Signs of the Economic Apocalypse, 2-26-07
Gold closed at 685.70 dollars an ounce Friday, up 1.9% from $673.00 at the close of the previous Friday. The dollar closed at 0.7595 euros Friday, down 0.2% from 0.7611 at the previous week’s close. That put the euro at 1.3167 dollars compared to 1.3140 at the end of the week before. Gold in euros would be 520.77 euros an ounce, up 1.7% from 512.18 for the week. Oil closed at 61.14 dollars a barrel Friday, up 3.1% from $59.28 at the close of the previous Friday. Oil in euros would be 46.43 euros a barrel, up 2.9% from 45.11 euros at the end of the week before. The gold/oil ratio closed at 11.22, down 1.2% from 11.35 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 12,647.48 Friday, down 0.9% from 12,767.57 at the close of the previous Friday. The NASDAQ closed at 2,515.10 Friday, up 0.8% from 2,496.31 at the close of the Friday before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.67%, down two basis points from 4.69 for the week.
The sharp and steady rise in the price of gold in recent weeks, up more than 7% in 2007, feels ominous coming at a time of building pressure, a time when we are days, weeks or months away from finding out whether the neocons will induce the U.S. empire to commit suicide by attacking Iran.
The ongoing dispute between factions in the U.S. elite, between those that are desperate enough to roll the dice on a last-ditch, all-or-nothing bet and those who feel that the situation can be managed by means of a strategic retreat remains unresolved. One one side the neocons, comprised of both Israel-first likudniks and the U.S. militarist/ nationalists argue that to prevent the loss of the Iraq War and to prevent the replacement of the United States as the “sole superpower” by China, a bold attempt to take over the world must be made now before China and Russia get any stronger. The realists argue that the Iraq War is already lost and steps must be taken to mitigate the damage to U.S. power from that loss, including negotiations with Iran and Syria and between Israel and Palestine (unthinkable steps for neocons).
While the realist faction enjoys overwhelming popular and elite support, the neocons have already captured the crucial levers of power and can make use of information gained in extensive surveillance programs to blackmail and control any opponents. Only an arrest and impeachment of Cheney could stop an attack on Iran, it seems, so the final arguments in the Lewis Libby trial add to the building tension. In response to Libby’s defense attorney, Theodore Wells’s statement that the prosecution was really going after Cheney, Special Prosecutor Patrick Fitzgerald came close to admitting just that in his closing arguments:
"You know what? [Wells] said something here that we're trying to put a cloud on the vice president. We'll talk straight. There is a cloud over the vice president. He sent Libby off to [meet with former New York Times reporter] Judith Miller at the St. Regis Hotel. At that meeting, the two hour meeting, the defendant talked about the wife [Plame]. We didn't put that cloud there. That cloud remains because the defendant obstructed justice and lied about what happened."
So a U.S. Special Prosecutor is accusing the Vice President of a criminal conspiracy to blow the cover of a CIA agent who was working on counter-proliferation, on nuclear weapon material smuggling to Iran of all places. Seems impeachable, but the Israel lobby seems to have complete control of both sides of the aisle in Congress, so it’s hard to imagine any action taken against Cheney until after the attack on Iran has taken place.
While we wait for the big boys to fight it out, the recent two-part series in the World Socialist Web Site on what the rise of China means for world capitalism (part 1, part 2) by John Chan is worth reading. Chang begins by outlining the recent history of large scale strategic competition between the great powers:
Russia’s move on January 8 to shut down one of its major pipelines carrying oil from Siberia to the refineries in Europe via Belarus, demonstrates the potentially explosive character of conflicts over energy. Germany relies on Russia for one-third of its oil imports, mostly through this pipeline, which also provides 96 percent of Poland’s oil imports. Europe as a whole depends on Russia for more than 30 percent of its oil. Last winter Russia threatened to cut off gas supplies to the Ukraine. It was a shock not just to Kiev, but other European capitals. This strategy allows Russia to divide the European Union and counter political pressures on Moscow.
Central Asian challenge
The US ambition to control the huge energy resources of the Middle East and Central Asia would allow Washington to do to its rivals what Moscow is already doing. The US strategy is, however, under challenge, particularly with the American military bogged down in Iraq. China and Russia are forming their own bloc to undermine US influence in Central Asia.
The Shanghai Cooperation Organisation (SCO), which includes Russia, China and the Central Asian republics, brings together Moscow’s vast reserves of oil and gas and Beijing’s rapidly growing economic clout. Neither China nor Russia wants an open confrontation with the US over Central Asia, but both countries have a shared interest in preventing American dominance in a region that is economically and strategically important.
In the 1990s, Moscow did not take a great deal of interest in the SCO, which it regarded as more of a Chinese initiative. But Russian President Vladimir Putin, facing the pressure of pro-Western “colour revolutions” on Russia’s borders, has discovered shared interests with China. Both countries want the US military out of Central Asia, while Russia is a supplier for China’s huge appetite for oil and gas. In turn, China, which is seeking to rapidly modernise its military, has been the main source of income for Russia’s decaying defence industries.
In 2005, as the US debacle in Iraq became transparent, China and Russia started to work closely to counter the US position in Central Asia. After Washington criticised Uzbekistan’s President Islam Karimov over his brutal suppression of anti-government protestors in Andijan, Beijing gave Karimov the red carpet treatment. As a result, the Uzbek president opened two dozen oilfields to Chinese companies and eventually shut down the US air base in Uzbekistan.
The SCO cuts directly across US plans for energy transport routes in the Middle East, the Caspian and Central Asia. Putin’s strategy is to use Russia’s state energy monopolies and its political influence in Central Asia and the Caspian region to establish a network of pipelines not only directed to Moscow’s traditional Western clients, but also to the dynamic economies of the Far East. Putin plans that a third of Russian oil and gas exports will go to the Far East by 2020, with China and Japan the biggest beneficiaries.
With Moscow building oil and gas pipelines to the Far East, and Beijing making huge investments in oilfields and pipelines across Central Asia, the prospect of an SCO regional “energy club,” which would act as a counterweight to US influence, has attracted India, Pakistan and Iran as observers.
Beijing and Moscow have also increased military cooperation. After their first large-scale joint military exercise in 2005, the two countries are planning another later this year, to include SCO member states and other former Soviet republics. Although Russia and China are still far from forming a formal military alliance, their close ties pose a potential challenge to US dominance and will provoke a reaction from Washington.
With Russian assistance, China is acquiring advanced military technology. It surprised the US on January 11 by launching a missile to destroy one of its own satellites. Beijing used the test to demonstrate to Washington that China has the capacity to destroy satellites, on which the US military is heavily dependent for navigation, intelligence and weapons guidance.
Despite Chinese President Hu Jintao’s slogan of the country’s “peaceful rise”, Beijing’s economic dynamism has an objective logic of its own. In order to secure the raw materials and energy supplies needed for the country’s booming industry, China is busy building its presence in Africa, Latin America and the Middle East. It was estimated that last year nearly half the world’s heads of state visited Beijing, while top Chinese leaders visited two-thirds of the members of the United Nations.
With more than $1 trillion in foreign currency reserves, China is very much behind the “Hugo Chavez” phenomenon not just in Latin America, but Africa, Asia and the Pacific. Unlike the US and other Western governments that posture about promoting democracy, Beijing sticks to a policy of “non-interference” in the internal affairs of other nations. It has offered billions of dollars in loans and aid to various countries, as long as they agree to protect China’s economic and strategic interests.
As a result, China has become a new, alternative source of funds for many developing countries. In October, Beijing hosted a summit for the government heads of the 10 South East Asian nations. In November, China invited the leaders of 48 African nations to a lavish gathering, signalling Beijing’s entry into the new scramble for Africa. These leaders came to China not only for money, but also political support.
China is promoting itself as a new role model for developing countries, in which dictatorship rather than “democracy” is viewed as a crucial component of economic success. This is particularly favoured by various corrupt Third World regimes, which are under pressure from the Western powers, for their own reasons, to carry out limited political reforms.
Beijing’s support for, including in some cases the provision of arms, Sudan, Zimbabwe, Myanmar and Venezuela—i.e., to regimes to which Washington is openly hostile—has provoked opposition from the Bush administration. Over a year ago, former US deputy secretary of state, Robert Zoellick, commented: “China’s involvement with troublesome states indicates at best a blindness to consequences and at worst something more ominous.” He warned that if Beijing wanted to “push the US out, they will get a counter-reaction” from Washington.
This “counter-reaction” is already evident in the US push for the strategic encirclement of China. Last year, Bush signed an accord with India on nuclear cooperation and encouraged New Delhi to act as a counterweight to Beijing. Washington has also backed Australia’s escalating intervention in the South Pacific to topple regimes that were inclining towards China and other rivals.
In addition, the Bush administration has actively encouraged Japan to play a more aggressive role in North East Asia, against North Korea and China. The crisis over North Korea’s missile and nuclear tests has been provoked by the Bush administration’s bellicose policy to precipitate a “regime change” in Pyongyang. The long-term consequence of this standoff could well be the re-armament of Japan, including with nuclear weapons.
According to Chan, the increasing power of China comes from China’s rapidly increasing wealth which derives from China’s position as a low-wage industrial zone for the world-economy. The low-cost production of goods in China allowed multinational corporations to postpone the crisis of capitalism for three decades or more.
The danger of imperialist war is compounded by the deepening economic crisis of world capitalism. After three decades of globalised production, the advanced capitalist countries, the US in particular, have discovered that the economic crisis that they sought to avoid by diverting manufacturing to cheap labour countries has returned home on a much larger scale.
China’s foreign currency reserves surpassed the $1 trillion mark last year, while the US trade deficit with China reached a new record of $230 billion. The American and Chinese ruling elites have no progressive means for resolving these massive economic imbalances. Beijing needs to keep foreign capital flowing in and exports expanding, in order to create 24 million jobs a year to maintain social stability. The US economy requires the supply of $2 billion a day from the rest of the world, especially from Asian central banks, to finance its massive trade deficits.
If this process continues indefinitely, the financial system must collapse at some point with incalculable consequences for the world economy. The solution offered by the Democrats in the US Congress to “correct” these imbalances is to promote protectionist legislation against China, which will only heighten political tensions and threaten financial stability.
A new book China Shakes the World: The Rise of A Hungry Nation by James Kynge, a veteran China correspondent for the British-based Financial Times, provides some insights into the global impact of China’s enormous economic contradictions. His study found that China resembles, to some extent, the US in the late nineteenth century, in terms of its infrastructure development.
In the 1990s, after discovering that the US interstate highway system had saved American companies $1 trillion over the past four decades, Beijing bureaucratic planners copied the US system across China. When this plan is finished by 2030, China will have 830,000 kilometres of expressways—a little longer than the existing the US system. China is also building railways that duplicate much of the American railroad boom at the turn of twentieth century, including a rail line to Tibet—the “roof of the world”. The scale of China’s electricity power construction is also unprecedented. Every year since 2004, China has been building enough power plants to supply a major European country such as Italy or Spain.
On the other hand, Kynge pointed out, the wages of Chinese workers are far worse when compared to English workers during the Industrial Revolution or an American worker in nineteenth century. Some 200 years ago, a British Weavers Minimum Wage Bill proposed to pay eight shillings a week. After adjusting for time and converting into Chinese currency, Kynge estimated this was double the average wage of a semi-skilled rural migrant worker in China today. A Chicago worker in a lumber yard in the 1850s would have earned between one and half to three times more than a modern Chinese worker doing a similar job today.
The marriage between modern infrastructure and the country’s vast pool of cheap labour is the key to China becoming the new manufacturing centre for global capital. But China is no longer just a cheap labour platform. It is also rapidly developing as a more sophisticated industrial power. According to the Organisation of Economic Cooperation and Development (OECD), mainly due to growing international investment, China last year surpassed Japan to become the world’s second largest spender on research and development. China has also overtaken Germany as the fifth most prolific nation in filing patents for new processes and technologies.
Although its overall capacity for technological innovation still lags far behind industrially developed countries, these figures demonstrate that China is rapidly catching up. Coupled with rampant violations by Chinese companies of intellectual property rights—ranging from DVDs to cars—China’s economy is growing not just at the expense of jobs in South East Asia and Latin America, but increasingly replacing skilled labour in the advanced capitalist countries.
China now exports not only shoes and clothes, but also car components and machine tools that still form the manufacturing basis of Western economies. It is not coincidental that after China’s entry into the WTO in 2001, there has been a continuing drop in wages and a loss of jobs in both advanced and developing countries. In the US, some three million manufacturing workers have lost their jobs. In Europe, China’s impact on small and medium-sized firms, which employ the bulk of workforce, contributed to the continent’s 9 percent unemployment rate.
The process of China moving up the technological ladder, Kynge’s study found, is driven by the necessities of the market. Boeing, the US aircraft manufacturer, for example, initially had to send some production to China and other low-wage countries to maximise the returns to its shareholders. “But in doing so,” Kynge wrote, “it threatened to put out of business many of its small, long-term suppliers [in the US]... The process was self-reinforcing. The more Boeing outsourced, the quicker the machine tool companies that supplied it went bust, providing opportunities for Chinese competitors to buy the technology they needed, better to supply companies like Boeing. Boeing makes money, but ultimately at the expense of the industries and jobs that sustain Middle America.”
The impact of Chinese and Indian cheap labour is having an impact on more than just semi-skilled factory jobs or basic call centre services. IT companies now can outsource even the most skilled professional jobs to any geographical location. According to McKinsey Global Institute, some 9.6 million jobs in the US service sector could theoretically be outsourced overseas. If that happened, it would double the US unemployment rate from around 5 percent to more than 11 percent.
Every year, China produces more university graduates than the US and 60 percent of them cannot find a job. National language no longer offers protection to US workers from global competition. There is already a large pool of English-speaking, educated Indian workers. In China, an estimated 200 million people are learning English. The mere existence of these vast reserve armies of labour has created a huge downward pressure on wages and conditions, even for middle-class professionals in Western countries. In the final analysis, the integration of a new labour force of more than two billion low-cost workers in the global capitalist economy is a major factor behind the eruption of social unrest in France and other countries in 2006.
Kynge wrote in his book that the existing European welfare states are incompatible with competition from China. “Intellectually, many in Europe may find it distasteful that the EU runs a subsidy under which cows get more than $2 a day—more than the average daily income of 700 million Chinese...
“China was able in the five years from the onset of the Asian financial crisis in 1997 to lay off more than 25 million workers from its inefficient and heavily subsidised state-owned enterprises. The fruits of that stern therapy are now evident in the competitive shock that is hitting Europe and America. But China is not a democracy... When workers rioted, protested, petitioned or dissented, it answered with well-honed authoritarian tactics. The result has been that state-financed social welfare has in the space of less than a decade ceased to be a millstone for the corporate sector. The housing, schooling, healthcare and pension obligations that over 300,000 state companies used to meet on behalf of their workers have now been eliminated, reduced or privatised. China today is a great deal less socialist than any country in Europe; the 120 million or so migrant workers, for instance, receive no welfare at all.”
It may well be that the rise of China to superpower status will allow the Powers that Be to implement Chinese-style prison labor camp industrialization world-wide.
The “rise of China” does not signal a new golden age for capitalism. Long before China becomes a mature capitalist power, it will confront violent struggles with other powers for raw materials and geopolitical influence. The US and Japan have already expressed their open hostility toward a more assertive China. Last year Indian Prime Minister Manmohan Singh told Chinese President Hu Jintao that Asia was big enough for the two countries. In fact, the economic dynamism of the two rivals is placing them on a collision course for regional dominance.
China’s socially destructive industrialisation is not based on a historic upward expansion of world capitalism, but is the product of its decay. China’s economic growth will deepen class tensions around the world by intensifying the downward global pressure on wages and working conditions…
If you are part of the global super-elite, “intensifying the downward global pressure on wages and working conditions” doesn’t sound so bad. Paul Craig Roberts published an article summarizing his views on the so-called benefits to developed countries of off-shoring to low-cost countries like China (the article in its entirety with charts can be found here). Not surprisingly, all the benefits that the United States derives from offshoring go to the super-rich. But the economics profession is both intellectually and financially compelled to try to convince the rest of us that that type of globalization is a good thing:
Blind to the Consequences of Offshoring
Economists in Denial
By Paul Craig Roberts
February 19, 2007
At a Washington, D.C., press conference last November, Harvard University professor Michael Porter claimed that globalism was bringing benefits to Americans (Manufacturing & Technology News, Nov. 30, 2006). Porter was introducing the latest report, "Competitiveness Index: Where America Stands" of which he is a principal author, from the Council on Competitiveness.
I recognized a number of Porter's claims to be inconsistent with empirical data. After examining the report, I can confidently state that the report provides scant evidence that America is benefiting from globalism.
This is not to say that the statements in the report and the information in the numerous charts are untrue. It is to say that the data do not support the claim that America is benefiting from globalism.
…The greatest failure in the competitiveness report is the absence of mention of the labor arbitrage and its consequences when U.S. firms offshore their production for U.S. markets. This practice translates into direct job loss and direct tax base loss, and it transforms domestic output into imports. This is capital and technology chasing absolute advantage abroad. This cannot be considered trade based on resources finding their comparative advantage in the domestic economy.
It is this replacement of U.S. workforces by foreign workers that explains the extraordinary rise in CEO compensation and the flow of most of the income and wealth gains to the few people at the top. By offshoring their workforces, CEOs cut their costs and make or exceed their earnings forecasts, thus receiving bonuses that are many multiples of their salaries. Shareholders also benefit. When plants are closed and jobs are offshored, American employees lose their livelihoods, but managements and shareholders prosper. Offshoring is causing an extraordinary increase in American income inequality.
The report acknowledges that "for the first time in history, emerging economies, such as China, are loaning enormous amounts of money to the world's richest country." Historically, it was rich countries that lent to underdeveloped countries. The truth of the matter is that China's loans to the United States are a form of forced lending. China is flooded with dollars from America's dependency on imports of Chinese manufactures and advanced technology products. There is nothing that China can do with the dollars except to purchase existing U.S. equity assets or lend the dollars back to the United States by purchasing Treasury debt. With China's currency pegged to the dollar, China cannot dump the dollars into foreign exchange markets without initiating a run on the dollar and complaints that China is increasing its competitive advantage over the rest of the world.
When I was Assistant Secretary of the U.S. Treasury in the early 1980s, U.S. foreign assets exceeded foreign-owned assets in the United States. By 2005 this had changed dramatically, with foreigners owning $2.7 trillion more of the U.S. than the U.S. owns abroad. For the first time since the United States was a developing country 90 years ago, the country is paying more to foreign creditors than it is receiving from its investments abroad.
The report downplays the extraordinary trade and current account deficits on the grounds that "foreign affiliate sales" do not count against the trade deficit and "intra-firm trade" is a significant proportion of the trade deficit and "is due to trade within American companies."
This argument shows that the report is written from the standpoint of what is good for global firms, not what is good for America.
It made some sense when General Motors claimed that what is good for General Motors is good for America, because when the claim was made General Motors produced in America with American labor. It makes no sense to make this claim today when what is good for a company is achieved at the expense of the American work force.
… A country whose workforce is employed in domestic non-tradable services is a Third World country with nothing to export. How will the United States pay for its heavy dependence on imports of manufactured goods and energy?
As long as the dollar retains its reserve currency role, Americans can continue to hand over paper for real goods and services. But how long can the United States retain the reserve currency role when its economy does not make things to export; when its work force is employed in domestic services; and when its foreign creditors own its assets?
… For developed economies, offshoring is a reversal of the development process. As offshoring progresses, the domestic economy will become less developed and have less demand for university education.
… In the July 2006 issue of CounterPunch, I wrote that jobs offshoring was the new form of class warfare and that it was bringing political instability and social strife to the United States. There is nothing in the Council on Competitiveness' latest report to cause me to alter my view.
So it seems that even if one faction of the U.S. imperial elite can prevent an attack on Iran, U.S. citizens will still fall into third world poverty and economic subordination. On that, the elite seem to be united. There are so many ways this could happen that the process appears over-determined. Offshoring of jobs, massive debt followed by bankruptcies, defaults and foreclosures, and, as the example of Katrina showed, “natural” disasters. Last week we discussed how large scale bird flu outbreaks could, by people working from home overloading the system, lead to a collapse of the internet. The internet would, in effect, be taken over by the authorities and access limited to economically critical a activity, according to an article in Computerworld. This week, the Associated Press reported on the effects such a pandemic would have on the food distribution system in the U.S.
Grocery industry prepares for bird flu
By Timberly Ross, Associated Press Writer
Mon Feb 19, 12:07 AM ET
Stocking up on food is as simple as a trip to the grocery store, a veritable land of plenty for Americans. But will fresh fruits and vegetables, meat, bread, milk and other household staples still be available if the U.S. is hit with an anticipated bird flu pandemic? If state and federal officials urge people to stay away from public places, like restaurants and fast-food establishments, will they be able to get the groceries they need to prepare food in their homes?
For Becky Jones of Omaha, who stocks up once a week for her family of three, the prospect of not having access to food is frightening. She said most people, herself included, only have food on hand for three or four days.
Unlike other critical infrastructure sectors like water, energy and health care, the food industry isn't getting much help from state and federal governments when it comes to disaster planning. That puts the burden on individual supermarket chains and wholesalers to deal with a potentially large number of sick workers that could affect store operations and disrupt the food supply.
"The industry is actively thinking through contingency plans, so if it should happen, our members would be well prepared to deal with it," said Tim Hammonds, president of the Food Marketing Institute, an advocate for grocery wholesalers and retail supermarkets nationwide.
The U.S. Department of Health and Human Services estimates a third of the population could fall ill if the H5N1 strain of the bird flu mutates into a form that spreads easily from person to person. It's not clear if that will ever happen and no human cases of bird flu have ever been traced to eating properly cooked poultry or eggs.
But if a pandemic emerges, the Department of Homeland Security projects worker absenteeism to reach 40 percent or more over a prolonged period. Hammonds said retail food stores would have to contend with worker shortages and disruptions in the supply chain.
The food and agriculture industry is listed among 13 critical-infrastructure sectors that the Department of Homeland Security says must remain functional during a pandemic.
"Having those critical facilities open — like power, water, food — becomes very important" during a national disaster such as a pandemic, said Keith Hanson, an outreach coordinator for Nebraska's Center for Biopreparedness Education.
Hanson works with local businesses, helping test their preparedness plans. He will speak about the importance of that testing at the Public Health Preparedness Summit in Washington, an annual conference designed to help public health workers prepare for emergencies. This year's meeting started Friday and ends Feb. 23.
Hanson said continued operations of power and water utilities are of the utmost importance, but grocery stores rank highly too. That's because people today keep less food on hand, opting instead to make weekly trips to the grocery store.
Americans are also dining out more than they have in the past. Money spent on food prepared outside the home rose from 34 percent of total food costs in 1974 to about 50 percent in 2004, according to a report by the U.S. Department of Agriculture.
The Food Marketing Institute's Hammonds said a widespread pandemic will likely cause food consumption to shift away from restaurants and fast-food establishments and toward in-home eating, causing a greater demand for groceries.
"That means stores would need to be prepared for an increase in volume," he said.
Hy-Vee, a West Des Moines, Iowa-based supermarket chain that operates more than 200 stores in the Midwest, does not have a disaster plan developed in the event of avian flu. But company spokeswoman Chris Friesleben said the company keeps abreast of the illness through the Food Marketing Institute.
"The food supply is essential to the well-being of the community," said Hammonds. "We've been through a lot about what we need to do as a supermarket."
That includes urging wholesalers and retailers to talk with their suppliers about alternative sources for their products and to anticipate what products will be in high demand in a pandemic situation, such as medicines and food staples.
Stephanie Childs, a spokeswoman for Omaha-based ConAgra Foods Inc., said a company task force was formed more than a year ago to develop an operating plan in the event of a national disaster. The plan specifically addresses bird flu, examines areas that could be affected and how the company could respond, she said.
ConAgra is one of the nation's largest food companies, with brand names that include ACT II popcorn, Banquet, Chef Boyardee, Marie Callender's, Egg Beaters and Orville Redenbacher's.
The company employs about 27,000 people, but Homeland Security projections indicate that number could fall to 16,200 during a pandemic.
Childs said such worker shortages and difficulties with suppliers getting their products to ConAgra plants were among the potential problems the company identified. She did not disclose how the company would address those issues.
The federal government and public health agencies are urging people to stock up on nonperishable food, like canned goods and dried fruit, to ensure they have to food to eat during a pandemic.
Jones, the Omaha woman, said that's a proactive approach, but was worried that people with limited incomes may not be able to afford a large stockpile of food.
She stopped short of calling for the government to oversee the food industry's pandemic planning, but said, "If they see a crisis that is on the horizon, they do have to give us some type of warning."
It certainly feels like we are being prepared for something big coming down the pike. Not only that, but we are also being prepared to get no help at all from government or the lords of capitalism. More than a year after Katrina, the full depth of the abandonment of the citizens of New Orleans and the gulf coast is becoming clear. The insurance companies have paid only a fraction of what they were contractually bound to pay. I once sat next to a couple of claims adjustors returning from New Orleans a few months after the hurricane and one of them told me what he most liked about his job was helping people get back on their feet. It seemed just like the advertisements for the insurance agencies. He described the devastation and I asked him how the insurance companies could absorb such massive exposure and he replied, “Easy. We deny claims.” What a disconnect! The following excerpts from a transcript of the Open Source radio show on the topic show how that has worked out:
‘My wife called my insurance company . . . and they said, “Oh no, this isn’t covered, at all! You don’t get anything!” Now, I went to law school, so I said, “let’s talk to her supervisor.” But think of all the people in New Orleans, all the working class folks who maybe just took that and said, “Oh, I just don’t have a claim.” . . . The rationale was, “it’s just a flood story. It’s a flood story, so we don’t have to pay, we’re the wind carrier.” And actually, our roof was blown off. And they knew this, and they just tried to drive people away.’ -- Allen Kanner
‘It was like being in a place where a neutron bomb had been activated, or some kind of a science fiction movie. Nobody around, incredibly silent, no colors, everything was in sepia tones, and no birds – it was just really creepy. We called Allstate every day, and we waited and waited and waited, and we kept being told that clearly the wind made our house lean, but they needed a report from the engineers. So finally, in February, two individuals from a group called Haag Engineering visited our house, and they left after fifteen minutes without asking us any questions. They just told us that they didn’t need our input. Finally, at about eight months after our house was damaged, I received a letter in the mail, a letter from Allstate, claiming that they were going to deny our claim because of the report from Haag Engineering, which said, among other things, that it wasn’t windy enough during Katrina to make a house lean.’ – Michael Homan
‘About a month ago we filed a complaint against Allstate with the Insurance Commissioner in Louisiana….They get fools like me to pay them money every month for several years thinking I am insuring my house against wind and flood damage, and then after the largest natural disaster in this nation’s history, they don’t pay us. Instead, they pay some hack engineers to say it wasn’t windy enough during Katrina to make a house lean. And when it goes to court, Allstate will be able to claim they were simply relying on the opinion of “experts” and won’t be directly liable. And now Allstate has threatened to pull out of Louisiana if they are not able to drop coverage for 30,000 homeowners who they feel are too much risk. That would leave 220,000 homes without insurance. I had hoped that Katrina would have woken us up, and we would finally realize that our society needs more of a measure than just profit alone.’-- Michael Homan