Mark it to Market
There will be no end in the foreseeable future to talk about money. Some of it will be finger pointing to attempt to assign blame for this historic collapse. Some of it will be a constructive exchange of ideas meant to help the situation. The cost of health care will predominate for the next year, especially if the US presidential candidates follow through on their promises.
This week a study was released about the cost of diabetic care in the United States. In 2001, the cost of diabetic health care was $6.1. In 2008, that cost rose to over $12 billion, based largely on the rising costs of new drugs introduced over the past ten years. The most shocking thing about the report was not the doubling of the cost in such a short period of time, but the revelation that there is no evidence that the additional cost has improved the health of any of the patients. Several months ago, another story in the New York Times reported that there was a move toward a specific drug cancer treatment that cost the patient between $45,000 and $60,000 per year. The average patient lived an additional two years if they opted for this new treatment. If the average was two years, it is safe to assume that some patients lived four years longer, and some didn’t live any longer at all.
During the financial collapse of the past couple of months, a lot has been written and said about “mark it to market”. It was a way of describing the problem financial institutions that held these failed mortgage backed securities had in trying to determine the actual value of what they held. To explain as briefly as possible, if a trader sold a hundred shares of IBM stock, for example, at ten dollars a share, he would know that he could mark the value of that stock at ten dollars. What happened in the crash was that Lehman Brothers, again for example, may have held some mortgage backed securities that had a marked value of hundred dollars. Bear Stearns might have had a very similar, but not exact product, which they marked at eighty dollars. Goldman may have had a similar product that they valued at forty dollars. What is the value of that asset? The answer, and the reason for the collapse, was that the market could not be established. The products could not be “marked to market”.
If you find that confusing or contentious when talking about real estate, imagine the upcoming furor when someone tries to mark medical care for market. Human lives and not 401ks will be at stake. What is the value of diabetic health care? Is it based on the $6.1 billion number of 2001, or the $12 billion number today. There will be an almost infinite number of similar examples. What is the value of medical care? How can one mark it to market? And most importantly, who will decide?
By Myron Gushlak