I don’t know why you chose not to comment, but I had previously read this in the SF Chronicle and just shook my head. Folks who live around here (Bay Area) are pretty much aware (or ought to be) of the potential for flooding in the Sacramento delta and anybody who buys a house on a levee-protected delta island is taking a huge risk that they should be aware of and they should be prepared to suffer a loss if and when . . . . That’s why I don’t think it’s reasonable for New orleans homeowners who could have bought flood insurance (that may not be all of them) and chose not to should be bailed out. I also think it can’t happen because, like I said, the Feds just don’t have enough money to do that for every natural disaster and it seems to me unfair to bail out New Orleanians and not do it for every vicitm of tornado, earthquake, hurricane or flood.
But the bottom line is the concept called "moral hazard". That says that if people think they will get bailed out, they will do stupid things they might not do if they believe the risk is all on them. To get concrete, if the Feds buy up the destroyed houses of New Orleans, I predict that more than one person who is thinking about one of those Sacto delta houses will think, "Well, it might get flooded, but the Federal government will buy it if that happens" and proceed with a purchase they might not otherwise make. I don’t want that to happen–and remember, I’m someone who owns an expensive chunk of earthquake country.