Critics of post-crisis profiteering responded with disgust to new reporting that private financial institutions in the U.S. are taking advantage of the federal government’s failure to respond swiftly to disasters by providing loans—to be repaid, with interest, by taxpayers—to landlords affected by floods, wildfires, and other catastrophes that are growing in frequency and intensity due to the fossil fuel-driven climate emergency.
The New York Times reported Tuesday that disaster “victims often wait years for help to get back into their homes because money for repairs moves so slowly.”
The recovery process often exacerbates class and racial inequalities, as renters—who are more likely to have low incomes and are disproportionately people of color—typically wait longer than homeowners for aid. A new initiative seeks to reduce the amount of time tenants are forced to wait, but instead of expediting public assistance, it creates a profit-making opportunity for Wall Street.
According to the Times, “The program, funded in part by the financial giant Morgan Stanley, will pay owners of apartment buildings to rebuild more quickly, so they don’t have to wait for federal funds.”
The newspaper explained:
Enterprise and Morgan Stanley said they will begin loaning money to owners of multifamily rental buildings to repair the damage to those complexes, making it quicker for renters to move back home.
The loans are to be paid back with interest using disaster money from the U.S. Department of Housing and Urban Development, according to Enterprise. The department provides the bulk of federal disaster recovery money through its Community Development Block Grant Disaster Recovery [CDBG-DR] program.
Morgan Stanley declined an interview request. Joan Tally, managing director for community development finance at Morgan Stanley, said in a statement that the program would “accelerate the flow of capital for affordable rental housing in communities impacted by natural disasters.”
Natalie Bennett, a British parliamentarian from the Green Party, criticized the program—which is beginning in Iowa, Louisiana, and Oregon—for privatizing federal disaster relief.
With a nod to author Naomi Klein—who coined the term in her 2007 book, The Shock Doctrine—Bennet said, “Disaster capitalism hits new heights.”
According to research from the Urban Institute, HUD’s CDBG-DR program starts distributing funds 20 months after a disaster, on average, and is typically still allocating money two years after that.
“The delay in distributing the money reflects the ad hoc nature of HUD’s disaster recovery spending,” the Times reported. “Congress has never given the department permission to establish a permanent program for disasters. Instead, lawmakers must decide after every disaster whether to give HUD money to help victims.”
While noting that investment banks are treating “administrative burdens as rent-seeking opportunities,” Donald Moynihan, a public policy professor at Georgetown University, argued that congressional lawmakers deserve most of the blame for the slow disbursement of post-disaster recovery funds.
Citing a line from the Times‘ article that has since been cut—in which an unnamed HUD official said that the agency “could reduce the time it takes to provide disaster money by as much as 90% if Congress made the disaster-recovery program permanent”—Moynihan noted that it “seems a lot easier and cheaper to make an emergency fund permanent rather than pay private lender fees.”
Administrative burdens as rent-seeking opportunities for investment banks https://t.co/tbmtcIP4H3— Don Moynihan (@donmoyn) November 23, 2021
“In the absence of fixes to the disaster recovery program, climate experts said the new lending arrangement from Enterprise and Morgan Stanley was useful,” the Times reported. “That program ‘responds to a real need,’ said Liz Koslov, a professor in the urban planning department at the University of California, Los Angeles. But she said it was nonetheless problematic, part of a broader trend of private companies that profit from disasters.”
Christopher Flavelle, the Times journalist who wrote the story, tweeted Wednesday: “I’ve been covering climate adaptation for a while, and what I think most people don’t realize is that the amount of damage inflicted by disasters is a choice. If Congress wanted to make it easier and faster to rebuild, it could do so.”