and build in stable, safe areas who will end up having to bailout their irresponsible and risky neighbors.
To join CEI in saying ''No Beach House Bailouts,'' sign their citizens petition here.
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