1. South Florida hospitals show signs of distress
The past year has been brutal for South Florida hospitals -- and this year is likely to be worse. The Baptist Health system, which has been immensely prosperous in the past, suffered a $71.7 million loss in its 2008 fiscal year. Miami Children's lost $72 million. Holy Cross lost $25 million, and Mercy $34.8 million. All four of these suffered serious losses in their investment portfolios, but others, particularly Jackson and Homestead, are beginning to feel the effects of the recession as their number of uninsured patients grows. ''It's going to be a particularly tough year, more so for the public-financed facilities,'' said Linda Quick, president of the South Florida Hospital and Healthcare Association. Both Broward public hospital districts and, to a lesser extent, Miami-Dade's Jackson Health System depend on property taxes, which are declining as housing prices fall. Rising unemployment has worsened the situation. Quick said a recent survey showed that every 1 percent increase nationally in unemployment leads to 100,000 newly Medicaid-eligible patients -- a prospect that sends shivers down the backs of hospital executives because Medicaid reimbursement rates are often below their costs. Still, many executives have been surprised that the recession hasn't brought more uninsured patients to their emergency rooms.
2. The descent of finance
If the ascent of modern finance began in the 1980s, with “liar’s poker” on Wall Street and the City of London’s Big Bang, it ended on September 15, 2008—the day Lehman Brothers Holdings went bankrupt. Seven years on, 9/15 supplanted 9/11 as the costliest day in Wall Street’s history. Lehman Brothers’ demise was one of seven events that, in the space of just 19 days, signaled the end of an epoch. The first, on September 7, was the nationalization of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). On September 14 Bank of America announced that it would buy Merrill Lynch. On September 16 a money market fund, Reserve Primary, broke the buck—that is, its net asset value dropped below $1 per share—because of losses on the unsecured commercial paper it had bought from Lehman. That same day the Federal Reserve agreed to give AIG $85 billion to avoid a lethal chain reaction if the insurance giant couldn’t meet its obligations on the credit default swaps it had sold to banks. Nationalization in this case took the form of a warrant to the Federal Reserve for 79.9% of the company’s equity. On September 22 the investment bank became an extinct species when Goldman Sachs and Morgan Stanley converted themselves into bank holding companies. Finally, on September 25, Washington Mutual Bank was seized by the Office of Thrift Supervision and placed into the receivership of the Federal Deposit Insurance Corporation—marking the biggest bank failure in America’s history. Imagine the worst-case scenario: The current recession turns out to be another great depression. The one that began in August 1929 lasted 43 months, according to the U.S. National Bureau of Economic Research. However, the first great depression, which only historians now remember, began with the Panic of 1873 and lingered for 65 months. If the U.S. economy keeps shrinking that long, there won’t be a sustained recovery until after May 2013.
Harvard Business by Niall Ferguson July-August 2009