The Federal Emergency Management Agency isn't "a good friend of most people in Texas" because it has hindered local people and cleanup efforts, Paul said on "Fox News Sunday."
"There's no magic about FEMA," he said.
Paul spoke on Fox after FEMA Administrator Craig Fugate reviewed what is being done in response to Hurricane Irene on orders of President Obama.
Paul said the agency is going broke, so maybe it's time to phase it out, adding he wouldn't vote to provide emergency funding for FEMA should such a bill come before Congress.
"We've conditioned our people that FEMA will take care of us and everything will be OK," Paul said, "[You] try to make these programs work the best you can, but you can't just keep saying, 'Oh, they need money.' ... Well, we're out of money, this country is bankrupt."
Defenders of FEMA "have a tough argument to argue," Paul said.
Paul said the United States could recoup $2 billion by pulling troops out of Libya and applying the money at home, half to the deficit and half to "tide people over until we come to our senses."
Paul said FEMA is a gross distortion of the U.S. insurance system "because they sell the insurance … you can't buy it from a private company, which means there's a lot of danger. [So] we pay people to build on beaches, and then we have to go and rescue them," he said.
The agency is "so far removed" from the market and doesn't understand the purpose of insurance, he said.
"Insurance should measure risk," Paul said. "It shouldn't be a bailout program endlessly."