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To: Les H who wrote (104858)	5/25/2001 12:01:18 PM
From: Ilaine	Respond to of 436258

Actually under the common law patients had the right to sue insurers. State legislatures and Congress abrogated the common law at the behest of insurance companies, e.g., ERISA prohibits lawsuits against HMOs for damages resulting from refusing to pay for treatment. Ms. Baum is passing on the party line from the insurance companies. Caveat: I am a trial lawyer.-g-

To: Les H who wrote (104858)	5/25/2001 12:20:00 PM
From: ild	Respond to of 436258

markets.ft.com The impotence of monetary policy The US downturn echoes 19th century investment cycles, suggesting there is little the Federal Reserve can do, says David Hale Published: May 24 2001 19:36GMT \| Last Updated: May 24 2001 19:40GMT The Federal Reserve's decision to slash US interest rates by 2½ percentage points since January confirms that there is fundamental weakness in the US economy. But it will be difficult for monetary policy alone to revive the economy in the short term. This is because the downturn has resulted from a boom and bust cycle in capital spending more analogous to the infrastructure investment cycles of the 19th century than to the Federal Reserve- induced demand contractions of the modern era. The capital spending boom of the late 1990s resulted from an unprecedented flow of money into the technology sector from a variety of different channels. The value of venture capital funding shot up to $114.6bn in 2000, from $4.4bn in 1995. Venture capital funding in 1999-2000 was equal to 70 per cent of all venture capital funding during the past two decades. The value of equity initial public offerings for the technology sector surged to $37.5bn in 2000, from levels of $2bn-$3bn a year during the early 1990s. The junk bond market provided $200bn of funding for new telecommunications service providers between 1997 and 2000. US commercial bankers also became more enthusiastic lenders to the technology and media sectors because of their new powers to underwrite debt and equity. It is not surprising, then, that business spending on information technology emerged as the economy's principal growth engine during the late 1990s. Between 1995 and 2000, IT spending in constant dollars grew from $227.5bn to $713bn and represented nearly 25 per cent of all gross domestic product growth. These unprecedented increases help to explain why there are no good historical comparisons for the slump now occurring in the technology sector. Monetary policy was relatively loose during the late 1990s because of Fed concern about global economic shocks - Asia, Russia - and the risks to computer systems during the transition to the new millennium. But as with the railway booms of the 19th century, the dominant factor that drove the funding boom for technology was investor excitement about the potential impact of the internet and developments in telecommunications on productivity and corporate profits. This enthusiasm produced an upward surge of investment, productivity and profits, which simultaneously helped to restrain inflation and interest rates. But it created the microeconomic problem of overcapacity, in sectors such as internet retailing and fibre-optic communication. This will have to be curtailed before capital spending can revive. The primary mission of Fed policy this spring is to prevent the capital spending slump from having serious spillover effects on personal consumption through job losses and wealth destruction in the equity market. The buoyancy of the US housing market and the recent rally in equities suggests the Fed has a reasonable chance of succeeding. After plunging from a value equal to 182 per cent of GDP in March 2000 to 125 per cent of GDP in March 2001, the stock market has rallied back to about 140 per cent of GDP. The weakness of the stock market during the past year was also heavily concentrated in about 25 big technology companies: the decline in the market value of Cisco, Intel, Lucent, Microsoft and Nortel was worth nearly $1,100bn. Most US equities have rallied during the past year. In previous recessions, by contrast, it was not uncommon for 80 per cent of the market to decline. In addition, the sharp decline in the US personal savings rate resulting from the stock market expansion was concentrated in the top 20 per cent of the population. Such households may reduce their consumption over time because of wealth losses but they are unlikely to curtail it sharply in the short term unless they also experience joblessness. The Victorian railway boom of the 1840s provides a useful analogy for the US economy today. In the early 1840s there was a boom in British railway shares, which encouraged hundreds of companies to attempt to go public. The first wave of companies earned handsome profits and produced big capital gains. But the success of the first wave encouraged such widespread imitation that the market became overly speculative and crashed when a balance of payments deficit pushed up interest rates. In spite of the crash, the spread of the railway continued to transform the British economy while bolstering its growth rate. The same will be true of the information technology revolution in the US economy. There will be peaks and troughs in the equity market because of fluctuations in corporate profits and private sector liquidity but the technology will continue to produce an ongoing revolution in how companies conduct business. Central banks can attempt to smooth the adjustment to private sector excesses in capital allocation but they cannot eliminate the propensity for markets to overshoot when a technological innovation produces an upsurge of investor confidence about new growth opportunities. The writer is chief global economist at Zurich Financial Services