A huge outpouring of contributions and caring have followed Hurricane Katrina, evidence of both generosity and decency that should be applauded. But each day the impact of Katrina becomes less newsworthy and we will soon be back to business-as-usual. The legal and financial system will rapidly come into play, and with normality needless levels of hardship will follow.

Hundreds of thousands of people have lost their homes and cars, two major items likely to be financed. They have also lost their jobs and thus the ability to pay bills.

As a result there are now calls for the suspension of foreclosure proceedings in Louisiana and Mississippi and the delay of new and tougher federal bankruptcy rules scheduled to start in mid-October.

There is surely an attraction to such proposals, and historic precedence as well. In 1983, as an example, the Farmers Home Administration placed a two-year moratorium on farm foreclosures while in 1985 Iowa had a state-wide moratorium on farm properties. As to delaying federal rules, that can be done by Congress and the President in an afternoon.

But once we're done with the moratoriums and delays, we will ultimately need to deal with the problem that mortgages worth billions of dollars were once secured by real estate, real estate that is now devalued because of Katrina.

Since payments are not being made, many note holders will seek foreclosures -- quietly at first, more openly in the future.

Note holders, in fairness, have a legitimate claim to the income and principal associated with their investments. Alternatively, the logic of foreclosures in the aftermath of Katrina is elusive. We now have great numbers of loans secured by properties that are uninhabitable, unsafe, can't be rented, can't be sold and will cost big money to make right. Foreclosure in such circumstances makes no sense because the interests of neither the borrower nor the property owner are advanced.

We have seen this before.

In the Dust Bowl years in the 1930s banks would foreclose on farms. Since the farms had no value, the banks would knock down homes to discourage squatters -- as Woodie Guthrie explained, families were "tractored out by the cats."

The country reacted. Under Franklin Roosevelt, we established the Federal Housing Administration in the 1930s and the FHA popularized long-term loans in place of then-common five-year "term" mortgages. With longer loans it became possible to better withstand financial downturns.

Last Thursday evening, President Bush told the nation that as a result of Katrina "Congress has provided, more than $60 billion. This is an unprecedented response to an unprecedented crisis, which demonstrates the compassion and resolve of our nation."

However, notably missing from the President's speech were several actions taken earlier by the Executive Branch.

The President forgot to mention that he immediately suspended the 1931 Davis-Bacon Act in areas impacted by Hurricane Katrina. This is the federal law which assures that workers on government construction projects will receive the prevailing wage -- in New Orleans that means about $9 an hour. (See: Bush Suspends Pay Act In Areas Hit by Storm,, The Washington Post, September 9, 2005)

Let's do the math: $9 x 2,000 hours per year = $18,000 in wages -- before taxes. This is the wage level the President wants to reduce.

Mr. Bush failed to mention that well before his speech FEMA handed out five no-bid contracts worth as much as $100 million -- each. (See: No-Bid Contracts Win Katrina Work, The Wall Street Journal, September 12, 2005.

"The first large-scale contracts related to Hurricane Katrina," said the Journal, "as in Iraq, were awarded without competitive bidding, and using so-called cost-plus provisions that guarantee contractors a certain profit regardless of how much they spend."

How wonderful. Our national government wants to assure that people who have lost everything will not earn $18,000 a year while multi-billion dollar corporations are guaranteed huge profits.

The initiatives announced to date are simply insufficient to cope with the destruction and havoc created by Katrina. We need to go much further. For instance:

• Let's admit, finally, that shrinking government by starving the tax base has not worked. The philosophy is attractive in theory but the results have proven disastrous -- just look at federal deficits. We need a different approach and that means more taxes from those who can pay. Sorry -- but reality must be recognized.

• We need a special tax on Freddie Mac and Fannie Mae profits, say a 50 percent Katrina relief fund to underwrite renovation and new construction in the Gulf area. This reverse tax break would bring in billions of dollars each year for as long as necessary. Given that the federal government started these companies, provided them with potential access to federal coffers in the event of emergency and has shielded them from state and local taxes for decades, the time for payback has arrived. And no, taxing profits will not raise mortgage costs, it will merely mean less for shareholders.

• We need to tax estates above $10 million to finance Katrina relief and help balance the federal debt. Virtually no one below that level is now taxed, and those above that level can pay. The screaming about "death taxes" and "double taxation" is nonsense, an effort to distract us from the creation of a permanent patrician class. If Bill Gates and Warren Buffett favor such a tax, so can other plutocrats.

• We need a special prosecutor to review every no-bid contract, publish those reviews on a company-by-company basis, disclose all Katrina-related profits and jail everyone who overcharges the government -- and make sure the jail is in the bayou.

• We need to require that all officers and directors of any corporation accepting a no-bid federal contract in the Gulf area hit by Katrina must physically reside in those areas of New Orleans which lack electricity, clean water and dry streets until their project is completed. This approach will greatly speed the completion of various re-construction efforts....

• We need to require that all board meetings and annual meetings for corporations with no-bid federal contracts related to Katrina must be held in the Super Dome -- except for companies who work on a cost-only basis or donate 100 percent of their Katrina-related profits to restoration. The special prosecutor can clarify any accounting questions.

• We need to restore the Bacon-Davis Act so we can create more taxpayers and fewer working poor.

• We need a foreclosure moratorium for at least a year in areas hit by Katrina. We also need to give mortgage investors a tax credit to offset their Katrina losses so their interests are protected. Fair is fair.

• We need to create inverse investment tax credits for re-development. That is, rank ZIP codes in areas hit by Katrina and give a higher level of tax breaks for investment in the worst areas. The estimated $1.7 billion over five years for economic recovery under the President's plan is simply too little, too late in the context of a disaster that will cost hundreds of billions of dollars to resolve.

• We must re-build the levees and forget the pork construction projects being suggested nationwide.

• We need to find out what went wrong with FEMA -- and the state and local governments -- and fix it.

• We should give credit to the Coast Guard and the National Oceanic and Atmospheric Administration for exceptional work.

Our federal government now has a historic opportunity to be both conservative and compassionate. The list above is a just a starting point.

For more articles by Peter G. Miller, please press here.

Published: September 20, 2005

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .