Burnt houses are seen next to those which survived in Breezy Point, a neighborhood located in the New York City borough of Queens, after it was devastated by Hurricane Sandy.
The most effective way to finance the reconstruction of stricken areas in New York, New Jersey, Connecticut, and other states in the wake of the October 28-29 Superstorm Sandy is to mobilize Chairman Ben Bernanke and the Federal Reserve System to provide cheap, long-term federal credit for the rebuilding.
Hurricane Sandy represented a once in a century natural calamity impacting the lives of 60 million people, and it is simply unacceptable for the Fed to ignore this event and continue to focus exclusively on providing life-support for insolvent money center banks. Here is yet another area in which US national survival depends directly on breaking the political power of the bankers.
The most rapid way to begin reconstruction is for a combination of federal, state, and local government officials, backed up by a mass movement of public opinion, to force Bernanke to open a Post-Sandy Reconstruction Credit Facility capable of providing up to USD one trillion of 0% federal reconstruction loans and bond purchases with maturities between 50 and 100 years through the existing pipelines of the Federal Emergency Management Administration and the Small Business Administration. Federal reconstruction loans can also be channeled through the remaining solvent institutions of the regional banking system, meaning that most of the Wall Street derivatives giants will not be eligible for this role.
The rapid availability of as much as USD one trillion of subsidized Fed credit will allow New York, New Jersey, Connecticut, Rhode Island, Delaware, Maryland, Pennsylvania and West Virginia and other states not just to restore the inadequate and obsolete infrastructure they possessed before the storm, but also to begin making the serious long-term capital improvements which will be needed over the coming decades if this region is to remain economically viable and competitive.
So far, several of the states involved have come forward with requests for federal assistance totaling about USD 83 billion. New Jersey’s Governor Christie says his state will need USD 37 billion for recovery and rebuilding. Governor Cuomo of New York has asked for USD 42 billion for repairs and prevention. Governor Daniel Malloy of Connecticut puts his state’s damage bill at USD 3.5 billion. It can easily be shown that these are lowball estimates, especially in regard to the need for preventing future natural disasters in this region.
OBAMA’S OFFER INADEQUATE, REPUBLICAN RESPONSE PURE SABOTAGE
The Obama administration in Washington, gripped as expected by the austerity psychosis that pervades the nation’s capital, has already decided to reduce the funding requests submitted by the governors by about one fourth. Obama is now requesting an inadequate USD 60.4 billion from Congress.
Once this request reaches Capitol Hill, we will witness the obscene spectacle of ultra-reactionary GOP Tea Party fanatics attempting to use the urgent need for federal aid to extort additional budget cuts, or else attempting to simply block any additional money for the hard-hit areas. This is what Ron Paul and other right wing extremists did in regard to federal money needed in the wake of the 2005 hurricane Katrina, arguing that it was the fault of the victims if they had chosen to live in a coastal area.
In the real world, ports like New Orleans and New York are indispensable national resources which must be maintained at all costs. In any event, how long it might take the Congress to provide money is anybody’s guess. At last check, FEMA had over USD 50 billion in its emergency fund, but this money must also provide for the unpredictable, including blizzards, northeasters, spring floods, earthquakes, and the like.
Even if federal disaster aid should finally be made available, the conditions under which this is offered will tend to slow down long-term recovery. FEMA currently specializes in short-term disaster aid, including emergency housing, emergency cash grants, the provision of immediate medical care, and the like.
New York currently estimates that 305,000 homes and 265,000 businesses were severely damaged or destroyed by Sandy. The victims of this disruption, if they are lucky, will turn to the Small Business Administration (SBA) for federally subsidized loans. The problem is that these loans carry interest rates which are too high, and come with maturities that may be too short, to get the job done.
USD 60 BILLION IN THIRTY-YEAR, FOUR PERCENT LOANS NOT ENOUGH FOR THE TASK
For those who have no access to any other source of credit, the SBA offers loans with interest rates not exceeding four percent and maturities of up to 30 years. For those who do have access to other sources of credit, the maximum SBA interest rate goes up to eight percent. Why should such interest rates be necessary?
The Federal Reserve System today makes sure that its member banks can borrow short-term money at an interest rate approaching zero percent. For banks who wish to borrow directly from the Federal Reserve System, the discount rate is currently set at 0.75 percent. Many of the derivatives banks borrowing money at these rates are notoriously insolvent, and exist only because of the prevailing Too Big To Fail standard and the consequent non-enforcement of many relevant federal laws.
Of even greater relevance to the problem posed by Sandy are the special facilities for credit stimulus made available by the Fed to financial institutions only in the wake of the 2008 world derivatives panic. These credit stimulus windows included the Term Auction Facility (TAF), the Term Asset Backed Securities Loan Facility (TALF), the Primary Dealer Credit Facility (PDCF), the Term Securities Lending Facility (TSLF), a special facility for money market funds, and others. Using these special credit facility windows, the Fed offered banks, brokerages, hedge funds, and other Wall Street interests trillions of dollars of federal loans at interest rates not much above zero percent. Wall Street’s total Fed line of credit was estimated at no less than USD 27 trillion. Surely a trillion for reconstruction and recovery is not too much to ask.
With Superstorm Sandy, the waters of the Atlantic Ocean poured into New York Harbor and flooded the streets around the New York Federal Reserve Bank, the flagship of the system. Angry citizens now want to know what the Fed is willing to contribute to the rebuilding process. The answer must be a credit facility offering up to USD one trillion of zero percent credit at maturities of up to 100 years.
This approach is all the more necessary because Sandy has exposed the fundamental weakness and obsolescence of the regional infrastructure in the stricken area. New York City lost electrical power in the area below 30th Street in Manhattan, and a ConEd generating station exploded. This rickety infrastructure must now be upgraded to a much higher standard.
CRITICAL REGIONAL INFRASTRUCTURE NEAR COLLAPSE BEFORE SANDY
Much of the New York subway system was flooded by Sandy’s storm surge. It is estimated that waterproofing the New York City subway would cost between USD 20 and USD 30 billion, but this does not even begin to address the need to modernize an obsolete system, large parts of which are a century old.
In the wake of Sandy, about 10 million homes and businesses were estimated to have lost electric power. Many of these same homes and businesses had lost power for several days as a result of the late June derecho windstorm. These intolerable disruptions argue for an end to the obsolete system of overhead electrical wires, which need to be located underground, as they are in many parts of Europe.
According to a recent estimate, it would cost USD 80 billion to put all electrical power lines underground in the entire state of Virginia, which was also impacted by the storm. Another estimate puts the cost of placing all electrical power lines in the District of Columbia underground at USD 5.8 billion. The local electric utility, PEPCO, estimates that paying for this over 10 years would add USD 226 to the average monthly bill, while paying for it over 30 years would cost consumers USD 107 per month. But a quick calculation reveals that guaranteeing reliable electrical power - could become radically cheaper - if it were to be amortized over a century at zero percent interest.
Beyond this, the region must replace critical infrastructure which has now exceeded its estimated lifetime. One example is the 1955 Tappan Zee Bridge, which carries the New York Thruway across the Hudson River north of New York City. Here, the replacement cost of the bridge including road, rail, and bus links is in the neighborhood of USD15-USD20 billion dollars. The Fed would receive collateral, not in the form of toxic derivatives, but in the form of an ultramodern bridge.
Earlier this year, the reactionary Governor Christie of New Jersey, eager to please the fanatics of the Tea Party, announced his refusal to pay New Jersey’s share of the USD10 to USD15 billion bill for two urgently needed modern rail tunnels under the Hudson River between Manhattan and the Garden State. At present, all rail traffic under the Hudson must be routed through two 100-year-old tunnels which are filled to capacity during peak travel times. The need for transport capability under the Hudson River is estimated to increase 38 percent by 2030, raising the specter of a regional breakdown during rush hours. Zero interest century bonds purchased by the Fed would put this and other projects within reach.
A final dramatic example of aging infrastructure demanding immediate modernization is Baltimore’s Howard Street tunnel, which dates back to 1895. Today, the Howard Street tunnel is old, decrepit, and afflicted by serious safety and security problems.
BALTIMORE’S 1895 HOWARD STREET TUNNEL IS ONLY NORTH-SOUTH COASTAL FREIGHT LINK
With the widening of the Panama Canal expected to be complete within two years, larger container ships almost as long as the Empire State building will require dockside accommodation. The two eastern US ports that presently qualify are Baltimore and Norfolk, Virginia. Savannah, Georgia wants 650 million to dredge its port, while Charleston South Carolina is also in the running. New York City is seeking USD one billion to raise the Bayonne Bridge by 65 feet so the new larger vessels can sail through.
Baltimore’s problem is that the Howard Street tunnel lacks the headroom to accommodate flat cars double stacked with containers, and automobiles in stacks of three. Replacing the Howard Street tunnel would cost up to USD three billion. Tens of thousands of Baltimore jobs and hundreds of millions of dollars in related investments depend on this modernization.
The Howard Street tunnel is the only direct freight rail link between Washington and Philadelphia. If Sandy had flooded the Howard Street tunnel, traffic from Washington and points further south would have had to be rerouted through Cleveland and Albany before finally reaching Philadelphia and New York.
NETHERLANDS MAESLANTKERING PROTECTS THE PORT OF ROTTERDAM
Perhaps the most expensive single investment highlighted by Sandy is the need to protect the Port of New York and other ports from storm surge and inundation by means of a modern system of floodgates of the type already implemented in the Netherlands. The Dutch Maeslantkering, the storm surge barrier that protects Rotterdam (Europe’s largest port) was completed in 1997 at a cost of EUR 660 million. The Netherlands, with about 17 million inhabitants, spends about EUR one billion per year on flood control.
Given the current lawless status of the Federal Reserve System, Bernanke today gets his orders behind the scenes from the Wall Street bankers. A president with real leadership qualities would have already been on the phone ordering Bernanke to open a Post-Sandy Reconstruction Credit Facility.
If Obama is too weak, then a combination of governors, county executives, mayors, legislators, city councilors, and members of Congress need to tackle this task. Above all, public opinion must be focused on the indispensable role the Fed must play. The Fed cannot continue to operate as a central bank in the service of Wall Street alone, and must function more and more as a national bank serving the needs of the entire US economy and of all the American people.