Catching a cold

Would you have taken your money out of Northern Rock Building Society?

For a few days in September, England started to look like the Weimar Republic! Queues of people snaking around the block, waiting for hours, sometimes days, to withdraw their money from a perfectly safe building society.

When the politicians gave assurances the queues got even longer! Amusingly, competitive building societies were canvassing the queues offering favourable deposit deals to worried Northern Rock customers.

The hot dog vendors made money and I'm told the guy selling the Big Issue had to send for more supplies of his magazine! It's an ill-wind.

Mervyn King, the bemused looking Governor of the Bank of England (doesn't he know that SpecSavers are doing a two-for-one-deal at the moment?), answering some pretty dumb questions about these events to the band-standing members of the Treasury Select Committee, blamed it all on transparency. In the old days, the old boys at the Bank of England would have sorted the thing out over a glass of single malt at the Atheneum Club in London's Pall Mall.

The whole problem would have been 'squared away', if you take my meaning.

A quiet few million would have been slid into the money supply and favours called in to make sure that Northern 'Rocky' was taken over, subsumed and shored-up. It would have been done over the weekend. Perhaps at a house party, over a glass of port. While the ladies withdrew, the bankers would be making a deposit.

Not any more. Today, everything has to be done in the full glare of the media spotlight. Hence, the panic. The more the BBC reported on Northern Rock, the more people joined the queue.

Banking laws, rules, regulation and governance mean things can no longer be sorted out outside banking hours and certainly not over the weekend. Changes in money supply have to be announced and Mervyn King should change his title to Gardener of the Bank of England ñ as he spends most of his time working in a greenhouse with journalists pressing their noses up against the windows.

The problem was not of luckless Mervyn's making. Indeed, the whole thing started when unscrupulous mortgage salesmen sold USD 300,000 mortgages to 80-year old homeowners in the deep south of the US. It's called sub-prime mortgage lending. It's just barmy, criminal and very stupid.

Sub-prime mortgages, once sold, are then sold-on. The theory being that another bank buys the outstanding debt for less than its full worth. The originating firm gets some immediate cash and the acquiring firm gets the full value over the term of the mortgage and hopes to sell something else to the borrower along the way.

It's a great idea until interest rates go up, the borrower defaults on the mortgage and everyone wants their money back. Result: banks clamp down on all borrowing. If your business is predicated on borrowing money from US banks at a low interest rate, and lending it at a higher rate elsewhere (and this was Northern Rock's business model), you are in trouble. People panic, buy hot dogs, join the nearest queue and read the Big Issue for the first time in their lives.

The problem started in the US. There is another problem brewing in the US and you know what they say - when the US sneezes, the rest of us reach for the Relenza.

In mid-September, the US Congress gave approval to legislation designed, as they put it, 'to transform the FDA'. They are to have more money and more powers. The Senate passed the Bill, without objection, just one day after the House of Representatives had overwhelmingly cleared it with a 405 to seven vote. President Bush is set to sign it immediately.

Aside from some technical reauthorisation legislation (which in truth added to the urgency), the Bill gives the agency the authority to require pharmaceutical firms to change drug labels warning doctors of new safety problems, to conduct new studies of treatments already on the market and to limit distribution if needed. It also grants the FDA the authority to fine firms if they do not complete post-marketing studies.

The new laws also place new responsibilities on the FDA to improve its surveillance regarding safety and create a new programme to review advertising practices.

FDA Commissioner Andrew von Eschenbach was quoted as saying he was pleased Congress had approved the Bill, as it continued the FDA's ability to protect and promote the public health.

The man behind the Bill, and no friend of the pharma industry, Senator Edward Kennedy, said this ought to be reassuring for every family about the safety of their prescription drugs, and give every American greater peace of mind every single day ñ every time we eat, take our medicine or see our doctor.

The industry trade association, the Pharmaceutical Researchers and Manufacturers of America, called the Bill "a crucial step to make our nation's drug safety system, which already is the best in the world, even better."

Yes, well they would say that, wouldn't they?

When the US sneezes, we reach for the tissues. When the US coughs, we buy lozenges. When the US sells dodgy mortgages to gullible fellow Americans we end up having to change our banking assurance rules. Alistair Darling has already announced he intends to place a levy on banks to create a guarantee fund to assure deposits up to GBP 100,000. A levy that will surely be passed on to us customers.

When the US changes the FDA rules, in a globalised economy, we will have to do the same.

Do we want more regulation? Do we need more guidelines? I don't think so. But, as sure as coughs and sneezes spread diseases, so regulation spreads rules, directives and more laws.

The Author:
Roy Lilley is a (sometimes controversial) healthcare author and broadcaster