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After The Storm: Long-Term Pain

By Martin H. Bosworth
ConsumerAffairs.com

September 1, 2005
The storm may be over, but for the Gulf Coast and all of America, the real crisis of Hurricane Katrina is just beginning. The disaster has sent shockwaves through an already fragile economy, and will likely cause pain for years to come.

Hurricane Katrina • New Orleans: Three Years Later • The End of the World: Louisiana is Disappearing • Mississippi Sues State Farm Over Katrina Coverage • Katrina's Legacy: A Flood-Damaged Handicap Van • Payback: State Farm Writes Off Mississippi • Judge Nixes State Farm Katrina Settlement • Judge Rules Against State Farm in Katrina Case • Victimized Twice: Hurricane Victims Scammed by Unscrupulous Contractors • New Orleans Refloats Its Cruise Ship Business • One Year Later: To Miss New Orleans --- • Katrina Archives --- What's New? • Continuing coverage of Katrina recovery efforts

Those left homeless by Katrina's onslaught who are hoping for financial assistance from the government or via bankruptcy may be in for a rude shock.

Although the Federal Emergency Management Agency (FEMA) has declared the devastated regions of Louisiana and Mississippi a disaster area, this may not automatically translate into low-income loans and new homes for every petitioner.

Further, under the new bankruptcy legislation, homeowners who have refinanced may be liable for the full cost of their loans if they waived their protections when signing their new agreements. Such was the fate of many homeowners after a series of landslides in Laguna Beach, California, in June of 2005, the Los Angeles Times reported.

It remains to be seen how this will affect bankruptcy or relief petitions in the wake of Katrina.

The Gas Crunch

On everyone's mind is the rapid jump in gas prices. The shut down of the oil rigs in the Gulf has already spiked gas prices to over $3 a gallon, and many economists are predicting as much as $4 a gallon soon.

Although President Bush has authorized releasing some of the Strategic Petroleum Reserve to shore up demand, and oil supplier Colonial Pipeline has already gotten some of its damaged supply lines up and running but is unsure when it will be fully operational. Meanwhile, refineries are still shut down and the distribution network is lagely in shambles.

With energy costs already rising, Katrina could not have come at a worse time, or hit a worse place. The Gulf accounts for 30% of the nation's oil production, and 20% of its natural-gas production. Further, about 10% of the nation's refining capacity is in the Gulf and at last count, 9 of the 14 refineries were still shut down because of flooding and lack of electricity.

Any more increases in gas prices could significantly cut into consumer spending, a dire prospect for the holiday buying season.

Labor Pains

In the short term, the incredible devastation to the Gulf Coast is causing serious job shortages and loss of income. Mississippi Governor Haley Barbour bemoans the loss of every one of the state's casinos, which generated $500,000 a day in tax revenue. The Coast area, hardly an economic powerhouse even in boom times, will suffer high unemployment and a major housing crisis for months, if not years.

Retail behemoth Wal-Mart, already suffering from reduced profits due to higher gas costs and lower consumer spending, announced it would close 120 of its chain stores even as it pledged to donate $1 million in relief money to various aid agencies.

Airlines are suffering, with hundreds of flights canceled and fuel prices spiking ever upward. Katrine may be even to push beleaguered carrier Delta into filing for bankruptcy.

Corporations already skittish from increased energy costs will likely reduce new hiring initiatives, weakening the modest gains in employment for 2005 and casting doubt on new spending for business in 2006. However, energy (particularly oil) and construction were named as sound investments for the long-term cleanup and rebuilding efforts, and oil services provider Halliburton registered enormous gains in stock trading immediately after the disaster.

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