.... with a September 2, 2007 Postscript (below).
The second anniversary of Hurricane Katrina's landfall on the Gulf Coast of the United States is spawning many articles that examine various aspects of the Catastrophe, as expected. Although philosophy is generally beyond the scope of the posts on this Web Log, the articles surfacing on this anniversary are too numerous to ignore. Some provoke thought. One such article is by Adam Nossiter, "New Orleans Journal/After Two Years, a Tangled Mix of Good and Bad" Page A8, Col. 1 (New York Times Saturday August 25, 2007). This article contains the following reported facts about the value of Catastrophe Losses in the State of Louisiana: $100,000,000,000.00 in damage to private property and infrastructure; $66,000,000,000.00 in undescribed "federal payout" combined with the total "insurance company payout" to date; and a $34,000,000,000.00 shortfall.
On the same day, The New York Times published an Op-Ed piece written by a Professor who suggested a "voucher system" for poor victims of Catastrophes such as Katrina, which he described as similar in concept to the food stamp program. Howard Kunreuther, "Who Will Pay For the Next Hurricane?" Page A25, Col. 1 (New York Times Saturday, August 25, 2007).
Another solution is discussed in an article by Michael Lewis, "In Nature's Casino", Sunday, August 26, 2007 New York Times Magazine 26 (free registration may be required to access this article in the New York Times Online). That solution is Cat Bonds, or catastrophe bonds purchased on the financial markets. Those floating the concept are asking Insurance Companies to take the risk, says one hedge fund manager, and spread it throughout the community of investors. By doing so, the Insurance Companies would minimize the cost of insuring potential Catastrophe Claims. See especially page 51 of the print publication of this instructive article.
Postscript on Sunday, September 2, 2007: Here is more about Catastrophe or Cat Bonds, what they are, how they work, and where they are used: Bloomberg News Report, "Amid Subprime Fallout, Some Investors Bank on Catastrophes/Bets Against Natural Disasters Have Proven Lucrative as of Late" (published in Boston Globe Online, Sunday, Sept. 2, 2007)(stated free registration on this site may be required).
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