Dan Wilchins

The New Yorker's Atul Gawande has an excellent piece this week about why healthcare costs vary from one city to another. Gawande focuses on the cultural reasons behind geographical differences in healthcare costs. In some cities, influential doctors or institutions have emphasized that medicine is a business so physicians should try to maximize their profits. In others, doctors and institutions have emphasized that medicine is a healing profession, so physicians should try to maximize the quality of the care they provide, even if that translates to lower income.
But there may also be a more economic element to the answer. Gawande notes that there is a correlation between doctors' expenses and their healthcare decisions:

Brenda Sirovich, another Dartmouth researcher, published a study last year that provided an important clue. She and her team surveyed some eight hundred primary-care physicians from high-cost cities (such as Las Vegas and New York), low-cost cities (such as Sacramento and Boise), and others in between. The researchers asked the physicians specifically how they would handle a variety of patient cases. It turned out that differences in decision-making emerged in only some kinds of cases. In situations in which the right thing to do was well established - for example, whether to recommend a mammogram for a fifty-year-old woman (the answer is yes) - physicians in high- and low-cost cities made the same decisions. But, in cases in which the science was unclear, some physicians pursued the maximum possible amount of testing and procedures; some pursued the minimum. And which kind of doctor they were depended on where they came from....
(P)hysicians from the most expensive cities did the most expensive things.

It's possible that higher costs force doctors to think more like businesspeople and make them at the margin more likely to try to maximize profits, while doctors facing lower costs can worry less about their income.
If that's so, then consider the case of New York City. Cheap borrowing costs and lax regulations in this decade allowed the financial sector to become inordinately profitable. That, in turn, lifted wages for support personnel, real estate costs for doctors' businesses and homes, and so forth, which in turn incentivized doctors to order questionable tests and procedures for their patients.
In other words, distortions in the financial sector may have contributed to inefficient resource allocation in the seemingly unrelated sector of medicine.
It's the sort of contagion from the housing bubble that few would have predicted.

Who would be willing to work for $500,000 a year? According to Maurice "Hank" Greenberg, nobody talented.

The former American International Group Inc chief executive believes that government steps to curb executive pay on Wall Street are a big mistake. The best managers and employees will move to private companies that are not receiving government money and therefore don't face pay caps.

"You're not going to get great talent for $500,000," Greenberg said, referring to $500,000 pay caps that U.S. President Barack Obama placed on banks receiving new money from the Treasury's Troubled Asset Relief Program.

If talent can't be had for less than $500,000 a year, the United States is in trouble -- our President makes just $400,000 a year.

But then again, given the mess that bank executives have gotten the system into, perhaps we could all do with a little less talent.
Image: Reuters stock photo

Barack Obama may be looking to boost marginal tax rates for the wealthiest 5 percent of Americans, but that doesn't mean the wealthy are shunning the candidate, said Richard Feurtado, BlackRock's head of wealth management in the account management group.
In fact, about 50 percent of BlackRock's ultra-high net worth clients are Obama supporters, Feurtado said at the 2008 Reuters Wealth Management Summit in Boston.
"People do things for all sorts of reasons, and maybe one of them is financial, but there are many other reasons for people voting in certain ways," Feurtado said.

Stocks of bond insurers tumbled immediately after news broke of New York Governor Eliot Spitzer's involvement with a prostitution ring, but the incident is seen as only a modest negative for the monolines' restructuring efforts.

The former Attorney General has been a key force behind a recent round of capital raising for bond insurers, who guarantee more than $2.4 trillion of debt. The insurers face billions of dollars of expected payouts after guaranteeing repackaged subprime mortgage bonds and other risky debt.

Much of the recapitalizing and restructuring process is over for now, after Ambac Financial Group Inc sold $1.5 billion of equity and convertibles last week. And the biggest regulatory force involved day to day in discussions among the insurers and banks and others has been Eric Dinallo, the New York Insurance Superintendent that Spitzer appointed. "Spitzer's not being there erodes Dinallo's authority ever so slightly," said James Ellman, portfolio manager at hedge fund Seacliff Capital. Another hedge fund manager added: "I'm sure Dinallo's going to do the same things now that he would have done before."

Banks are working to rescue bond insurers now, much as they did with Long-Term Capital Management when it collapsed in 1998, but the situation in this case is fundamentally different, corporate gadfly Bill Ackman said in a letter to regulators.

Hedge fund Long-Term Capital controlled some $100 billion of assets in 1998, but collapsed in the wake of the Russian debt crisis, which triggered a series of margin calls for the firm. A consortium of banks, nudged by the Federal Reserve Bank of New York, infused the fund with capital and liquidated its positions in an orderly fashion.

The problem with LTCM was one of liquidity, Ackman wrote. If the fund had been able to continue financing its positions, they would have eventually proven sound.

Ackman, who has been betting against the bond insurers' shares for years, argues that they're different from LTCM because they chose their positions poorly and will likely suffer from insolvency.

His proof? The lack of investor interest in rescuing the bond insurers. Warburg Pincus has taken a significant stake in bond insurer MBIA, but other private equity firms are unlikely to follow in their footsteps, according to a recent report in the Financial Times.

If the bond insurers' positions were likely to perform well if only they could be held to maturity, private equity investors would presumably be lining up to take positions, Ackman said.

"These private market assessments indicate that this is not simply a case of illiquidity or a lack of sufficient opportunistic capital in the market," Ackman wrote.

Ackman's letter may be downloaded here.

(Photo of Bill Ackman courtesy of CFA Institute)

Bob Greifeld, Chief Executive of Nasdaq Stock Market Inc, does not seem like the sort to party hearty, but in 2004 he did. He organized a week-long trip to Ireland for more than 20 family members, which included custom-written songs, re-creations of a medieval village, and a gourmet menu designed to exclude cream and butter. There were 55 staffers to care for the guests.

Sound elaborate? Just ask the party planner who put it together. 

"That was over-the-top on steroids," Gregory Patrick told the Reuters Wealth Management Summit.

Just finding a lead chef took 75 hours, Patrick said.

The event cost about $611,000, Patrick said.

More details on the event can be found in this Times of London story. The party is long over, but arguments about how much Greifeld has to pay continue. Patrick argued he was owed cost plus a gross profit margin of 38 percent, which amounts to cost plus 62 percent. Greifeld argued that he thought he owed cost plus 38 percent, and that Patrick refused to give him the DVDs documenting the event until Greifeld paid what Patrick said was owed. A New Jersey state judge ruled that Greifeld did not have to pay more money and Patrick had to turn over the DVDs, but Patrick is appealing that ruling.

Steven Cohen, a lawyer for Greifeld at Wachtel & Masyr in New York, said the written contract did not corroborate Patrick's claims.

Few people enjoy paying taxes, least of all the wealthy, for whom annual tax bills can run into the millions of dollars. U.S. President George W. Bush has worked to cut taxes that tend to hit wealthy people, such as inheritance taxes. But with a persistently high deficit, as well as the rising cost of the Iraq war and entitlement programs, many expect these taxes to rise.

Rich people seem resigned to higher taxes, said Gail Cohen, head of global wealth management at Fiduciary Trust Co. International, at the Reuters Wealth Management Summit. 

"....(T)here's a feeling that's it inevitable and I also believe that they see that the government needs the money," Cohen said.

Growing up wealthy does not necessarily mean growing up money savvy. Psychologist James Grubman told the Reuters Wealth Summit that the children of the wealthy may not have grown up with budgets and financial constraints, and may not know how to spend responsibly.

Sometimes trustees--the people that administer trust funds for children of the wealthy--have to step in and give a dose of tough love. Gail Cohen, head of global wealth management at Fiduciary Trust Co. International, said that if a client has spent too much on their credit card, and risks bankruptcy if they don't get cash, their trustee will not bail them out. Instead, the trustee will put the client into credit counseling.

For a wealthy person, impulse shopping can demand large sums of money--in some cases, upwards of a million dollars. High net worth individuals don't tend to leave their money sitting in a checking account, and selling off assets to raise cash can take time.

Private banking clients sometimes ask to borrow large sums of money on short notice, said Brian Moynihan, president of global wealth and investment management at Bank of America.

"We had a client that was on vacation with his wife, and wanted to buy something not small, and walked into a branch, and asked us to deliver seven figures immediately," Moynihan.

"That's what makes us unique--we can handle those kinds of requests," Moynihan added.  

Every investment bank is unhappy in its own way these days.
Lehman Brothers and Bear Stearns are reeling from weak fixed-income businesses, where structured finance issuance is suffering. Merrill Lynch might have to write down some portion of its investment in subprime mortgage lender First Franklin. And Goldman Sachs helped bail out a hedge fund it manages last month.
As if that weren't enough, Goldman and Bear face another potential hit: merger advisory revenue. According to Sanford C. Bernstein analyst Brad Hintz, Goldman likely generated $600 million of merger and acquisition advisory revenue in the third quarter, down 1 percent from the same quarter last year and 15 percent from the second quarter.
Bear likely generated $160 million in the third quarter, Hintz said, an estimated 14.4 percent decline from the same quarter last year and an estimated 27.3 percent decline from the second quarter. Bear does not specifically disclose its merger advisory revenue on its financial statements.
M&A advisory revenue for Lehman and Morgan Stanley likely increased in the third quarter compared to the same quarter in 2006, Hintz said.
Bear, Lehman, Morgan Stanley, and Goldman all report later this month, and analysts have been falling all over themselves to cut their estimates for the companies. Not surprisingly, few analysts expect this to have been a happy quarter.