This story is part of PBI's ongoing project, What Wall Street Costs America. Please support the project at our fundraising page, and learn more about it--including how you can be one of our researchers and storytellers--at our project page. And please feel free to share the graphic below.
At the time of the Hurricane Katrina disaster, New Orleans had $500 million in bonds for the Ernest Morial Convention Center, statewide bonds supporting the Superdome backed by a hotel tax, and $200 million in water and sewer bonds backed by taxpayer revenues, and university and hospital bonds backed by student tuition and hospital revenue.
Katrina devastated New Orleans financially, and the financial context of the disaster is like an object lesson in cyclical versus countercyclical financing. The Bank of North Dakota, the nation’s only public bank, provides countercyclical economic support—meaning that it is capable of providing higher levels of support in conditions of economic decline. New Orleans should have been able to access easy money at a time when residents were fleeing, getting sick, sometimes dying, and struggling to rebuild their lives.
In addition to destroying the surface of the city, Katrina devastated infrastructure—an area where building and maintenance requires constant funding, often through debt bondage to Wall Street. With the city’s tax base wiped out and owing $500 million in general-obligation bonds that should have been paid with property tax receipts, New Orleans had no way to repair its water system, let alone maintain it after fixing it.
New Orleans had to beg JPMorgan Chase for an additional $150 million loan to pay for essential services in the wake of the disaster. The city is still struggling to pay the interest and fees on its bonds and loans. A rational society could have financed New Orleans’s recovery through “quantitative easing for the people,” low- or no-interest loans, and cooperative economics. A public bank could have done for New Orleans what the Bank of North Dakota provided during North Dakota’s recent floods—channeled immediate and easily-managed funds to regions affected by the flooding. But the paradigm of high-interest finance and dependence on private finance, on top of paltry federal disaster relief, ensured that any help the city received would come at a steep price.
Elliot Blair Smith, “Wave of debt sweeps over New Orleans,” USA Today, May 16, 2006
Leslie Wayne, “Debt in Storm Areas Worries the Municipal Bond Market,” New York Times, September 2, 2005