George R. Fisher, III, M.D.

Obituary

George R. Fisher, III, M.D.

Age: 97 of Philadelphia, formerly of Haddonfield Dr George Fisher III

Dr. George Ross Fisher of Philadelphia died on March 9, 2023, surrounded by his loving family.

Born in 1925 in Erie, Pennsylvania, to two teachers, George and Margaret Fisher, he grew up in Pittsburgh, later attending The Lawrenceville School and Yale University (graduating early because of the war). He was very proud of the fact that he was the only person who ever graduated from Yale with a Bachelor of Science in English Literature. He attended Columbia University’s College of Physicians and Surgeons where he met the love of his life, fellow medical student, and future renowned Philadelphia radiologist Mary Stuart Blakely. While dating, they entertained themselves by dressing up in evening attire and crashing fancy Manhattan weddings. They married in 1950 and were each other’s true loves, mutual admirers, and life partners until Mary Stuart passed away in 2006. A Columbia faculty member wrote of him, “This young man’s personality is way off the beaten track, and cannot be evaluated by the customary methods.”

After training at the Pennsylvania Hospital in Philadelphia where he was Chief Resident in Medicine, and spending a year at the NIH, he opened a practice in Endocrinology on Spruce Street where he practiced for sixty years. He also consulted regularly for the employees of Strawbridge and Clothier as well as the Hospital for the Mentally Retarded at Stockley, Delaware. He was beloved by his patients, his guiding philosophy being the adage, “Listen to your patient – he’s telling you his diagnosis.” His patients also told him their stories which gave him an education in all things Philadelphia, the city he passionately loved and which he went on to chronicle in this online blog. Many of these blogs were adapted into a history-oriented tour book, Philadelphia Revelations: Twenty Tours of the Delaware Valley.

He was a true Renaissance Man, interested in everything and everyone, remembering everything he read or heard in complete detail, and endowed with a penetrating intellect which cut to the heart of whatever was being discussed, whether it be medicine, history, literature, economics, investments, politics, science or even lawn care for his home in Haddonfield, NJ where he and his wife raised their four children. He was an “early adopter.” Memories of his children from the 1960s include being taken to visit his colleagues working on the UNIVAC computer at Penn; the air-mail version of the London Economist on the dining room table; and his work on developing a proprietary medical office software using Fortran. His dedication to patients and to his profession extended to his many years representing Pennsylvania to the American Medical Association.

After retiring from his practice in 2003, he started his pioneering “just-in-time” Ross & Perry publishing company, which printed more than 300 new and reprint titles, ranging from Flight Manual for the SR-71 Blackbird Spy Plane (his best seller!) to Terse Verse, a collection of a hundred mostly humorous haikus. He authored four books. In 2013 at age 88, he ran as a Republican for New Jersey Assemblyman for the 6th district (he lost).

A gregarious extrovert, he loved meeting his fellow Philadelphians well into his nineties at the Shakespeare Society, the Global Interdependence Center, the College of Physicians, the Right Angle Club, the Union League, the Haddonfield 65 Club, and the Franklin Inn. He faithfully attended Quaker Meeting in Haddonfield NJ for over 60 years. Later in life he was fortunate to be joined in his life, travels, and adventures by his dear friend Dr. Janice Gordon.

He passed away peacefully, held in the Light and surrounded by his family as they sang to him and read aloud the love letters that he and his wife penned throughout their courtship. In addition to his children – George, Miriam, Margaret, and Stuart – he leaves his three children-in-law, eight grandchildren, three great-grandchildren, and his younger brother, John.

A memorial service, followed by a reception, will be held at the Friends Meeting in Haddonfield New Jersey on April 1 at one in the afternoon. Memorial contributions may be sent to Haddonfield Friends Meeting, 47 Friends Avenue, Haddonfield, NJ 08033.

Social Disintermediation

A term borrowed from the banking world seems to explain the recent decline of local government, local clubs, and local news sources. {bottom quote}

The growing speed of communication, especially the electronic sort, exacts its price. Western civilization spent several centuries building up valuable social structures intended to unite citizen opinion with that of their leaders. A lot of that now seems unnecessary. Most people now know how to read, write, type and press enter. A dozen systems attempt to catch up with Google in the art of telling people what they say they want to know. C-span lets us hear our leaders speak, more or less in person, and then answers our phone call, sometimes.

Quite a change from the days when people knew nothing and knew they knew nothing. Benjamin Franklin formed dozens of little clubs and societies for people of like minds to learn what was going on, and to magnify the force of their collective opinion to influence it. That's essentially why Philadelphia remains a city of clubs, but the diminishing need for such megaphones also goes a long way toward explaining the decline of clubs. The Bar Association has less importance for lawyers, the AMA less for doctors. One consequence that is noticeable is an ascension to power within such declining organizations of minority groups, fringe opinions, and other elements still desperately searching for a voice. The power elites now prefer to aspire to befriend and influencing national power centers directly, and in the process unconsciously augment the importance of centralized power. The upper layers of the government bureaucracy have become infiltrated with educated and high-minded graduates of elite schools, and toward them often go the appeals of former classmates with less plausible motivations. Quite rapidly for a social revolution, people are changing political sides, and the consequence is polarization.

Regardless of laments for the systems and institutions of the past, polarization is dissolving the old glue that binds the nation together, heedless of the new glue of electronics and instant communication with like-minded strangers. It's hard to know what people really believe about the polarizing effect of gerrymandering congressional and legislative districts because it brings people of like opinion together and people generally enjoy that. But professional analysts of the political scene focus on the effect of each ten-year census and claim that the elections of the next decade are easily predictable once you know how the revised census was gerrymandered. Contrast the difference in deportment between the scruffy members of the U.S. Congress with those of the U.S. Senate, where gerrymandering is impossible. The consequence often goes unnoticed, because gerrymandering means that people of the same opinion are more likely to find that everyone they know -- agrees with them. It's not entirely a new phenomenon. When Franklin Roosevelt defeated Alfred Landon in the greatest landslide in our history, many voices were raised that the election must have been fixed because everyone they knew voted for Landon. Something like that misperception affects many who voted in the two elections of George W. Bush, differing in these essentially tied elections only that both sides believe they were cheated. The buffering organizations, the clubs, ethnic groups, and even the political parties either no longer survive, or are dominated by die-hards.

How much of all this is just temporary disorientation, how much is a growing trend predicting the future, is unclear. The harsh and thoughtless oaths and demands which have become so disagreeably common may pass away when people get a grip on themselves, or they may escalate into our normal level of public discourse. Negative campaigning, experts say, is effective. Political campaigns get progressively harsher and dirtier as they approach election day. Money talks, and it talks by buying professional assistance to say what the buyer is ashamed to say. A political party wants to win elections above all else; those who lose elections are quickly hounded into oblivion. And yet, and yet. A slogan or two can still turn this sort of thing around. Just tell a loudmouth that he sounds like a junkyard dog, and see how quickly the listeners quiet down. It's a vicious thing to do, but it works, using vile attacks to silence vile remarks.

To a considerable degree it works because it draws attention to how little substance is to be found in these shouting matches. Someone who heard a major general gives a talk may be emboldened to offer a different opinion on combat strategy, but he still knows how little he knows and retreats at the first sound of answering fire. The person who just listened to the Chairman of the Federal Reserve talking about interest rates may claim to disagree but soon looks a fool if asked to document that opinion. The barroom orator, unrestrained by association with local opinion makers in person, is emboldened to rise to combat with the champions of the opposition. Most of us soon learn not to pick fights with the varsity, and there is at least some small hope that civility will eventually return when a few more noses get bloodied.

You can try soft reasoned analysis if you wish, but at the moment it isn't very popular.

Sovereign Wealth Funds

Alexander Hamilton

At Third and Chestnut Streets in Philadelphia there is a Japanese restaurant occupying the site where Alexander Hamilton once lived and devised the modern banking system. There's no historical marker, possibly because Hamilton's involvement in the Whiskey Rebellion and his political switch of the nation's capital from Philadelphia to the District of Columbia made his memory distasteful to local town fathers. It was at this place Hamilton devised the idea that what America needed most was a national debt -- national debt was a national treasure. Just about everyone was appalled, especially Thomas Jefferson and Albert Gallatin. George Washington didn't know about such things, but he trusted Hamilton and so we got a sovereign debt as a cornerstone of national finance because no one wanted to oppose Washington. Wrangling over this radical idea became a central issue in the next eight presidential elections. After that, we had a century of wrestling with substituting the Federal Reserve for precious metals as a way of controlling the money supply. In a more sophisticated form, our sovereign debt now forms the bedrock basis for the Federal Reserve's control of the banks and the monetary system. Just when things seemed settled, we confront something new and possibly just as revolutionary, the sovereign-wealth fund.

->

If a country can have debt, it can have a surplus. Using that surplus to buy corporations was seen as nationalization, just a way- station on the road to socialism or communism. Somehow, what to do with national surpluses never became an issue, probably because it was easier to spend than to save. More recently, surplus funds have fallen to governments from oil or other natural resource discoveries, usually soon in the hands of a despot, combined with rudimentary banking systems that make it hard to invest locally. In 2008 these accumulations worldwide are estimated to exceed $3 trillion. Dubai has about $600 billion, and other countries like Singapore are not far behind. Traditionally, such funds end up in places like Switzerland where they more or less disappear from sight. While a few small countries have experimented with openly investing in stocks and bonds, the matter only surfaced as a real issue after the subprime mortgage mess of 2007. As a consequence of upheavals whose full nature is still obscure, financial giants like Citicorp, Merrill Lynch, and Morgan Stanley found themselves facing liquidation unless they could acquire billions of dollars by selling large blocks of their stock in a hurry. Thus the Americans, who would never contemplate their own government buying controlling shares of leading American corporations -- were jolted to see we had made foreign powers welcome to do so.

Furthermore, this might quickly get out of hand. The Chinese government, unashamedly communist, now holds 70% of American government bonds. Not only would a rapid bond liquidation be disruptive, but the purchase of corporations' controlling stock might be worse, The effective conversion of Wall Street into a street in Chinatown would have highly destabilizing consequences. Since holding vast quantities of bonds has created no problem, it would seem the main international difficulty lies in the voting power of common stock ownership. It might seem possible to prohibit sovereign foreign states from voting their proxies, although it is easy to imagine circumvention by straw-men. A more promising way to sterilize the voting power would be to forbid direct foreign nation ownership except through index funds. One questionable feature of this approach lies in the narrowing minority control which is created as index funds keep growing to a size that disenfranchises almost everybody except the management of corporations, or encourages predatory raids on a small sliver of outstanding listed stocks by promising future golden parachutes to CEOs and others who acquire stock by incentive options and then join in the raid.

Finally, it merits rumination about the growing vulnerability of banks, as agents of the Federal Reserve in its duty to stabilize the currency. The recent credit crunch delivered a setback to the securitization of debt, it is true, but nevertheless, the trend of several decades has been to weaken local banking. The eventual disappearance of banks is not inconceivable. Banks have consolidated into larger banking giants, but the recent troubles of Citicorp show that mega banking does not defend banks from securitization. We have to hope the Federal Reserve is considering responses to this threat to monetary management which are more productive than just a bunker mentality.

Banking

Bank Owned

In such circumstances, banks could be expected to start holding back. But no, there was too much even cheaper money available for banks to borrow, leverage up with more borrowing, and re-lend to homeowners. It got to the point where a dollar of the bank's own money supported thirty dollars of loans to customers, and homeowners still lined up for more. The solution to the conundrum was suddenly clear: too much cheap money was in circulation, and it was coming from China and the Middle East. Because the prices of houses were going up steadily, banks took a chance on the plain fact that thirty-to-one announces that a loss of house value of 3% means the mortgage is losing money. A couple of other ugly facts are somewhat less obvious: when interest rates go up, the value of the loan goes down. Secondly, when banks reduce their thirty-to-one borrowing to a safer twenty-to-one, the de-leveraging raises interest rates still more, lowering home values still more. A downward spiral can easily get started. Historically, banks were protected by the homeowner's down payment; down payments had become minimal. Adjustable rate mortgages were now popular, a process of shifting the risk of interest fluctuations from the bank to the homeowner, as the homeowner would soon learn if interest rates rose.

We faced a big problem caused by too much cheap money, and we struggled to save the situation -- by injecting more cheap money. {bottom quote}

Time passed, abnormally low-interest rates had persisted after Greenspan's public mutterings. The weak point was the home mortgage, exactly where risky loans are artificially encouraged by implied congressional protection. Reluctant to see foreclosures, politicians stood ready to command mortgages to walk on water. Although it was pretty evident that lending standards were lax, the differing degrees of risk were not reflected in the "risk premium" or width of the "spreads." That is, bond investors remained mysteriously content to be paid interest rates scarcely greater for risky investments than for safe ones such as U.S. Treasury bonds. The markets viewed those two as essentially equivalent. Since these interest rates and the risk evaluation they reflect are set by supply and demand in the credit markets, the persisting anomaly of low rates had to be traceable to either excessive cheap money, or investor overconfidence. In retrospect, it was both. Foreign money flowed in from Far East prosperity and Persian Gulf oil profits. Whether it pushed in or was sucked in, remains a matter of opinion. Wall Street greeted this bonanza with "securitization" -- new lending mechanisms for home mortgages--and builders went into high gear building more houses, especially in California and Florida. They built too many because it's hard to walk away when business is brisk. Because of distorted tax structures, mortgages were the preferred means of borrowing for any private person. Eventually, the bubble burst; it remains to be seen whether we would now go on to some other bubble (commodities, for example) or sink into a protracted depression. If it's to be depression, a new uncertainty arises. When investors accepted low rates in the expectation that politicians would bail out bad mortgages, they surely predicted rightly. The real risk is, it won't do any good.

Alan Greenspan

As Greenspan was implying, prosperity usually puts upward pressure on interest rates but this time it remained a coiled spring; house prices made unprecedented rises for several years in a row but mortgages remained cheap. In mid-August 2007, bank turmoil in a couple of European banks suddenly prompted a rise in worldwide long term interest rates, more or less obscured by a lurching drop in the stock market. It seems likely this unexpected stock movement created misleading signals; in a day or two stock prices recovered. It was mortgage interest rates snapping back toward normal levels that truly mattered because that predicted excessive home prices would now surely decline; even worse, house plus mortgage might soon cost more than overstretched consumers could afford, provoking panic selling of houses. In any case, house prices could be expected to fall until it was no longer cheaper to rent than to buy, and it was then an open question of whether rents might also be chased down further. Patterns were hard to identify at first; different parts of the country overbuilt to different degrees. Even worse spirals could be imagined, too. If a house must be sold for less than the unpaid mortgage, a homeowner is tempted to surrender the mortgage and walk away, so foreclosures might be more common than economic conditions alone would warrant. If homebuilding stops because of a housing glut, immigrant laborers may -- or may not -- go back home, after first looking around to see if patches of the country are still building houses. A recession may spread, the national election in November may turn our unexpectedly; all sorts of things might -- or might not -- happen.

Banks had been the most strained by all the good fortune of cheap foreign credit because they make their profit on the "yield curve" -- the difference between what they pay for deposits and what they charge for loans. For over a year, the yield curve had been inverted, meaning banks were often close to paying depositors more than they got back from borrowers. Dropping interest rates paid to depositors would increase bank profits, but go too far with that and depositors will be chased away to money market funds, or treasury bills. The problems of banks became the problem of the Federal Reserve. The Fed controls short-term lending costs but generally lets the bond markets establish long term rates. With long rates abnormally low for a long time, banks were severely tested to make a profit, which for them essentially consists of paying depositors low short term rates, and lending debtors the money at high long term rates. A very narrow spread between short and long rates deprived banks of their means of support. This "flattening of the yield curve" became threatening to banks and also to the Federal Reserve, whose whole system of controlling the money supply was based on their control over banks. Subsequent to the crash, a number of commentators led by the Cato Institute have severely criticized the Federal Reserve for maintaining low short-term interest rates for too long, and others have even attributed a motive of supporting the Bush administration by inflating the currency. It is unnecessary to place this construction on the Fed's behavior. If the banks depend for survival on the difference between long and short rates, and if the Fed is powerless to raise long rates, there is nothing to do but lower short rates. This has the unintended effect of stimulating inflation, and Greenspan has later admitted he regrets it. But he seems willing to accept the implication that he was dabbling in politics, rather than admit to what is more likely to have been the cause of this behavior. The whole theory of how the Federal Reserve currently combats inflation is based on "inflation targeting", in which the central bank essentially ignores every other signal and responds to its measurements of inflation in the economy. These measurements were also distorted by the flood of Chinese money, so the very force which was causing inflation was also making it appear that inflation was not a big concern. Since the value of money in current times is almost entirely a decision of the central banks, it seems too central bankers that public trust in that process must be preserved at all costs. And, indeed, when the behavior of Congress is observed on C-span television there can be a reason to be quite sympathetic with the plight of our monetary policy leaders. There remains however little doubt that the formulas for detecting inflation require some modification for changing circumstances.

So to go back a few years to the time when the bubble in housing prices was getting started -- banks had resorted to some new and therefore risky procedures that seemed to side-step their difficult situation. With borrowers flocking in the door, banks were able to sell the loans of constantly rising size to the secondary market as fast as fresh borrowers came in. To understand this inflammatory issue, it is probably necessary to go back to the depression of the 1930s. At another time of confused floundering in the financial markets, public opinion centered on splitting up the functions of big banks for easier control by government regulators. Commercial banks, who obtain their lendable funds by accepting deposits, were forbidden to be incorporated with investment banks, who obtain their lendable funds by selling bonds. And incentives or regulations were modified to direct home mortgages to savings and loan banks. Forty years later, the Arab oil embargo precipitated a monetary situation where interest rates rose to nearly 20%. Savings and loan banks, holding enormous amounts of thirty-year mortgages at roughly 6%, had to close their doors because they could not remain, viable paying depositors, such rates. Thousands of savings and loans, holding nearly 50% of the home mortgages in America, went out of business. A vacuum was thus created, and some other mechanism for financing mortgages was extremely welcome. With almost inhuman ingenuity and innovation, Wall Street invented the CDO and marketed hundreds of billions of dollars worth.

It had elements of a Ponzi scheme but perhaps it was controllable. The banks who merely originated loans did create an undeniable moral hazard because they naturally took less precaution with loans they were immediately going to sell to someone else. No one, it is said, bothers to wash a rental car. Meanwhile, the strain of an inverted yield curve began to take its toll on the banks; after a year of it, their reserves started to get depleted.

Whether banks pushed or were pulled is debatable. Probably the bigger part of the growing problem was created by those ingenious investment banks on Wall Street, who were buying these increasingly risky mortgages and loans by the truckload. Bundling up thousands of mortgages into a new creature called collateralized debt obligations (CDO), they sold them to the public as "securitized debt". In effect, debt was partially converted to equity -- little bonds into big bonds, but the riskiest little bonds sifted out and converted into equity. It was a remarkably imaginative revolution in finance, but even if every step was absolutely perfect there could always be a danger that the generation of many $trillions worth of new paper would topple existing arrangements by simply going too fast for other systems to adjust. That's what happened, although there were inevitably also some design imperfections that got ignored for too long.

housing bubble burst

So the financial world started to crash in the middle of August 2007, while the rest of us were enjoying a summer vacation. The housing bubble burst; the party was suddenly over. The television was filled with scenes of traders jumping up and down, screaming orders to each other. Commentators commented excitedly every five minutes, and pundits screamed that the Federal Reserve must do something. All of this communications uproar conveyed the impression that a final explosion of some sort had taken place, and we could, therefore, expect a long period of post-bomb silence. But that really was not what seemed to happen. The stock markets dipped but recovered. House prices were down a little, in some places. Gas and oil prices remained too high and went a little higher. The Federal Reserve dropped short-term interest rates a few fractions of a percent, long term rates scarcely moved at all. In the background, America was fighting two overseas wars and a presidential primary campaign, but somehow they weren't part of the equation. Rather, it was explained that the consequences of August would be delayed, taking many months to unwind. A crash, in other words, in slow motion.

That might be so. It often takes months to buy and sell houses; their value may have declined, but a thing is worth what you can sell it for, so you can't be sure what they are worth until houses are actually sold. Essentially the same thing is true of stocks and bonds, and it's hard to know if securities are worth the amount of the comparable most recent sale. or if you should measure them against what you suppose will be the price when you sell later. Auditors and bank regulators are rigid about their answer: banks must "mark to market" if they intend to base future loans on the securities in their vaults. The rest of us would rather wait and see and must do so for tax purposes. You can scarcely blame bankers for hoping the turmoil creates a V-shaped dip that can safely be ignored. Even if it does not, a protracted economic pause can create time to patch things up, generate new sources of income to replace what is lost, if it is lost. Only the gold market seemed to disregard such assurances, gold was emphatically on the rise. After six months of relative calm, it was still possible to believe this was a passing flurry, or to believe we were floating downstream to a tumble over another waterfall. America in the 1930s and Japan in the 1990s had discovered that drift and uncertainty can sometimes last fifteen years. After a brief recital of the events leading up to August, we next embark on a more detailed (but simplified) discussion of what went on, eventually leading to conjectures about what comes next, particularly what the Federal Reserve can and should do about it.

Market Flooding

Spreads, as bankers say, widen and narrow. Last August, the risk-premium demanded risky lending was stubbornly lower than history suggested was normal. In fact, the prevailing interest rate for mortgages and other long term loans was lower than interest-bearing cash in the form of money market funds was paying, a rather uncommon situation called inverted yield, or an inverted yield curve if you draw a picture of it. Stubbornly low long-term interest rates became a particular concern for the Federal Reserve and the commercial banks it regulates because the spread between long rates and short ones was not only where banks made a profit but how the Fed regulates the money supply. Since now the only way to maintain a profitable differential was for the Federal Reserve to lower short-term rates, it forced the Fed to hurt retirees and be inflationary by flooding the market with cheap short-term reserves. To put it another way, a flood of Chinese or Arab money into long-term bonds could only be kept in balance by a matching American flood into short-term ones. Inflation was already beginning to worry the Fed, so this development was unwelcome. At the extreme, it might force a choice between promoting inflation -- and bankrupting the banks. Add to this the conjecture that old-fashioned banking was eventually destined to vanish anyway, into some bright new computerized efficiency devised by Wall Street wizards; and you have to wonder if the very worst consequence might be to prevent creative destruction from taking place. It's awesome how simple changes multiply into a turmoil you can hardly understand.

Quantitative traders

On August 17, that risk premium squeeze went away. Long term rates for risky bonds went up, but safe bonds like U.S. Treasuries stayed about the same. While it is always a relief to see things return to normal, the gruesome fact is that money, or at least value, had to be destroyed to accomplish it. The nature of the secondary bond market is that a rise in the interest rate causes a corresponding drop in the price of bonds, a loss which will only be restored by increased interest over a long subsequent period of years, possibly not until the bond reaches maturity. That means for a long time more money is lost on bond principal than is gained on bond interest. An incentive to sell everything else is thus created for the bondholder, creating a contagion of selling. To return to Mr. Greenspan's conundrum, a suppressed interest rate had been creating an illusion of wealth whose disappearance was now reluctantly acknowledged. Some bondholders tried to dump before the full effect was felt, others held back from selling but eventually had to liquidate something to raise working capital. Panic selling spread, and unanimous fear of the unexpected caused "congested" trading, all in a downward direction. The Federal Reserve first helped out by dropping the interbank discount rate (the rate one bank charges another when one of them finds it needs to borrow to keep its books in balance) the next morning, but that action carried further messages of panic. Quantitative traders ("Quants") who programmed their computers to sell on signals of trouble were misled by huge sell activity which actually avoided the long bonds at the root of the problem, primarily because no one would buy them. Astonishing quantities of sell orders of perfectly good securities were accordingly issued by the obedient computing machines. Nobody knew what was going on, but everyone suspected something had been funny about bond rates for two years. Those who did not sell were ready to sell, and would certainly not buy. All markets were congested; credit markets were soon frozen solid. Someone was going to go bankrupt, but there was no time to find out who it was. Without transparency, markets will not clear.

Credit derivatives

Clarifications eventually surfaced in jumbled sequence. The main difficulty was concentrated in those new mechanisms for financing home mortgages, "derivatives" for which unfamiliar abbreviations leaped into excited jargon. Subprime loans, better called unwise loans were sold to victims, or maybe abused by speculators. "Credit derivatives" based on mortgages and other assets were discussed knowingly by those who a year earlier had never heard of them. The huge size of these mysterious instruments merits emphasis. There had been $26 trillion worth of credit derivatives in existence six months earlier, some said it was now $42 trillion. (A year later it was to be $62 trillion.) Compared with that, the entire mortgage debt of the country was said to be only $9 trillion, and the entire U.S. equity market was something like $13 trillion. Even congressional investigating committees were afraid to say much about something that big, that new, and that obscure.

Most confusing of all was to compare the growing consensus about the underlying difficulty with the solution now demanded by Wall Street, and apparently accepted by the Federal Reserve, our President, and our Congress. We started out with a problem created by foreign money flooding into our mortgage market; that's more or less comprehensible. The Fed then lowered short-term interest rates, Congress produced fiscal stimulus; both of these things created cheaper money, more credit and a lower international value for the dollar. The centerpiece of the solution was to create still more cheap credit, both at the Federal Reserve and with a Congressional Stimulus Package, when the problem was we already had too much cheap money.

Please, sirs. Would you mind saying that again, slowly?

Comparatively Easy Financing for the Uninsured

Paul Krugman

Paul Krugman has been quoted as saying "Health Savings Accounts will increase the number of uninsured while benefitting only the wealthiest taxpayers." In fact, financing healthcare for the uninsured is pretty simple, if it would use Health Savings Accounts for pre-funded insurance. To do the very simple math (mind the zeroes, please), giving or loaning $5000 to 30 million uninsureds would cost a total of $150 billion dollars, or fifty billion a year for three years. By contrast, the annual deficit of Medicare alone is $250 billion. We'll get to the quibbles in a minute or two, but because most people aren't accustomed to dealing in numbers so large, let me introduce the jab that financing permanent health insurance for the uninsured would be quite a relief, compared with the unsustainable costs looming for the Affordable Care Act. The Federal Reserve currently spends $80 billion, every month, purchasing treasury bonds which perhaps few private investors should buy. The HSA subsidy cost would not be entitled to tax exemption, so it would actually be somewhat cheaper than $150 billion after-tax. This isn't a monthly cost we are describing or an annual one, it's a one-time expense, spread over three years.

To repeat the refrain, this one-time expense if invested would comfortably fund the average lifetime health costs of the uninsured population, except for one thing. The clients would have to buy a high-deductible health insurance policy (but only during the years the account is building itself up after being used), paying benefits in audited costs, not posted charges. People eligible for a subsidy would probably invade the fund for small expenses more than tax-sensitive people do so the statistics on existing use may be skewed. There would be startup administrative costs. State laws mandating small-cost items would have to be re-examined. Before all this cost shifting became popular with hospitals, the AMA offered its members a $25,000 deductible for $100 annual premium.

Yes, there would be an annual in-flow of new uninsured being born or imported, and so there would likely be a mechanism for recapturing the loan from those who move out of the subsidy category, structured so as not to act as an incentive to remain uninsured. No one can possibly predict future cures for disease or their cost/benefit, but that is true of any system. We hope the cures will increase and their costs will go down, but we certainly can't promise it. We can safely predict that reducing the cost of the uninsured would reduce everybody's liability for them, including the wealthiest. But also including minimum-wage earners, for whom a proportional reduction would be much more beneficial and welcome. And -- the 30 million recipients of this subsidy would undeniably be better off. It would, however, be entirely sensible to use part of any savings to reduce the national debt from earlier borrowings.

It would, however, be entirely sensible to use part of any savings to reduce the national debt from earlier borrowings. Furthermore, newspapers relate we have 7 million people in jail, and we steadily produce replacements when they are released. There is a constant inflow of new citizens mentally retarded enough they will never be self-supporting. The local school district where I live spends 8% of its budget on what it calls "special services for the mentally handicapped". The uninsured will always be with us. The American public is spending, and will always be spending, a great deal more on charitable healthcare than it gets credit for. We probably should be spending even more on these problems, but universal health insurance isn't going to do the job.

Without much doubt or dispute, the most serious problems with implementing this funding innovation would come from unanticipated effects, about which its opponents would be happy to expatiate without help from its proponents. In general, unanticipated effects begin to appear slowly, and if we remain alert, they may be minimized. But what about the unanticipated beneficial effects? If we really succeeded in wiping out the main causes of health cost, what then? Since an awful lot of people are employed within 17% of gross domestic product now spent, what in the world do we do with them if the expenditure is seriously reduced? Come to think about it, you really have me, there.

Barnes Foundation -- Drawing a New Moral

Andrew Stewart

Andrew Stewart, the Public Relations Director of the Barnes Foundation, and for thirteen years a member of its Board of Directors, recently addressed the Right Angle Club. He gave a new slant to the quarrelsome saga of Dr. Barnes' will, offering the point of view in favor of moving the paintings to the Parkway. It's useful to hear the legal and historical background because about all we hear are criticisms, balanced by joy at having the famous paintings where we can see them.

Essentially, the will declared a wish for the School and Museum to follow the original indenture. After the passage of time, the old board members died off, and the new board members found the Indenture to be out of date, like specifying the purchase of railroad bonds. Delivered in a charming Scottish brogue, the argument was fairly convincing. But it stimulated in me an entirely different moral from the eternal dispute between the right of a man to have respect paid to his expressed wishes for his own property, versus the self-defeating quality of the same restrictions with the passage of time.

Barnes Foundation

Barnes was born in Kensington, and had a hard life as the son of a Civil War veteran who lost an arm in the war, and had a dismal time making a living as a butcher. Barnes was his fighting-spirit son, who worked his way through medical school. It was Jefferson Medical College, where I was on the faculty for decades. While it is true his patent medicine gave a permanently sickening color to the children who were treated for sinusitis, it is also true that in the form of eyedrops it prevented the transmission of syphilis to millions of newborn children. In that view, it was a real scientific contribution, although the medical profession continues to take a dim view of doctors advertising their wares. Although he was himself a failed artist, Barnes was a highly successful collector of (then) modern art and started a school with John Dewey to teach art appreciation to poor people. One by one, the local universities snubbed his wishes for an art appreciation school, and the local Philadelphia museums were pretty sniffy about his favorite artists.

In fairness to them, Barnes was probably pretty pushy in his demands. Unfavorable local reception to an exhibition which had received rave applause in Paris, convinced Barnes he was right and they were wrong. After this, Barnes developed a lasting hatred of Philadelphia and all its stuffy ways; he definitely didn't want his own impressionist art to be in Philadelphia, which would never appreciate it. While Philadelphia finally woke up to the value of Impressionist painting, Barnes never relented while he was alive. I hope I give a fair portrayal of the argument except for the politics and the legalities, that I know very little about.

But hearing the arguments, I see an entirely different moral to the saga. Ever since the inflation of the 1930s, fine art has appreciated in value, faster than the endowments to maintain the art. (That's probably a useful tip to investors, too.) It's fairly standard for a wealthy person to donate his art collection, plus a sum of money to endow the maintenance of the art. Most of the time, the size of the endowment is carefully calculated to grow at least as fast as the value of the paintings, because you have to ensure them, and pay for increased security, and increasing attendance. With the new trend toward inflation of at least 2% a year, the old premises don't work anymore, and the endowment eventually runs out. At that point, it runs into restrictions which -- to be perfectly blunt -- were created to prevent the trustees from pilfering the museum. A museum may not sell its art to pay for administrative expenses.

Consequently, The Barnes ran into a situation where it had billions of dollars worth of paintings in the basement, which it could not sell, and could not even hang in the museum because of Barnes' specifications for what went on the walls. This situation isn't going to change, because a dollar in 1913, when the Federal Reserve was created, is now scarcely worth more than a penny. And the present Fed is committed to 2% inflation, forever.

So, how about this: let the lawyers who write wills, and the Orphan's Court which administers them, insist that the art collection be divided into two parts. One would be the permanent collection, just as at present, and the other would be eligible for sale in the judgment of the Orphan's Court.

Philadelphia Reflections

The musings of a physician who served the community for over six decades

Obituary

George R. Fisher, III, M.D.

Social Disintermediation

Sovereign Wealth Funds

Banking

Comparatively Easy Financing for the Uninsured

Barnes Foundation -- Drawing a New Moral