[lbo-talk] Financial Crisis Deepens in the Gulf

Dwayne Monroe idoru345 at yahoo.com
Thu Oct 6 09:02:57 PDT 2005


Financial Crisis Deepens in the Gulf

Katrina-Battered Region Sees Unemployment Soar As Aid Trickles to Victims

By EVAN PEREZ in Atlanta, JEFF D. OPDYKE in Baton Rouge, La., and VALERIE BAUERLEIN in Atlanta Staff Reporters of THE WALL STREET JOURNAL October 6, 2005

Hundreds of thousands of businesses and individuals displaced by Hurricane Katrina face possible financial disaster as money to pay workers dries up, banks get tougher on borrowers who were allowed to skip payments immediately after the storm and bureaucratic snafus slow the flow of cash and loans to victims.

The rising financial peril represents a second crisis for those forced to abandon their homes and businesses when Katrina barreled into Louisiana and Mississippi in late August. While cleanup and repair efforts are accelerating in devastated areas, prompting officials in New Orleans and elsewhere to urge some evacuees to return home, the financial hardships caused by the storm are expected to get much worse.

Unemployment payments in Louisiana more than quadrupled to $87.7 million last month, compared with a year earlier, according to the state's labor department. More than 183,000 workers filed for unemployment benefits during the week ended Sept. 24, up from about 29,000 the week before Katrina hit. State officials are bracing for another surge as companies that kept workers on the payroll after the storm decide they can't afford to keep paying.

Some borrowers also are being told they have only a few weeks to catch up on mortgage payments that lenders let lapse in the immediate aftermath of Katrina. Alexis De Bram, a 47-year-old translator who owns two apartment buildings in New Orleans, says he faces a Nov. 1 deadline to make a $6,300 payment to Washington Mutual Inc., the country's largest savings-and-loan association, to cover three past-due payments, while Wells Fargo & Co. wants $8,500 on Dec. 1. Mr. De Bram has no rental income because all his tenants evacuated.

"To come up with all that will be a stretch," he said. Officials at the two banks declined to comment on Mr. De Bram's loans specifically, citing privacy laws. Washington Mutual contends that it has offered all borrowers a forbearance period through Dec. 1, and both banks said they are negotiating with customers on a case-by-case basis to work out individual repayment plans.

J. Robert Wooley, Louisiana's insurance commissioner, said he anticipates "a flood of phone calls" from cash-strapped residents once a moratorium blocking insurers from dropping policyholders who fall behind on their premium payments ends Oct. 26. Mr. Wooley hasn't ruled out extending the consumer protections, but said state officials "have to balance the interests of the consumer but ... can't bankrupt or impair the industry in the process."

The number of bankruptcy filings in Louisiana and Mississippi, the two states hit hardest by Katrina, soared to more than 68,000 in the week ended Sept. 30, up 24% from the previous week, according to Michael Staten, director of Georgetown University's Credit Research Center. But it isn't clear how many of the filings resulted from Katrina or Rita, which slammed into Louisiana and Texas in mid-September. Much of the increase likely reflects people and businesses seeking protection from creditors before toughened bankruptcy laws take effect Oct. 17.

The Federal Emergency Management Agency estimated it has paid more than $3.1 billion so far to about one million households affected by the hurricanes. Both those numbers are expected to rise. Some storm victims also have received financial aid from the American Red Cross and other relief organizations. But the average payment of $3,100 from FEMA likely won't be enough to save some people from financial catastrophe.

"A family relying on a teacher's salary or a city employee's salary is solidly middle class as long as that money's coming in," said Elizabeth Warren, a Harvard Law School professor. "When it's cut off, they're committed to financial obligations that will quickly turn them upside down."

Some displaced residents and businesses also complain that they still are encountering long waits to receive aid, including the initial $2,000 that FEMA typically provides storm victims. Meanwhile, a Small Business Administration spokesman acknowledged that loans to help businesses recover aren't "moving into people's hands very quickly," partly because borrowers are required to show proof of a building permit, flood insurance and a contractor hired to do the work.

Officials at GNO Inc., the New Orleans chamber of commerce, said they were told by the SBA that it will take four or five months to process some loans. The SBA spokesman said the agency is working as quickly as it can.

In the New Orleans area, as many as 30,000 of the 70,000 businesses operating before Katrina hit are "significantly at risk" for failure, said Mark Drennen, GNO's president and chief executive officer. "That number is growing larger every week." Mississippi hasn't yet tallied the number of at-risk businesses, but "it's thousands and thousands," said Buddy Bynum, spokesman for Gov. Haley Barbour.

Betty Fairconnetue, 40, a slot-machine supervisor hired at the Hard Rock Hotel and Casino in Biloxi, Miss., three weeks before Katrina struck, is due to receive her final paycheck Friday. Operators of the casino, which hadn't even opened and then suffered heavy damage, said they plan to stagger cutoff dates for paychecks based on their hiring date, meaning some employees will continue to be paid through Nov. 20.

"I have no job, no home, no car. I've got nothing," Ms. Fairconnetue said as she stood outside a temporary post office in Pass Christian, Miss., sorting bills that have begun arriving. The $965 she got from the Red Cross has been nearly consumed, and she owes $250 for her share of the rent and utilities at the apartment she moved into after her former home was destroyed. "I'm at my wits' end," she said.

In many cases, employers say they have no alternative to ending the generosity that they extended to workers right after Katrina. In New Orleans, the tax base has been decimated, and Mayor Ray Nagin has announced plans to lay off about 3,000 workers, or half the municipal work force. Orleans Parish School District employees, including more than 3,700 teachers, were put on unpaid leave the day the storm struck. Employees will have health benefits until the end of October but no other benefits or reimbursement for sick leave, vacation or retirement.

Louisiana Gov. Kathleen Babineaux Blanco asked President Bush last month for permission to use FEMA aid money to cover payrolls of certain government employees, instead of just overtime costs as federal rules now permit. Louisiana and Mississippi officials also are seeking a federal extension of unemployment benefits beyond the 26-week limit.

A White House spokesman said officials are studying the payroll request. And there still is time to deal with the request for extended unemployment benefits. The Bush administration is "optimistic that the job market is going to return" to the hurricane-battered region, "and it's going to be a hot market," the spokesman added.

URL --

<http://online.wsj.com/article/SB112855933686561226.html>



More information about the lbo-talk mailing list