Steve August 27, 2020
who-will-get-rich-off-of-hurricane-laura?

Hurricane Laura—one of the most powerful storms ever to hit the United States—made landfall early this morning, just a few hours after the end of the Republican National Convention’s third night. Those with homes in Laura’s path, some 1.5 million of whom were placed under evacuation orders along the Texas and Louisiana coasts, face all kinds of questions in the days and months to come: When will it be safe to return home? Will I have a job when I get there? Can we afford to rebuild? Will damage to the region’s petrochemical refineries fill the water with chemicals?

Those safe in mid-Atlantic townhouses or seafront mansions may have a different question: Where’s the money to be made? For as the last few weeks have proved, there are any number of ways to get rich in a disaster.

Insurance Journal reported last week that the Baupost Group—a hedge fund headed by the billionaire so-called “Oracle of Boston” Seth Klarman—collected $3 billion for betting that PG&E, Northern California’s embattled electric utility, would have to pay out insurance claims from California’s deadly wildfires. (Earlier this summer, PG&E pleaded guilty to 84 counts of manslaughter for its role sparking 2018’s Camp Fire.) Klarman is what’s known as a distressed asset investor. For roughly 35 cents on the dollar, he bought $6.8 billion worth of an obscure financial product known as subrogation claims, in which an insurance company sells off the right to sue to recoup the cost of damages borne by its policyholders. It’s a financial tool, basically, to help insurance companies move the liability for large insurance claims off their balance sheets.

Baupost Group will be getting roughly double what it paid for these claims back due to the terms of PG&E’s bankruptcy settlement. As an equity investor in PG&E, Klarman’s company will take a hit on the other side of the ledger but is likely to net a cool $1 billion from one of California’s deadliest wildfire seasons.

Insurance claims against the utilities, petrochemical refineries, and natural gas export facilities in Laura’s path could yield similarly lucrative returns. It may be months before we find out, but it’s certainly possible that someone could make a billion dollars off of Hurricane Laura, depending on their investments; if they do, there’s a good chance that, like Klarman, they were already a billionaire to begin with.

Finance is functionally ambivalent about death. Companies are obligated to return profits to their shareholders, and the presence or absence of human suffering is frequently irrelevant to that pursuit unless the intensity or scale of it starts to really turn shareholders’ stomachs or spark boycotts that endanger the rate of return—both pretty rare. Insurance companies defrauded homeowners to the tune of $240 million in the aftermath of Hurricane Sandy while working as glorified contractors for the National Flood Insurance Program. Real estate magnates get a big cut, too. In the decade after Katrina, researchers Eric Joseph van Holm of Arizona State University and Christopher Wyczalkowski found, hurricane damage was positively correlated with a neighborhood’s likelihood of gentrifying: Gentrification was more likely in parts of the city that had been hit harder, since whole blocks could be razed or rebranded, the storm having cleared out many working-class Black and brown residents who can’t afford to come back. As Naomi Klein has documented, it was Mike Pence who convened a meeting at the corporate-funded Heritage Foundation in the wreckage of Hurricane Katrina, dreaming up a wish list that included everything from the wholesale privatization of the New Orleans school system to turning the entire area hit by the storm into a “flat-tax free-enterprise zone.”

Disaster capitalism thinks big, even betting on whole islands and governments: Klarman’s Baupost Group was until recently one of the largest holders of Puerto Rican debt, having—like many other bondholders—bought it while it was cheap thanks to painful recession and then Hurricane Maria, using a shell company called Decagon Holdings LLC. Klarman wasn’t the only one out to attempt to profit from the island’s misfortune, either. Wall Street banks collaborated with hedge funds and private equity to find loopholes around the island’s borrowing limit, extracting hefty fees and imposing punishing rates of interest on an estimated $74 billion worth of debt whose full value has never been properly audited. Klarman sold off his stake in Puerto Rico’s debt for $615 million in 2019, following student divestment campaigns targeting Baupost and other bondholders in the U.S. As Bloomberg noted then, while the exact price-to-payout ratio is hard to know, those who purchased debt around the same time made out well in the debt-restructuring deal eventually agreed to under PROMESA, the legislation that set up a bankruptcy-like process for the island and puts its finances in the hands of an unelected fiscal control board.

Seth Klarman might not be someone you’d want to have a beer with. But his business model is less a product of sociopathy than structure. Distressed asset investors are now a common feature of the global economy. Known as “vulture funds,” these financial engineers are now ubiquitous in the lifecycles of sovereign governments, struggling cities, and corporations, stripping their bones for meat. It’s what the legendary investor Paul Singer did in Argentina, buying up public debt at sale-bin prices as the country’s finances faltered. After the government defaulted in 2001, Singer’s firm, Elliott Management, spent years litigating its way to a full payout of $2.4 billion.

There’s a whole body of international law backing investors’ rights to extract as much as possible from wherever they choose. Klarman and Singer are just taking advantage, though they donate generously to politicians who’ll keep those laws in place and expand them—a pretty bipartisan issue, historically. Paul Singer is a megadonor to the Republican Party. He’s a vocal supporter of Tweety McTreason, having warned—in line with the Republican National Convention—that “socialism is on the march again.” Klarman, on the other hand, has given prolifically to Democrats. In the past year alone, he’s donated $1.5 million to Pacronymn, the Democratic-aligned Super PAC of Acronym, the consultancy behind the party’s Iowa caucus debacle. Klarman also gave $1 million to Priorities USA, $500,000 to the Democratic House Majority PAC, and over $500,000 to the Democratic National Committee, on top of contributions to a number of largely centrist Democratic congressional candidates and presidential primary candidates, including $8,400 to Joe Biden’s campaign. Trade agreements that give investors free rein have been pushed enthusiastically by Democrats from Bill Clinton to Nancy Pelosi, and the legal statutes that make businesses like Singer’s and Klarman’s possible are kept in place by laws on the books of Democratic-controlled New York state.

Theoretically, it should be the government’s job to keep corporations’ more destructive impulses—from pouring greenhouse gases into the air that make hurricanes like Laura more likely, to profiteering in their wake—at bay. But while they see government action as key to dealing with the climate crisis, even bodies like the Senate Democrats’ Special Committee on the Climate Crisis seem disinclined to step into the role of delimiting corporations’ behavior; instead, they appear to hope corporations will set the agenda. “Imagine how quickly Congress could act,” the Committee wrote wistfully in a new report released this week, “if powerful trade associations like the U.S. Chamber of Commerce and National Association of Manufacturers became advocates for serious pro-climate policies. Imagine if the powerful banking, agricultural, financial services, technology, and consumer products lobbies came in and demanded real climate action. Corporate America need not imagine this. Corporate America can make it happen. When it decides to show up.”

It’s a particularly nonsensical statement to release this summer, amid continuous news of companies’ crisis profiteering and willingness to risk lives. Executives decide to show up when there’s a buck to be made or when the government tells them to. Finance will only stop betting against endangered communities from Louisiana to Puerto Rico if forced.

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