Updates on Health Care, Investment Losses

Repeat after me: health care in the U.S. is expensive. And if you want the government to buy it for everyone, get ready to dig deep. According to this morning's Boston Globe, Massachusetts Governor Deval Patrick is wrestling with revised projections for the state's new Commonwealth Care program, which partially subsidizes insurance premiums for individuals who are now without coverage and not eligible for Medicaid. Guess what--those subsidies are going to cost more than originally thought.

It seems that officials underestimated both the number of uninsured out there and the average subsidy for each. Multiply those two factors together, and you get some serious upside. A program that was supposed to cost $725 million by FY 2011 will likely run closer to $1.35 billion, with an average subsidy approaching $4,000 per enrollee. California senators did the math earlier this week and decided thanks, but no thanks (see my Jan. 29 post). Governor Patrick hopes the feds will come to the rescue, but good luck with that.

Merrill lynches two brokers. In the aftermath of the Springfield CDO scandal (Feb. 1 post), Merrill Lynch has fired two brokers who sold the risky investments to the city last spring. Merrill has no choice but to portray the two as rogues who strayed from company policy. But you know and I know that these guys were only doing what they were trained to do. Otherwise they would have been fired months ago.

Merrill is sweating bullets these days, hoping to contain the damage. But lawyers are circling (and I hope Maine's Attorney General is one of them), intent on demonstrating that Springfield is just one of many wronged clients. Also circling are some very smart bond traders, who are selling short the credit not only of Merrill, but of the other mega-brokers as well. Think of it. Merrill Lynch, the bullish icon of American prosperity in the latter half of the 20th century, may be going under. Like the Titanic, it was not too big to fail after all.

As for the two scapegoats, they are probably typical of the young dudes that brokers hire all the time (for little or no pay on a probationary basis--remember Will Smith in The Pursuit of Happyness?) simply to harvest their address books. My brother worked briefly in the early '80s for a Denver broker named Blinder, Robinson & Co., which specialized in penny stocks. He made plenty of cold calls and was eventually parted from his client list: he went, it stayed.

My brother went back to being a carpenter, joking afterward that he had worked for Blind 'Em & Rob 'Em--a suitable nomer not just for that firm, but for all the financial engineers who have made careers out of pyramiding wealth rather than creating it. Blinder, Robinson & Co. eventually collapsed amid investigations of securities fraud, and founder Meyer Blinder ended up in the slammer.

Merrill Lynch is now the subject of multiple investigations. Stay tuned.