Eminent domain in New Orleans?

Cynthia, a member of the Life, Liberty, Property community, asked this last night on the LLP mailing list:

I found the decision in Kelo to be a terrible one. And yet, confronted with the situation in New Orleans, with people refusing to allow rebuilding (and I am NOT a fan of rebuilding as it was, but rebuilding in a safer way with less exposure to the ocean and dependence upon the levees), but insisting that their hovels be reconstituted - CAN a case be made for an eminent domain taking with private developers as the beneficiary?

This was my reply.

It would be a far different situation if New Orleans residents were rebuilding with their own money. If they were cognizant that they won't be bailed out in the future, and if they can't stick everyone else with the bill, the residents would most certainly, and most suddenly, be very prudent about how and where they rebuilt. However, they can now rebuild New Orleans however they'd like, to whatever specification, using the finest materials and labor that other people's money will buy.

Eminent domain may not be moot with how the rebuilding will be funded, but it should be. The only reason it even crosses our minds is that the state has chosen to coerce property from some and give it to others, further allowing people to continue their danger-inviting lives at others' expense. It's sad to say it isn't even the latest in a never-ending list of inefficient, outdated and downright bad things (from infrastructure to social services) that big government promotes with the best of intentions. I believe it was Arnold Kling on EconLog who recently wished that liberals considered consequences as much as motive.