If Only This Happened At The Fed, Things Would Be Vastly Different

Something surprising happened in the early days of August: a person was actually held accountable for his mistake.

As the WSJ reported previously, "a billion-dollar forecasting error in Walgreen Co.'s Medicare-related business has cost the jobs of two top executives and alarmed big investors." Specifically, at an April board meeting, Chief Financial Officer Wade Miquelon forecast $8.5 billion in fiscal 2016 pharmacy-unit earnings, based partly on contracts to sell drugs under Medicare. This did not pan out as expected and last month, just a few months later, the CFO unexpectedly cut that forecast by $1.1 billion. And then, In early August, the CFO of the nation's largest drugstore chain was gone. He wasn't alone: Walgreen said several days earlier that its pharmacy chief, Kermit Crawford, would retire at year-end.


Behind the botched numbers and management shake-up are Walgreen's efforts to capture a larger role as a middleman dispensing prescription drugs under Medicare's Part D, which subsidizes costs for the elderly and disabled. The saga at Walgreen—which derives 25% to 30% of its prescriptions from Medicare Part D plans—shows the broader risks for those operating in the Medicare ecosystem.


The bottom line: Walgreen hadn't factored in, among other things, a spike in the price of some generic drugs that it sells as part of annual contracts.

That said, don't feel bad for the CFO: "Mr. Miquelon's departure as CFO ends a sometimes rocky tenure. He was arrested for alcohol-related incidents in 2009 and 2010, according to public records. He said he paid for a driver, has "fully accepted personal accountability" and "never been convicted of a DUI or any crime." He will get severance of $3.2 million and a performance bonus of nearly $1.2 million; Mr. Crawford will get severance of $3.3 million and consulting pay."

But other bottom line: this is what is also known as accountability in the private sector, where if you are wrong you lose your job. Now imagine this taking place at the Federal Reserve, whose forecasting track record is so bad even tenured Ivory Tower economists have had no choice but to comment on it. The same Fed whose forecasts about everything have been always and without fail wrong ("it's contained" being the most glaring example though certainly not the only one), the only question was when.

Would the Marriner Eccles building have any employees then, and what world would we be living in if the the US monetary authority was actually held accountable for their relentless series of errors? Sadly that is one of those rhetorical questions whose answer we will almost certainly never get.


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