The public relations propaganda campaign to convince the ignorant masses that Sandy’s impact on our economy will be minor and ultimately positive, as rebuilding boosts GDP, has begun. I’ve been hearing it on the corporate radio, seeing it on corporate TV and reading it in the corporate newspapers. There are stories in the press that this storm won’t hurt the earnings of insurers. The only way this can be true is if the insurance companies figure out a way to not pay claims. They wouldn’t do that. Would they?
It seems all the stories use unnamed economists as the background experts for their contention that this storm will not cause any big problems for the country. These are the same economists who never see a recession coming, never see a housing collapse, and are indoctrinated in Keynesian claptrap theory.
Bastiat understood the ridiculousness of Kenesianism and the foolishness of believing that a disaster leads to economic growth.
Bastiat’s original parable of the broken window from Ce qu’on voit et ce qu’on ne voit pas (1850):
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
Economists and MSM faux journalists don’t want you to think for yourself. If you just consider some basic situations that are happening or will happen to average people throughout the Northeast, you’ll understand that this storm will have a huge NEGATIVE impact on the economy.
- Small stores, restaurants, and thousands of other businesses were shut down for at least two days and some will be closed for a week or more. These businesses employ hundreds of thousands of hourly workers. These businesses earned no revenue, therefore their profits were reduced. The hourly workers did not get paid. Therefore, they have less money to spend for clothing, tech gadgets, food, etc. Both the businesses and the workers will pay less taxes to the government, increasing the national debt.
- The reduced revenue at retailers due to being closed and reduced spending by customers will cause them to layoff more workers or in the case of smaller retailers, go out of business altogether.
- The damage caused by the storm will result in insurance companies providing billions in claim payouts. This will reduce their earnings, causing them to layoff employees in order to meet their quarterly earnings expectations. Some smaller insurance companies may go out of business.
- Anyone with a tree down in their yard, damage to their fence, roof damage, flooded basement, etc. that is not covered by insurance will have to spend hundreds or thousands of dollars on fixing the damage. This is money they won’t spend on Christmas presents next month.
- Many people do not have the savings to fix the damage to their houses. They will put the costs on their credit cards paying 15% interest to the criminal Wall Street cabal.
- States and municipalities are required to balance their budgets on an annual basis. They are already faced with $2 trillion of unfunded pension and healthcare liabilities owed to government union workers. These states and municipalities are now faced with lost tax revenue, lost transit revenue and a tremendous amount of unbudgeted capital and personnel costs related to this storm. The long-term result will be more government worker layoffs, higher taxes for the citizens of these states, and the acceleration of municipal bankruptcies due to an unsustainable financial dynamic. These bankruptcies will wipe out the retirement savings of government workers across the Northeast, with the predictable result of more pain and suffering for senior citizens already being screwed by Bernanke’s ZIRP.
- Politicians and government drones will declare we must rebuild and help those in need. They will approve $20 billion of “Federal” disaster relief. But, we all know the $20 billion does not exist in a government bank account. It will be borrowed from future generations. It will just be added to our current $16.3 trillion tab. We will pay interest on this $20 billion FOREVER. The true cost of the $20 billion relief will be $30 billion after decades of accumulated interest. It’s like an ignorant American taking a $20,000 vacation, putting it on their credit card and making the minimum payment for eternity.
You may realize that the only beneficieries of this tragedy will be the issuers of debt. That’s right, the criminal Wall Street banks will earn more interest as desperate Americans have to use credit cards to survive. The destroyed automobiles will be replaced with autos financed by Wall Street. Businesses and homeowners will go further into debt making repairs.
Considering the country has been in recession since June, this disaster will be the final straw that breaks the camel’s back. The powers that be will try to keep the broken economy fallacy going as long as they can, but anyone capable of thinking realizes the country is in the shitter. The mood continues to darken. The storm clouds continue to swirl and a bad moon is rising. But don’t worry, unnamed economists say everything is just fine. Fix that window and boost the economy.
Assume the position. Wait a little bit while it takes to soak in that between $50 and $100 billion plus will be required to be printed (in addition to the $50 billion a week the Fed is currently running off) to even put a dent in repairing the infrastructure of the upper East Coast.
Instant recession. Not only that but this is lesson #2 (New Orleans was #1 and probably #3) about building big cities (and financial centers) on the seacoast where storm surges can do more than a little damage.
Never fear.. If Sandy didn’t teach anyone anything (as Katerina seemingly hasn’t), when New York (again), Baltimore, Washington DC, Savanna, Jacksonville, Miami, Mobile, Pensacola, New Orleans (again), Houston, Glaveston (remember that one? 3,000 people died there) or Corpus Christi vanish under the waves, maybe someone with an IQ of 80 or so will get the idea that building cities where they vanish under rising ocean storm surges is a bad idea!
That won’t stop our re-insurance premiums from doubling soon (to spread the poverty and rebuild all those wrecks along the Jersey Shore)..
MA
My NY trade union pals will likely have a new skip in their step after Sandy.
Happy days are here again….
Why is the truth always such a bummer these days?
Well said admin.You should run this on the front page. It’s news that needs to be read.
MA – I thought building a city (New Orleans) five feet below sea level in a hurricane zone with the levees maintained by Federal Government and then filling it with Democrats was absolutly brillient. The cities you named are blue cities so this will solve one problem. Now if we can only figure what to do with the Republicans.
Spell check still down.
Keynesian Economics Professor Tells Hurricane Victims “It’s Good For The Economy”
By JG Vibes
In the midst of a storm that has the whole east coast torn apart, a mainstream economics professor and Columnist took the opportunity to provide the world with a perfect example of “the broken window fallacy”.
In his new article “The Economic Impact of Hurricane Sandy … Not All Bad News“, Professor Peter Morici puts forward the idea that the clean up following Hurricane Sandy will stimulate economic growth, and thus be good for the economy.
Unfortunately, it seems that the the broken window fallacy is missing from Mr. Morici’s mainstream economics curriculum.
“The broken window fallacy” is used to debunk the popular but false argument that the destruction of property stimulates economic growth by creating messes that people will eventually be paid to clean up.
This is one of the arguments that we typically hear to defend war. People say that war is good for the economy because it creates jobs.
However, the fatal flaw in this logic is that it fails to consider that a better outcome could have been possible, had war resources been used for creation instead of destruction.
In the case of Hurricane Sandy, it is true that money will be exchanged in the process of cleaning up the mess, but that doesn’t mean that true economic growth is taking place.
If the hurricane never came in the first place, that money would be exchanged elsewhere, and it would probobly be spent on far more constructive projects.
In his article Mr. Morici says that:
“rebuilding after Sandy, especially in an economy with high unemployment and underused resources in the construction industry, will unleash at least $15-$20 billion in new direct private spending — likely more as many folks rebuild larger than before, and the capital stock that emerges will prove more economically useful and productive.
Regarding the latter, consider a restaurant with inadequate patronage — its owner invests the insurance settlement in a new more attractive business.
On the shore, older smaller homes on large plots are replaced by larger dwellings that can accommodate more families during the summer tourist season.
The outer banks of North Carolina saw such gains several decades ago after rebuilding from a storm of similar scale.”
Not to discount the drive of the human spirit to rebuild bigger and better than before, this perspective overlooks the people who have a tree fall on a car that they don’t have insurance on, or the people who loose property that they are heavily invested in.
There are an infinite number of counter examples to the claims that Mr. Morici puts forward, because of the many lives that are impacted negatively by these events.
The trade that takes place following a disaster may be a good thing, and a beautiful example of human resilience, but that doesn’t mean that the disaster contributed to a better end result.
The only way to know that for sure is to have the ability to tell the future, and know exactly what events would have taken place had the disaster never happened to begin with.
The broken window fallacy was coined by French economist Frederic Bastiat in the 19th century in his essay “That which is seen, and that which is not seen”.
He used a parable about a broken window to describe the situation that we are talking about here.
In his story the witnesses of the destruction assume that the broken window is good for the economy because they are only thinking about the profit of the window maker, but overlooking the potential loss incurred by unseen third parties, primarily the owner of the window and the businesses he would have invested in otherwise.
War is the most obvious example of this fallacy, but it can also be seen in the recent financial bailouts or in the example that we used today.
Let me get this straight:
They are trying to tell us that the replacement of destroyed goods is a net gain for the economy?
The MSN was yammering about how insurance doesn’t cover flooding so they need, get this….more insurance!
I honestly think Paul Krugman and his Keynesian butthole buddies actually believe their own bullshit.
I just slashed the tires and broke the windows on my car. My own personal GDP is gonna fly through the roof. Too bad its raining tonight………
I wonder about the true effect of this?Enough to be a black swan event?How far well the event be felt?
Yahoo poll:
POLL
What will the long-term impact of Hurricane Sandy be on the American economy?
It will have a significant negative impact (10377) 19%
Rebuilding will boost the economy (25943) 47%
It will have little to no impact (18704) 34%
In my little economically devastated burg, we are currently forming a committee to look into burning down the town in order to simulate the economy and so far it’s looks like a win , win for everyone.
So, get out into those neighbor hoods and break some windows.
Do it for the children.
“This is hard to get people to do, much better, obviously, to build bridges and roads and healthcare clinics and schools. But my proposed, I actually have a serious proposal which is that we have to get a bunch of scientists to tell us that we’re facing a threatened alien invasion, and in order to be prepared for that alien invasion we have to do things like build high-speed rail. And the, once we’ve recovered, we can say, “Look, there were no aliens.” But look, I mean, whatever it takes because right now we need somebody to spend, and that somebody has to be the U.S. government.”
Paul Krugman
“It seems almost in bad taste to talk about dollars and cents after an act of mass murder. Nonetheless, we must ask about the economic aftershocks from Tuesday’s horror. These aftershocks need not be major. Ghastly as it may seem to say this, the terror attack – like the original day of infamy, which brought an end to the Great Depression – could even do some economic good.”
Paul Krugman – 9/14/01
I don’t think he realizes that the government doesn’t actually have any money. Its the people’s money, they just take it from us.
For Krugman and his ilk to be right, there would have to be a perfect transfer of public money into public works. Too bad they siphon off enormous sums to provide their “services” to the US people.
Services we neither need, nor want.
The supreme irony of course is that Krugman wrote a book detailing exactly what caused the pre-Teddy Roosevelt plutocratic USA, and here he is today aiding and abetting that very same thing.
There should be an increase in employment for the trades. But since 50% of the properties damaged and destroyed do not have insurance to pay for the repairs, I honestly don’t see how the Marxists theory will come to fruition.
NJ has the second highest rate of foreclosure in the country, and that’s only if you count the homeowners who have been formally served. We meet tons of homeowners who haven’t paid their mortgage in years and have not been sued for foreclosure yet. The NJ legislature is estimating 65,000 homes will be added to the foreclosure rolls this year.
If people do not have the money to pay their mortgages, or insurance, how the hell are they going to pay for the repairs and replace all the stuff that they lost?
I think we’re going to see huge swaths of neighborhoods – especially the shore communities, where second homes were purchased for top dollar after the boom – with abandoned homes that are damaged. I also think a number of homeowners will simply walk away from their properties and hand in the keys.
If broken and destroyed things fixed economies and created wealth then the GWOT would have stopped the financial crisis in 2008 and the global economy would be awash in wealth and jobs,
INSURANCE COMPANIES ARE NOT IN THE BUSINESS OF PAYING CLAIMS. THEY WILL FIND THE FINE PRINT TO NOT PAY.
Storm-Surge Damage May Not Be Covered by Some Insurance
2:30 p.m., Oct. 30, 2012 — As storm-battered homeowners, business owners, and government officials survey Sandy’s damage, the question for many is what the repair price tag will be. The storm’s assault may cause as much as $20 billion in losses, but less than half of that is likely insured. Some damage, such as infrastructure repairs, will be covered by the government. But some losses simply won’t be covered, leaving businesses and homeowners holding the bag.
Regular homeowners’ and renters’ policies don’t cover flood losses. For residences, people must buy extra flood-insurance coverage, which is typically sold by agents as part of the government’s National Flood Insurance Program. As many will recall, there was a big debate during and after Hurricane Katrina over whether damage was caused by flooding or wind, with wind damage covered by standard policies. Bob Hartwig, president of the Insurance Information Institute, a trade group, says “that issue has been settled. There is no question that a storm surge is a form of flooding.”
That means that homeowners affected by Sandy’s surges and who lack flood insurance are out of luck. Hartwig says that in low lying areas—such as parts of Brooklyn and Queens—“the penetration rates for flood coverage are very high.” But not everyone has this coverage. Hartwig points out that even in New Orleans, a city that set largely below sea level, one in five homeowners didn’t have flood coverage before Hurricane Katrina struck. He says the “silver lining” from Hurricane Irene last year is that more people in the Northeast bought flood insurance after seeing the damage that storms are capable of wreaking.
Businesses may be better off. Most commercial insurance policies do include protection against floods, but often the policies have a specific “sublimit” that caps the flood coverage, says Linda Kornfeld, an attorney at Jenner & Block who represents companies in insurance claims. That’s true for policies that covers property losses, as well as the costs for business interruption due to an event such as Sandy. While storm-surge damage may be a form of flooding in residential policies, its nature is less clear for commercial policies, which tend to be more complex, Kornfeld says. “I wouldn’t accept as a general proposition it’s covered or not without reading the policy and without reading the case law in the state where the policy is,” says Kornfeld.
A lot of people may soon became intimate with the fine print in their policies. While it’s too early to know how many will file insurance claims, yesterday CoreLogic estimated that just in the top 25 at-risk zip codes of New York and New Jersey, about 62,000 properties were in danger of sustaining property damage.
—Karen Weise
Frédéric Bastiat is an interesting person no doubt, http://en.wikipedia.org/wiki/Fr%C3%A9d%C3%A9ric_Bastiat but I fail to see great insight in this parable.
It’s a fantasy that, in the built environment, things last forever and no maintenance is required. Any window is at risk of being broken.
A broader view is to note that, in the built environment, anything of value has some maintenance costs. The higher the value, the higher the maintenance costs. Even the dumb gold we’ve taken from the earth has high maintenance costs due to the security required.
Cities are built environments of high value because of the centuries of public infrastructure investment which create the real estate value for intensive development. You can’t do much on a lot served by a well and a septic tank, and on a country road. Cost might be lower, but work opportunites and markets are much thinner, if they exist at all. City infrastructure is high maintenance. Skimp on it or take it away and the value deteriorates rapidly. Suburban infrastructure may be newer and have less maintenance, but such jurisdictions to not have local employment in basic industries. The tax base can be 90% residential. Service perpetuation depends upon resident incomes being high enough to be able to pay the taxes that are needed to provide their quality of life: schools, fire departments, prompt EMT response for heart-attacks, libraries, dog parks, etc. These jobs are where infrastructure supports a high density of intensive economic activity.
The highest value in cities, towns and counties, is the law-abiding nature of its residents who are committed to the perpetuation of their community for generations. This is the “community motive” which long preceded the lesser “profit motive,” which can only emerge in relatively safe and stable communities.
The investments of the fathers and mothers serve the current populations, just as the sins of the fathers can affect the third and fourth generations. Is deferred maintenance a sin?
The coastal cities now face some clear challenges. The Dutch, who have much territory below sea level, and receive water flow from inland sources, are working to beef up their water and storm management skills and infrastructure. They were stuck by the problems experienced in New Orleans and have gone there to learn and assist in the rebuilding so as to be able to manage water in storm events. The incoming water from the ocean stops drainage from the tributaries and rivers, increasing inland flooding. http://www.deltacommissaris.nl/english/topics/
These are problems the private sector is going to solve, but is a market for their services. No trading algo is going to solve this for it takes real, long term capital investment and maintenance in perpetuity.
Efforts to create new cities on vacant land have been failures. The best locations were found by the original settlers, regardless of the period. Wiser folk built back from the waterfront and those up close, built with rebuilding in mind. Our ancestors were smarter about these things as they lived closer to the land. Architecture was insync with the environmental variations.
Big choices lie ahead. Private homeowner associations won’t be able to address this. Nature needs to be respected. Its bigger than the elephant in the room.
Windows get broken. Your maintenance budget should anticipate that.
All life is risk management. Communities recognize and cooperate to mitigate the impact of events for their own perpetuation. Economics is involved, but not the prime motivator. Our evolutionary driver is “community motive,” since that is how problems are solved; freedom established and maintained.
With Sandy, like during 9-11, the greater community comes to the aid of those communities which have suffered. It is mutual aid on a large scale. Such provisions come out of the wisdom of generations that the unexpected can happen and that no area can be prepared for everything. Life has redundancy built in.
I can’t believe this dumbfuck Krugman got a Nobel prize, but then again, Obama got one too so…
Jim, stay on top of the insurance story. You’re right; they’re not in business to pay — at full replacement rates — on anything that’s insured. You probably know it’s a numbers game, where they figure out how they can reduce the overall loss consumers incur without wiping it out completely. If they were expected to replace like-for-like, they’d be out of business in no time.
So all the fine print is designed to give them “outs” that keep them profitable, including things like not paying for a deck that was already rotting when the storm came in. Which means there are going to be a lot of people unhappy with what they actually get from their policies. They’re going to feel screwed, actually.
Storms of this size mean the whole country is going to end up paying — through federal flood insurance, but also if/when the insurers say they need a “bailout” to cover their own costs. It’s all the little people who will get nothing.
We live in Bergen County, which the President failed to include in the the disaster zone.
I’m sure our app will be placed on the bottom of the pile.
Good news Mary, Obama has included Bergen County. I’m sure a FEMAcrat will now assure you Uncle Obama will take care of everything right down to the jar of spoiled mayonnaise in your refridgerator and sign you up for storm related unemployment benefits at least until the polls close on Tuesday. Then the bureaucratic nightmare will begin.
From David Rosenberg of Gluskin Sheff
MISSING THE BOAT
As I read and digest the reports estimating the damage from the devastating storm. I sense that there are far too many economists out there who
are relying too heavily on past major hurricanes as they draw their conclusions from the current experience with Sandy.
I am concerned that as is the case so often, complacency has set in. The consensus view of a mere decimal place impact on Q4 real GDP growth from the storm seems like a pipe dream to me and has not been carefully thought out, in my opinion. Of course the devastation to the capital stock across so many dimensions affects net worth and not GDP, which measures the flow of spending in the economy, but it is indeed the spending portion that has also been seriously impaired, and a good part of it is not coming back and the inevitable pickup in spending of generators. sump pumps, cement and plywood is not going to be enough to provide an offset, at least over the next few months. Logic should prevail more than history here, because there is no appropriate historical comparison, and yes, I include Katrina in that assessment.
Yes, there will at some point be a revival in building activity and repair damage that will support spending and real GDP growth to be sure. But something tells me that this process may be delayed somewhat as the claims get tallied up and the fallout from the disaster continues. That should help out first quarter activity but from a lower level and, of course, assuming that the economy doesn’t fall off any fiscal cliff.
The problem is two-fold. One is magnitude. The other is the demographic involved. With regards to magnitude, we are talking about 60 million people being affected, not three, or four or five million spread across corn and cotton fields in the south. There has not been such devastation affecting so many participants in the U.S. economy before. Were talking about New York. New Jersey, Connecticut and Philadelphia here — not Waco. When such masses do not go to the office, they then don’t do what they usually do. which is buy their coffee at Starbucks. They don’t line up for pizza and sushi. That spending is not coming back. They are eating at home, and pulling out the box of macaroni and the can of tuna fish they bought three months ago. Then there are movies, sundries and even vacations that are not coming back any time soon into the spending sphere. And the cabs that drive people or the sales people at the clothing store that rings up your hill that have been out of work for the past few days aren’t making the money they need to buy burgers and shakes and whatever else. So the ripple effect or what economists call the multiplier also has to be taken into consideration here.
And a few days in a quarter when expressed at an annual rate is actually a much bigger deal than a few decimals on a GDP growth figure. The consensus, I think, is in for a big surprise. And keep in mind that the downtrend in mortgage apps, the general weakness in the regional manufacturing surveys, the stalling-out in the improving trend in jobless claims and the fact that chain store sales in October were already running below plan, reveals an economic backdrop that lacked momentum even before the storm took hold.
The other factor I mentioned was the demographic. We don’t know how many Starbucks or Coaches there are in Waco or Galveston, but there are 255 in New York City Its not just size. It’s also tastes. We are talking about the storm hitting the most free-spending consumers in America. And that is also because these are the states with the highest per capita incomes — the major states of the Northeast have on average household spending power that is 40% higher than in the deep south where storms and floods have historically been prevalent (again rendering comparisons with the past nearly totally useless when it comes to estimating near-term GDP impact). These are the same northern dilettantes who the Confederates wanted to secede from nearly 150 years ago and these high-income/high wealth folks love to shop — not only do they have the means compared to their southern brethren, but their marginal spending propensities are huge and, as such, the impact on GDP from this perspective cannot he over- exaggerated, especially the likely depressing effect on luxury goods and services.
Of course, there is this other little problem that in many cases, basic insurance coverage is not covered for floods. So either Uncle Sam ponies up here or all the economists hinging their forecasts on a boom in building activity may end up being frustrated by the length of time it takes to get started. In the meantime, the spare room in the basement at cousin Jack’s place is going to be just fine (and Jack’s 30-year old boomerang kids just got kicked to the recreation room) and his wife’s meat loaf is going to replace the traditional one night a week out at Il Mulino.
And don’t forget one other factor that I did not mention — which is the timing. Normally these major weather shocks happen in August or September. We are already in November and on the precipice of the most important time of the year for the retailing sector, which has already staffed up in anticipation of good tidings this year. This prognosis may have to be revisited because the temptation to shop at Tiffany’s may be just a little bit tempered by the repair bill to your principal residence and it is also highly doubtful that cousin Jack is going to buy a tree for his family to put in the living room and one for yours in the basement.
So the surprise for Q4? A negative GDP print. The next question is whether there will be a Q1 rebound. Remember, as I mentioned yesterday, three of the major four ingredients to the NBER (National Bureau of Economic Research) recession all peaked in tandem in July. And it would be a slam-dunk four if the service sector had already followed goods-producing payrolls on the road to perdition.
Thursday, November 1, 6:45 PM Power outages have rendered 65%-75% of gas stations in New Jersey inoperable, and experts say the gasoline shortage in the NYC area may not be cleared up for at least a week. The problem is not gasoline supplies, but the ability to distribute it; for example, Motiva, the Shell-Saudi Aramco JV, declared force majeure on fuel deliveries at four area terminals after sustaining weather damage and power problems.
Update to my “watch the insurance companies” comment above:
Couple Says Allstate Short-Changed Them, Put Home in Ad
By SUSANNA KIM | ABC News
A Staten Island couple said their insurance company short-changed them after superstorm Sandy destroyed their home, and then used their house in a commercial.
In October, Sheila Traina, 64, and her husband, Dominic, 66, had evacuated their home in New Dorp Beach in response to warnings from local authorities about the storm.
Traina said a neighbor who had stayed behind called and told them the wind had knocked the roof off their two-story home but their insurer, Allstate, said the damage to their home was due to flooding.
“He said the house came down before the storm, came down and water finished it off,” Traina said of her neighbor.
Allstate told her it was storm surge that caused the damage, she said.
The insurance company offered the Trainas, who did not have flood insurance, about $10,000 for the damages. They say the amount is well short of the $280,000 for which their home and its contents were insured.
“We have a witness,” Traina said. “If you witnessed a murder, someobody would get convictred I would think.”
The storm’s winds also knocked down a 30-foot tall tree across the street, Traina said.
She said she has refused to accept the $10,000 and is planning to hire an attorney to fight for a settlement that matches the value of her home.
In the meantime, the Trainas are staying in a family member’s home that is three miles away. Her husband is retired but they have income from his late mother’s home, which they are renting.
Traina, an administrative secretary, said she had hoped to retire next year, but her plans are on hold until they can rebuild their home.
A spokeswoman from Allstate said the company is “committed to resolving the matter in accordance with the policy they purchased from our company.”
“Allstate is always focused on ensuring our customers are completely satisfied,” the spokeswoman said. “In major disasters such as Sandy, we are often the first on the scene providing financial and emotional support.”
The Trainas said they previously had flood insurance, provided by the U.S. government’s National Flood Insurance Program, but their payments were more than the reimbursement amounts they received for previous incidents.
Traditional private homeowners policies, such as those of Allstate, do not cover flood losses, the company said.
“We encourage our customers to consider flood insurance to protect themselves in ways that would not be covered under a homeowner’s policy,” Allstate said.
What the Trainas said upset them further was that an image of their damaged home was used in a commercial for Allstate.
After their Thanksgiving dinner, Traina said her husband and grandchildren were watching a football game when her grandchildren said they saw their home in a television advertisement.
“It was just a picture of our chair and our kitchen window but it was noticeable what they were showing,” she said. “It was not a happy Thanksgiving after that.”
Allstate said the advertisement “showed general images of the destruction caused by Sandy including a partial image of the Trainas’ home.”
“It does not reference them as customers or in any way imply they are satisfied with the status of their claim. We regret any concern this advertisement may have caused the Trainas and images of their home will not be included in Allstate’s advertising,” the company said.
Allstate said it has made almost $1.1 billion in claim payments and continues to work with local Allstate agencies and The Allstate Foundation’s support of non-profit organizations.
Debra Hernandez, who lives on the same street as the Trainas, said besides flooding in her basement and a large shed that was destroyed, her home was spared.
“They paid me a decent amount for my structure so I’m more than satisfied,” said Hernandez, who bought her home a year and a half ago. “What I claimed was pretty close to what I asked for.”
Hernandez said she received a net of $2,700 after paying her $5,000 deductible.
Hernandez said she purchased flood insurance, and received a reimbursement for her flooded basement.
“Obviously I did not lose as much as other people,” Hernandez said.
http://news.yahoo.com/couple-says-allstate-short-changed-them-put-home-194957583–abc-news-money.html
Update to the update:
Sandy Victims Hit with Steep Flood Insurance Bills
STATEN ISLAND, N.Y. – Jean Laurie isn’t taking any more chances.
Nearly a year after Superstorm Sandy swept through her close-knit neighborhood, destroying 22 houses and killing two of her neighbors, she’s finally getting ready to rebuild the home where she lived for years with her husband and their rescue dog.
The Lauries got about $30,000 from the Federal Emergency Management Agency (FEMA) to rebuild their waterlogged home. But they decided to knock it down and build a new one, rather than try to repair what looked unfixable.
But that rebuilding comes with a catch. New flood maps drawn up by FEMA, along with reforms to the National Flood Insurance Program (NFIP) enacted in 2012, meant that many residents, including the Lauries, must lift up their homes or face dramatically higher flood insurance rates.
So the Lauries hoisted their house 13 feet off the ground, so they never have to worry about flooding — or the skyrocketing insurance rates — again.
Few homes on Staten Island — one of the few places in New York City where middle-class people can afford a small yard and white picket fence — are elevated now, and it’s hard and even a little funny to imagine some of the island’s tiny bungalows propped up on stilts or pilings.
The new flood insurance rules, which went into effect on Oct. 1, are intended to make the deeply indebted NFIP solvent by no longer charging government-subsidized rates on homes in flood-prone areas. The hikes will affect about 20 percent of the 5.5 million people who have NFIP policies around the country, as well as thousands more who live in areas that didn’t used to be considered flood-prone but who now must buy insurance under the new FEMA map.
The NFIP subsidized rates have allowed people for years to build in flood-prone areas that, in some cases, probably never should have been built on in the first place. But the feds’ solution to this — hiking up rates over four years until they reach market price — could leave millions of homeowners unable to afford the steep new prices. If these homeowners try to sell their houses, they’ll most likely find it tough to find a buyer, who would inherit the new insurance rates. (People with mortgages are required to purchase the insurance — those who’ve paid off their homes can skip it.)
The Lauries were told their insurance rate could be as much as $9,500 a year if the house wasn’t hiked 13 feet. Before the storm, the couple paid no flood insurance at all, because they had paid off their mortgage and thus weren’t required to purchase it. They’ll pay just $435 per year for insurance when the new, elevated home is completed.
But others on the island began their pricey rebuilding process before the realized they had to lift their homes. Now they’re faced with the daunting prospect of coughing up more cash to elevate their homes or being forced out by the skyrocketing premiums, just a year after a storm made many of them homeless.
Eileen Pepel moved back into her badly damaged home last April, five months after the storm, after using all her insurance money to repair it. She learned later that her insurance premiums could go up dramatically if she didn’t elevate the house — a $30,000 expenditure on top of what she’d already spent.
“It’s not in the realm of reality,” says Pepel, who lost her job as an art teacher at a nearby Catholic school when her position was eliminated to save money after the storm.
“Before we did any work, I would have raised my house right away,” she said. But now, it’s too late.
Many people are also wary of paying to hike up their homes before the new FEMA flood maps are formalized, saying exactly how many feet the homes should be elevated.
Some homeowners are refusing to make the required changes.
“They can’t tell us how high we have to go,” said Pepel’s sister-in-law, Karen Zboinski, who is also choosing not to lift her home. “We have to move on.”
Rep. Michael Grimm, a Republican who represents Staten Island and parts of Brooklyn, said residents should see if they qualify for assistance from the city to raise their homes as part of the NYC Build It Back program.
“Unfortunately, they need to engage the city,” Grimm said.
The congressman said he is working to pass a bill to delay the rate hikes until the NFIP bill, called the Biggert-Waters Flood Insurance Reform Act of 2012, can be fixed. “It’s causing an undue burden on so many people that were just ravaged by storms,” he said.
Grimm said he’s worried the rates could be so high that some people don’t buy flood insurance at all, which means more people would need to be bailed out the next time a disaster hits, effectively undoing the fiscal good of reforming the NFIP. Those with mortgages must buy the insurance, but people whose homes have been paid off can forego it.
Joanna Tierno, a Staten Island resident facing a 4,000 percent rate hike under the new rules, says she’s considering borrowing money to pay off her mortgage and then going uninsured, because it would cost so much less. “We’re up against not just recovering from a disaster, but being hit by superhigh rates that’s basically … taking people’s homes from them,” Tierno said.
For their part, the Lauries are returning, but on their own terms.
“We were not going to try to come back unless we could come back how we wanted to,” Jean Laurie told Yahoo News on a sunny day in October. She stood on the empty lot where her home used to be, nostalgically pointing out the spots where she had built a Japanese garden and installed a heated pool before the storm swept it all way.
“It was gorgeous,” she said.