Philadelphia Reflections

The Cost of Meeting Unmet Medical Needs

For fifteen years before Medicare, I practiced medicine in Philadelphia. At that time, the backlog of unmet medical care seemed infinite, impossible to satisfy. For one thing, we didn't have enough hospitals to fix all the hernias, gallstone, rotten teeth, festering bad leg veins, positive blood tests for syphilis, and a dozen other matters. But we set about it, doubling the number of medical students in each school's class, and doubling the number of schools. We built or renovated and re-equipped 124 hospitals in Philadelphia alone, as I remember.

Well, we were successful. It is no longer true that everybody's teeth are rotten, or that one Wasserman test in six is positive. Instead of throwing up our hands at infinity of unmet elective surgical cases, we now hear suspicions that perhaps cataracts are being "harvested", cardiac pacemakers becoming universal apparel, tummies being tucked. But professional jealousies to one side, an undeniable statistic emerges. We only have thirty hospitals.

Backlogs are like waterfalls. The level seems limitless until it suddenly disappears from sight. We spent far too much money on new hospital capital construction, and that spending spree has to account for a major portion of the cost of medical care that now doesn't seem to be producing anything worthwhile. These are the training costs of what can now be seen as temporary construction.

These thoughts came to me when a visitor to the Federal Reserve from Kazakhstan talked recently about medical care in that vast wasteland. At a time when petroleum supplies are short, Kazakhstan has discovered it has possession of the largest new oil field in the world. The social scene is like Texas in the Twenties, or perhaps the Yukon fifty years earlier. Whereas today it is questionable whether to spend the money to perform a Wasserman in America, positive tests are widely abundant in Kazakhstan. I daresay the hernias, varicose veins, bad teeth, and whatnot are just as bad there as they were in America in 1960. And they are gunning up their engines to build lots of the biggest most expensive hospitals anywhere because they can afford them.

Prediction: in 2050 nobody will be able to explain why medical costs are so high in Kazakhstan. After all, at that time there will be no positive Wasserman, no hernias, no gallstones.

Securitization

Michael Millken

It is not fanciful to link the credit crunch of 2007 with the savings and loan problems two decades earlier. Both bubbles were related to home mortgage financing, and the first bubble turned destructive by seeking money to keep itself going. If dammed-up surpluses of the Middle East and China could be made available to American mortgage lenders, there seemed to be ample demand for them. Furthermore, while Michael Millken is mostly known for his prison sentence, he had nevertheless made an important observation. Risky mortgages were generally overpriced. That is, the aggregate extra cost of subprime defaults was appreciably less than the aggregate extra interest being charged for them. If some way could be found to make the risk premium more appropriate to the actual risk, home mortgages would get permanently cheaper, and mortgaging profits would likely be gratifying. Mortgages needed a better system for establishing appropriate interest rates, and they needed more of that underemployed wealth of the Orient. Derivatives suggested themselves as a solution for both issues.

Chairman Alan Greenspan

The unaccustomed wealth of Asia and the Persian Gulf was put under heavy pressure to migrate to America by lack of local investment opportunities but was bottled up by rudimentary banking systems in the developing world. As ways were found to get around obstacles for exporting this money, the danger increased of "asset bubbles" inflating whatever they touched, for example, the dot.com stocks in 2001. The pressure indeed needed to be deflated, but carefully. Furthermore, certain accords reached in Basle around 1982 made it even easier for banks to issue loans, while the favored tax treatment of interest from residential real estate loans directed lending to home mortgages. Indeed, the calculated cost comparison between buying a home or renting it had once remained identical for fifty years but began to diverge in 1982. By 2007, it was significantly more expensive to buy than to rent, even though many analyses suggested a housing surplus existed, particularly in California and the Southwest. While the interest-rate premise was correct, the earlier campaign against "redlining" probably did encourage loans to people who could not afford the house, and there was momentum to this idea. But the most obvious stimulus to continued high-priced home purchasing, in the face of a growing over-supply, was the momentum of abundant cheap money. To mop up a growing housing surplus, initially low "teaser" interest rates were offered for ARMs, or adjustable rate mortgages which could abruptly adjust upward after a few years. A growing problem was being set up to go over a cliff. Chairman Alan Greenspan fretted at his seat on the Federal Reserve Board that it was difficult -- a conundrum -- why market interest rates for long term borrowing did not rise enough to put a stop to this. In retrospect, it seems likely the risk premium had long been too high and was now reaching for more appropriate levels. Derivatives were the main instrument for bringing rates down, and they did it with breathtaking speed, perhaps overshooting in the process. As is often the case with innovation, the risk of failure was overemphasized, while the dangers of success received little attention.

Credit derivatives can also be viewed as a form of insurance, protecting the lender if the borrower defaults. That doesn't sound like a bad thing. True, all insurance creates a "moral hazard" that encourages risky behavior by reducing its pain. No one, it is said, washes a rental car. But in a housing surplus, the insurance protection allows banks to take more chances in marginal situations, using up the surplus. Young folk is allowed to get started in life; the poor are allowed to enjoy the American dream. Unfortunately, some will abuse the privilege by buying speculative houses in a rising market, and "flip" them. Many will buy bigger houses than their income can support. Some, who should more wisely rent because their employment prospects are not secure, will be tempted to buy. All of these considerations are wrapped up in the interest rate the lender charges, so eventually, interest rates will rise to a level that anticipates -- discounts -- them. Interest rates did not rise. The old levels of risk "premium" did not reappear.

It seems now that increased demand stimulated by derivatives was not resisted by a shrinking supply of money, with a balance maintained by the adjustment in interest prices. Indeed, a good even brilliant idea was crippled by a series of responses to the puzzling environment. Banks learned to sell pretty much any mortgage as quickly as it was created; after that, the extra risks were none of their concern. It has been suggested that banks be required to retain a portion of any loan they originate but to do so would exhaust the bank's lending capacity during a bonanza of business. Standards for a bank's lending capacity are set by the Federal Reserve, as a multiple of their retained profits or reserves. Those capacity limits had been relaxed by the Basle accords, but only on condition, the banks restricted themselves to AAA-rated loans. This will turn out to be a critical point because it put unwarranted reliance on the opinion of the rating agencies, and in any event, led to "tranches".

Federal Reserve Building

Here's how things roughly went. Investment banks learned to buy up and combine great bunches of these mortgages into a bundle. The bundle was then sliced into tranches of lesser bundles, attempting to sort out the bundles by their credit rating. Elegant mathematical formulas were brought forward which did a fairly good job of sifting the potentially weak loans away from another bundle that was largely risk-free. Those better sub-bundles, thought to warrant a AAA rating, were then sold to institutions who were restricted to them by the Basle accords but paid a lower interest return than the mortgage pool they came from. That was already an uncomfortably low rate by historical standards, now made lower. However, in view of its superior quality with default risk removed, it could be bought with borrowed money, eventually creating an adequate but leveraged return after costs. The debt was thus piled on debt, and the process repeated with exaggeration on the next lower quality tranche, the AA paper. And so on down to the lowest grade, which was thought to contain all or almost all of the default risk in the whole mortgage pool. People who bought the lowest tranche were real risk takers, experts who knew what they were doing, receiving a premium interest return to do it. Because this process was thought to create a sophisticated assessment of the true risk in the bundle, it was thought it would justify lower rates for everybody, squeezing out the unnecessary cushion of comfort. It was a plausible idea, and if it worked, it would be a brilliant one. But it had a big unrecognized flaw. It assumed that essentially all of the defaults would occur at the bottom of the pile, or possibly at the next higher level. There would be no defaults in the AAA level until all of the lower tranches had been wiped out -- an almost inconceivable economic calamity.

Ingenuity was then carried to yet another level. Credit derivatives are a form of insurance against default, but there was a more traditional form already in existence. Several so-called monoline companies offer insurance against default, backed by the enormous strength of pooled resources of a number of the largest strongest financial institutions in the world. The rating agencies assess their strength as AAA, the highest quality. Now, it was reasoned, if a tranche of mortgages rated AA by the agencies were insured by an insurance company, itself rated AAA, then the effective risk to the investor was really only AAA, or negligible. Alchemy. The lead was turned into gold. Unfortunately, when the panic finally hit, monoline insurance stock which was considered rock-solid at $80 a share, was soon selling for $15. The flaw in all this was that the rating of the bond was based on the credit rating of the borrowers. No one had supposed that people who were quite able to pay their debts would walk away from them. When home prices fell only ten or so percent, many of them fell below the cost of the borrowed-up mortgage. Instead of feeling horror at defiling their credit reputation, many of these prosperous borrowers regarded foreclosure as simply a business decision. The protection of monoline default insurance was trivialized when one of the smartest investors in the world, Warren Buffett, announced he proposed to form a company to ensure municipal bonds, and only municipal bonds, against default. Since that might strip away what had become the only profitable portion of the monoline portfolio, the prospect of such crippled companies paying housing claims would be bleak. Pseudo AAA tranches were now clearly back to being AA, and even real AAA tranches were under a cloud. All of this was not anticipated.

There remain two other questionable developments in this colorful adventure: the role of the rating agencies, and off-the-books behavior by the regulated mortgage originators.

Epilogue: Where Does All This Money Come From?

Although this book promised, and I hope delivered, a detailed discussion of how Health Savings Accounts might work if Congress unleashed them, the original question remains. Where does so much money come from? Well, in one sense, it comes from saving $350 per year, starting at age 25 and ending at 65, earning 8% compound interest. That's if longevity remains at 83. We assume the average person has medical expenses, but we don't know how to estimate them, so we put $350 a year in escrow, and average person has to contibute more cash for medical expenses at 80 cents on the dollar (the tax exemption) until experience shows he has five or ten years pre-paid, or until he reaches an estimated cash limit. Somewhere around that point, he can stop contributing, both to the escrow fund and to incidental medical costs, until the fund catches up with him. In plain language, he gives himself a loan if his expenses are too high. These figures are based on current average costs, so the money is calculated to be present in the fund but poorly distributed. After experience accumulates, these numbers can be readjusted from present over-estimates..

The prudent way to manage future uncertainties is to over-fund them and transfer any surplus to a retirement fund.

Planning For The Future.

Curiously, if longevity goes to 93, it would seemingly only require $150 per year in escrow instead of $350. Longevity could only add ten years if we had some medical discoveries in the meantime, so let's say both the added longevity and the added cost of it, appear fifty years from now. Our hypothetical average person born today contributes $150 per year from age 25 to age 50, when he discovers increased longevity requires him to contribute $ yearly until he is 65. After that, he is all paid up until he dies at age 93. Yes, he has Medicare to account for, but his payroll withholding has already paid a quarter of Medicare cost, and if he pays Medicare premiums he will have paid another quarter of Medicare. His lifetime Health Savings Account escrow contribution would contribute $ per year, which is the present deficit of Medicare, currently being subsidized.

The amount of contribution to the escrow fund could be reduced to actual costs over time, but the prudent way to manage uncertainties is to over-fund them, planning to roll any surplus over to a retirement account. Three-hundred-fifty million Americans, times $350,000 apiece in lifetime medical costs, results in a number so large it requires a dictionary to pronounce it correctly. Cutting it in half still suggests a financial dislocation of major proportions, so out of whose pocket would it come? Even if it's a win-win game, dumping that much money into the economy sounds destabilizing. These are not legitimate reasons to avoid it, but it seems hardly credible it could happen without someone noticing a big difference. What does it do to the monetary system?

If it is assumed funds generated by this system are ultimately used to pay off accumulated debts, the result should be some degree of deflation. The Federal Reserve has already purchased several trillion dollars worth of bad debt so debt repayment would not seem to pose a threat. By contrast, inflation could become a threat if corporate taxes are reduced too rapidly, but presumably, we have learned the lesson of lowering Irish corporate taxes too rapidly. Because of international ramifications, we have to assume this threat would be recognized. Because of the nature of compound interest, it has the least effect in its early stages, and there would be sufficient warning of inflation to mobilize action. Interest rates would probably rise, but there is a cushion of several years of subnormal rates, and most people would feel the elderly have suffered enough from low rates to justify some relief.

A certain amount of trouble resulted from using the "pay as you go" model, in which current premiums pay for current expenses. That is, the money from young healthy subscribers pays the bills of old, unhealthy, ones. By that reasoning, the original subscribers in 1965 got a free ride from Medicare and never paid for it. The debt has been carried forward among later subscribers, and although it is a debt which still remains to be paid, it seems very likely no one would ever collect it. Each generation makes it a little bigger by adding subscribers and running up hidden debt charges, but at least it is accounted for. In a way, there is enough guilt feeling about this matter, that it would probably be politically safe to create a balancing fund, to be used in case there are monetary issues with this unpaid indebtedness.

Let's remember that a major part of the health financing problem can be traced to the unequal taxation exemption of big business, which traces back more than seventy years to World War II. No one welcomes reducing net income in half by any means, but reducing corporate income taxes might just be one of the few ways it could be an inducement. No taxes, no tax exemption; it sounds pretty simple until you review the trouble the Irish Republic got into when it reduced them too fast. But when corporate taxes are the highest in the world, and international trade is threatened -- is certainly the best time to do it. And politically, when wealth redistribution has just been given a thorough pounding in the polls, is also a good time to advance the idea. If everyone would be reasonable about the details, an important tool for managing international trade could be fashioned out of needed healthcare reform. It certainly is a double opportunity.

A fiduciary puts his customer's interest ahead of his own.

The End of The World?

One way or another, the success of Health Savings Accounts will depend on crossing the tipping point, where investment income is greater than borrowing cost. These accounts will be forced to do a great deal of internal borrowing, particularly at first, when some financial information does not exist, and therefore must be deliberately over-funded. We have a reasonably workable idea of total health care costs and longevity, but an uncertain grasp of the shape of the revenue and cost curves in the middle. Inevitably, certain age groups will be in chronic debt, and others will run protracted surplus; the situation demands low-cost internal borrowing. Meanwhile, the overall prediction can be made that healthcare costs will generally be lower for young people, higher for the elderly. If the premiums of young people can be invested at least 8% net, the system should work. When we learn common stocks are averaging 11% returns, and investment intermediaries frequently capture 85% of it, the whole idea of passive investing is ruined until this is repaired. Requiring Health Savings Account agents to be, and to act like, fiduciaries is just about mandatory. A fiduciary puts his customer's interest ahead of his own. The day of opaque pricing must come to an end.

We mentioned earlier, Roger G. Ibbotson, Professor of Finance at Yale School of Management has published a book with Rex A. Sinquefield called Stocks, Bonds, Bills and Inflation. It's a book of data, displaying the return of each major investment class since 1926, the first year enough data was available. A diversified portfolio of small stocks would have returned 12.5% from 1926, about ninety years. A portfolio of large American companies would have returned 10.2% through a period including two major stock market crashes, a dozen small crashes, one or two World Wars hot and cold, and half a dozen smaller wars involving the USA. And almost even including nuclear war, except it wasn't dropped on us. The total combined American stock market experience, large, medium and small, is not displayed by Ibbotson but can be estimated as roughly yielding about 11% total return. Past experience is not a guarantee of future performance, but it's the best predictor anyone can use.

During that most recent prior century, we had a lot of crisis events, which normally bump the stock market up and down. A standard deviation is an amount it jumps around, and one standard deviation plus or minus includes by definition two-thirds of all variation. During the past ninety years, the standard deviation has been 3 percent per month or 11% per year. Standard deviations for the whole century are not meaningful because of more or less constant inflation. Throughout this book, we repeatedly describe investment income as 10%, for a simple reason: money compounded at 10% will double every seven years. Using that quick formula, it is possible to satisfy yourself what 11% can do if you hold it long enough. Since no one knows what will happen in the next 100 years, it is futile to be more precise. We may have an atomic war, or we may discover a cheap cure for cancer. But 10% is about what you can reasonably expect, doubling in seven years if you can restrain yourself from selling it during short periods when it can deviate less or more. The most uncertain time is immediately after you buy it before it has time to accumulate a "cushion". As we see, your money earns 11%, but it isn't necessarily what you will earn.

Your money earns 11%, but that isn't necessarily what you will earn.

Expecting it and getting it, can be two different things, therefore. And even if Congress establishes it, as they say in Texas, "You can't turn your head to spit." Because, for one thing, most expenses for a management company also come in its first few years, on their first few dollars of revenue. Wide experience with a cagey public, therefore, teachers experienced managers to get their costs back as soon as they can. Until most managers get to know their customers, in this trade, charging investment managing fees which amount to 0.4% annually is considered normal for funds of $10 million, so charging 1-2% for accounts under a thousand dollars is common practice. These things make it understandable that brokers are slow to lower their fees, or 12(1)bs, or $250 charges to distribute some of your proceeds. But our goal as customers is to negotiate fees reasonably approaching those of Vanguard or Fidelity, which have fees of about 0.07% on funds amounting to trillions of dollars. Such magic can only be worked by purchasing index funds from a broker who aggregates them, and also develops a smooth-running standardized service with minimal marketing costs to cover the debit card, help desk, hospital negotiating, and banking costs. And who, by the way, may make really serious income from managing pension funds, so they remain wary of antagonizing corporate customers who get a big tax deduction from giving employees their subsidized health insurance. Remember, stockbrokers are not fiduciaries; they are not expected to put the customer's interest ahead of their own. A broker sells stock to anyone who wants to buy it, even if two successive customers are bitter rivals of each other. One of the better-known brokerage houses advertises charges of $18 a year for HSA accounts over $10,000, but only after it reaches that size will it permit the customer to choose a famous low-fee index fund. With $3300 annual deposit limits, it eats up three years of your earnings even to get there. You really have to feel sorry for an industry experiencing such a general decline of net worth, but the incentive it creates is obviously for you to get the account to be over $10,000, as fast as you possibly can. To many people, those sound like staggeringly large amounts, but they are realistic at this stage of the market, if not entirely accessible to everyone.

The last few paragraphs sound like a digression, but they aren't. The question was, Where does all this money come from? Would there be wealth creation if the system favored the retail customer more, or wouldn't there be. I don't know the answer, but one likely approach is, let's try it.

Negative Interest Rates?

Switzerland recently started charging its customers interest on their deposits, and it's the only instance of doing this I feel I understand. The Swiss are after all surrounded by countries which might devalue their currency, and in the past have sometimes even expropriated the funds. So, many of these potential victims are tempted to deposit money abroad to keep their own governments from grabbing it, to the point where the ability of Swiss banks to make loans is swamped with too much money. They can't use more money, thank you, and will charge you for the security of hiding money in safety. After all, every bank charges customers for using its deposit boxes purely for safe-keeping.

And the Swedes and Germans are almost in the same position. Having been victims of their own governments once, they want to retain strong currencies, no matter what, and it has proved to be a good stance to take. They have seen too many spendthrift aristocrats get out of a Rolls Royce in order to file bankruptcy proceedings. Money floods in to take advantage of safety, and the Germanic governments can thus pay lower rates to borrow for themselves,(just as long as they don't borrow too much.) Some may remember the episode when John McCain was running for President and rushed home to assure the party bigwigs he had no plans to borrow big amounts. The whole situation reduces itself to governments having a lot of unused credit if they don't borrow, and having high-interest costs if they do. That's also why there was such an uproar when Bush 41 raised taxes in spite of his promises--he was apparently going to weaken the currency, that way. Technically, it reduces itself to finding the "sweet spot" for interest rates, which will vary depending on what your neighbors do. That's how Germanic people see things.

Southern Europe, and for that matter the rest of the world, sees a different reality. To them, you must "spend money to make money", and if your thrifty neighbors will loan it to you, it benefits both, (if the interest rate is right.) You can buy infrastructure, foreign manufacture, and prosperity. With a little luck and acumen, your trade, industry, and standard of living will prosper. Unfortunately, this ultimately leads to overcapacity, which undermines prices and prosperity, raises interest rates, and leads to a crash. At that point, it is thrifty Germanic types who get to buy things cheaply with their strong currency. Back and forth; this is the business cycle, and it has happened many times. The duration of the recession between cycles will depend on the amount of overcapacity which has developed. The duration of a recession might, therefore, be shortened by printing money to assist consumption, but diluting your store of credit is not the same as increasing it. Increasing your credit by increasing your wealth is quite different, but borrowing conceals whether you are truly wealthy or not. A history of repaying your debts is what banks depend on, not the size of your car or apartment.

There can be less obvious, even obscure, causes of negative interest rates. It is supposed the promised ending of low-interest rates by the Federal Reserve will make banks hesitate to loan money, sensing an opportunity to charge higher rates later. Adherents of this theory are urging that rates be raised as soon as possible.

Others blame the Obama administration, who obviously enjoy borrowing large sums at low rates. The Fed is supposedly independent of such pressures, but the incentive is undeniable.

Still, others feel it is unnecessary to look at specific levels. If inflation is approaching, the prospect of higher future rates has the same dampening effect on present loaning incentives, and ultimately the same effect on collapsing the stimulus.

And others (primarily borrowers) seek joy in lower rates at all times, the lower the better. It represents a chilling prospect to lenders, for anyone to talk about negative eight percent, or even ten. But it suggests faster transaction speeds and electronic gadgets to replace paper money. Part of the cause of the collapse of Lehman Brothers was the increased float in world currency occasioned by globalization, breaking single big transactions into many smaller ones. The current estimate is there is American currency in circulation in the world, amounting to $4000 per living American. And how much of that is created by illicit drug trading and other crimes, is anyone's guess. The underworld isn't interested in gadgets which record transactions, such as several variants of bitcoin do.

All in all, it will be intensely interesting to see what happens to negative interest rates, once the Fed does start to raise them. If they are only a passing fad, it doesn't matter.

Nicholson: Lunch with an Old Man

FAMILY

The Union League of Philadelphia is much bigger than it looks to be on the outside. Diffidence is a characteristic of our city, which has been called a city of secret societies. The club appears to passers-by to be a funny little brownstone house facing out on the main street in town, but in fact, the main building is a full block long. Down the interior of that long building runs peacock alley, a sumptuous wide carpeted corridor. Deep leather chairs line the sides of the alley; members can sit and read a paper while watching the passing parade, occasionally hailing a crony, or taking a nap. Some cartoonist for the New Yorker must have seen the bay window at the Metropolitan Club in New Yorker, and that bay window symbolizes downtown clubs to most non-members. The Union League has portly old gentlemen in leather chairs, all right, but the passing scene they watch is all interior. There are many sights to see while strolling the length of the private street. Six dining rooms, for a beginning, kept private from the corridor by huge plate glass partitions which allow diners to talk privately yet remain able to see and be seen. If you are friends with a number of other members, the arrangements are perfect. If you don't know anyone else, it is just an elegant place to be lonesome.

Two rather plump old gentlemen with canes came strolling along while I was having lunch with Joe, just inside the glass partition. A medical eye could see that both old fellows were walking with poor balance, and general lack of coordinated movements from the waist down, even though their automatic muscle coordinated movements from the waist down, even though their automatic muscle coordination above the waist was normal. Undoubtedly due to the destruction of the nerves to the legs from degeneration of the spine, though I, and likely associated with embarrassing disorders of the sphincters. The matter was an interest of mine since I had been proposing surgical approaches to this increasingly common curse of old age. To my surprise, one of the old gents came through the door and up to our table.

"Is this Joe Nicholson? And how are my old friends, if you are still my friend? I'm Woody Woodring." Joe sprang to his feet and shook hands. "Why, Woody, how nice of you to stop and speak. I'm just fine, thanks, and I'm not that old, either.",

"Well," said Woody, "I'm ninety-seven, so you must be ninety-six. Stop trying to pull the wool over everybody's eyes, Joe. Be good, and stay away from that ticker tape. It's dangerous for your health."

As toddled off, Joe explained to me that the man had once been the executive vice president of the Land Title Bank. Yo had to be fairly mature to know what that meant because the Land Title merged with the Corn Exchange Bank some forty years ago, and after that was merged into the Provident Bank, which had itself been acquired by some bank in Pittsburgh a year or two ago.

Joe then settled down to his fourth corn muffin, one of the traditional features of the League. I occasionally eat one for tradition's sake, but Joe was absolutely a cornmeal muffin junkie. Before we were interrupted he had been telling me of an oak tree on his property at home which had been struck by lightning. It was the largest tree in New Jersey, or at least appeared to be larger than the Salem Oak which the Sunday supplements say is the oldest tree in the state. The Nicholson tree had been found to have 350 rings, and therefore has been on the property almost as long as the family had lived there. The Salem oak itself was also on what had once been Nicholson family property, but now, of course, belongs to the Quaker Meeting in the town of Salem. The Nicholson family had arrived in 1670, but Joe's father had married a Thompson. Since the Thompsons had arrived in America five years earlier, Mother would often refer to the FAther's family as "immigrants". Quaker doesn't laugh much, but they chuckle a lot.

It was obviously symbolic of his whole life that his couple of acres in suburban Haddonfield were legally provable virgin timberland, completely surrounded by urban sprawl for miles in every direction, totally unrecognized for what they were. I understand it was a nuisance that the high school kids would gather in these woods, especially at night, and drink beer and smoke whatever kids are smoking. If you knew what you were looking at in that little forest, you could see that Joe had planted dozens of strange varieties of firs, ferns, bulbs, vines, and bushes. Most of them had been begged from John Bartram's garden, or what he called DuPont's arboretum, at Longwood. But many of them he had imported from abroad when he was a traveling youth, long before the Customs Service started banning the importation of living plants. He had quite a grove of Passion flowers, a flowering tropical vine. Joe had discovered the vine rooted so deeply it could survive Northern winters, emerging from the bare ground around "Decoration" Day. A walk around his premises might typically produce a commentary that a certain unusual plant had been transplanted from the ruins of ancient Troy, but only if the visitor had the perceptiveness to notice the plant looked odd. As can be guessed, the interior of the house looks like a junk shop until each priceless antiquity is explained. The house is new since Quaker believe "worship of buildings" is idolatry, and anyway his wife Bettina is nearly blind needing special arrangements not available in colonial houses.

One of Joe's ancestors had been Lord Mayor of London, and an earlier one had signed the Magna Charta. I knew these things because his brother, an orthopedic surgeon, has been less reticent. His brother was also notorious for the high fees he charged and grimly expected to be paid promptly. The other side of the orthopedist showed up in his charity work; when I was intern I could see free care took up at least half of his time.

Until rather recently, Quakers were discouraged from marrying out of a meeting, and by that was meant the local congregation. That edict could lead to a lot of family inbreeding in a farm community, but there is little evidence of genetic disorders among them as are quite commonly found among the Old Order Amish. I suppose it is possible the genetic burden has been bred out of them in some way; in any event, birthright Quakers tend to look much alike and are quite handsome. They can, on occasion, summon up quite a formidable network of influential family members.

Quaker influence is also spread through the private schools they run, most of which were founded before there was a public school system. Like all private schools, they have to produce superior education to survive, and they have to appeal to prosperous families. Farm families who want superior education tended to send their children away to boarding school, but now that this motivation has largely disappeared, they must provide a superior educational product or dissolve. It was with some surprise therefore that I learned that Joe and his children had gone to Camden public school, about which in retrospect he is disdainful. The kids got into Vassar and Harvard, but it's hard to know why, and they had a terrible struggle as a freshman. As a boy, Joe tried to get into the premier Quaker boarding school at Westtown but was rejected. Mother was Hicksite and Father was Orthodox, and Westtown only took you if you were Orthodox. Mixed marriages, you see, breed spiritual confusion in children.

When Joe had finished the last corn muffin the waitress was willing to bring him, I had to get back to the office and he wanted to get to the library at the Federal Reserve Bank. We walked down the red carpet alley and paused to look at the ticker tape. The stock market had fallen 508 points two weeks earlier, so you didn't have to be T. Boone Pickens to have a concern. Well, only down two points, so off to the office and library.