The federal government requires pharmaceutical companies to disclose in minute, stomach-turning detail, all the possible side effects their drugs may induce.

It would be nice if the federal government would fess up about the potential side effects of the medicine it has been delivering in increasing doses to the financial markets.

That might be hard to do, considering that most of these experimental remedies are being invented on the spot and unleashed on the market without a bit of the rigorous testing required of new drugs.

But make no mistake: If the feds succeed in preventing a financial collapse, there will be a price to pay.

"It's hard to say what the unintended consequences will be," says Joshua Rosner, managing director of research firm Graham Fisher.

Economists say they are likely to include some combination of higher taxes, higher interest rates, higher inflation, slower economic growth and a weaker dollar.

Let's remember for a moment what got us into this predicament.

After the stock market crash in 2000 and the terrorist attacks in 2001, the Federal Reserve kept interest rates too low for too long. The federal funds rate stayed at 1 percent throughout 2003, long after the 2001 recession had ended.

Low rates fueled speculation in housing and the creation of new mortgages and mortgage-backed securities that were sloppily underwritten, poorly rated and widely misunderstood. Hedge funds and other investors used these securities to borrow money to buy other assets, creating a mountain of debt atop a small slice of fragile collateral.

Banking regulators, Congress or the Bush administration could have stepped in to restore some sanity to the markets but declined to do so in the name of homeownership and free enterprise.

Downward spiral

The bubble burst when borrowers started defaulting on their mortgages in the few first months - sparking a downward spiral of tighter lending, falling home prices and margin calls on loans backed by deteriorating mortgage securities. To meet margin calls, highly leveraged investors started selling "good" securities that had not yet declined in value, which of course caused them to decline in value.

When the chain reaction threatened to collapse the entire financial system, the feds stepped in with a series of extraordinary and novel measures.

The Federal Reserve cut the federal funds rate by a near-record 0.75 percentage points at each of its last two policymaking committee meetings. It agreed to lend up to lend up to $200 billion worth of highly marketable Treasury securities to primary dealers in exchange for a wide range of less-liquid, less-secure collateral including mortgage-backed securities.

For the first time, it agreed to let securities firms borrow from the Fed on much the same terms as banks. To prevent a run on investment bank Bear Stearns, it agreed take the risk on up to $30 billion worth of Bear's more questionable assets.

Not to be outdone, Congress and President Bush agreed to let the Federal Housing Administration, Fannie Mae and Freddie Mac temporarily guarantee much larger home loans in high-cost areas, exposing the government - implicitly or explicitly - to more mortgage risk.

The government agency that regulates Fannie and Freddie agreed (probably under political duress) to let them buy more home loans with less capital.

"Most of these things are not designed to put people into homes but to prevent a complete collapse of the financial system," says UCLA economist Ed Leamer, who started warning about the housing bubble in 2002.

More measures are likely to follow.

Rep. Barney Frank, D-Mass., has a proposal that would give the Federal Housing Administration (a government agency) up to $300 billion to guarantee refinanced mortgages after their balances have been significantly reduced by the mortgage holder or lender. The plan would also provide $10 billion in government financing to buy and rehabilitate vacant, foreclosed homes.

"We are going to nationalize the mortgage market," says Ken Rosen, chairman of the Fisher Center for Real Estate at UC Berkeley, consultant and hedge fund manager. "It's the outcome of not regulating at the right time."

As much as he dislikes it, Rosen says, it's the right thing to do in the short run. "If they did not stop the credit crisis, we would have something much worse - a meltdown like we had in the '30s," he says. But "it's not a good thing in the long run."

Rosen predicts that when all is said and done, there could be as much as $1 trillion worth of losses in the financial system. He predicts that investors will bear 60 percent of the losses and the government could shoulder the rest.

What's in store

To pay for these losses, the government will have to raise taxes, sell more debt or both.

Near term, Rosen predicts that the Fed will have to keep cutting interest rates to prevent further weakness in housing and the economy. That will put further downward pressure on the dollar. A falling dollar will fuel inflation because imports, oil and other commodities will cost more.

Long term, the government will have to raise interest rates to entice foreigners to buy our debt. "The effect of all this is a recession and a lower living standard than we would have had without having had this mess," Rosen says. "This generation and the next generation will pay for this."

Leamer says he also worries about "the regulatory changes that will make it harder for Americans to get homes. The market was inappropriately lax. We're likely to flip in the other direction. There will be all sorts of restrictions" on who can buy a home.

But the biggest side effect, Leamer says "is the moral hazard" the government could be creating. When the government bails out stupid or risky behavior, it encourages the same kind of behavior.

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.

This article appeared on page C - 1 of the San Francisco Chronicle

Latex glove allergies that affect one in six NHS staff could be cut by new alternative

Comments

Latex glove: Change could stop allergies

Most popular stories

1. 1,300 women have had at least FIVE abortions

2. I felt pins and needles in my breast...then discovered I had cancer

3. I was awake and could feel everything - but I was paralysed and couldn't speak. 'Pass the scalpel', said the surgeon ...

4. Tired? Don't assume it's your lifestyle - you could be diabetic

5. Owning a cat 'cuts stroke risk by a third'

More detailed results ?

Have your say

Do you suffer from back pain?

• Yes - frequently
• Yes - occasionally
• No

More polls » 

Boards & chat

Can magnets ease shoulder pain?

Join the debate » 

Email newsletter

Allergies and asthma associated with latex gloves can be cut down if the NHS switches to using a different type, experts said today.

New guidelines were published urging hospitals to use powder-free, low protein latex gloves as an alternative to the traditional powdered latex sort.

It comes after a former trainee nurse, who had to give up her job due to a latex allergy, won a six-figure compensation payout earlier this month.

Tanya Dodd, 25, worked at Scarborough General Hospital where she developed the allergy, which can cause breathing problems and potentially life-threatening anaphylactic shock.

Ms Dodd said she was never warned of the dangers of latex and was never told to minimise her exposure to it after she developed her allergy.

Today's guidance, from the Royal College of Physicians and NHS Plus, a network of NHS occupational health departments, said switching to powder-free gloves "significantly reduces latex allergy and latex-induced asthma".

Powder-free gloves contain around a tenth of the latex of powdered gloves, it said.

The guidelines also recommend that employees with a latex allergy use non-latex gloves, although the College does not advocate a complete ban on latex gloves.

Up to one in six healthcare workers can suffer from latex-related problems, which has been recognised as an occupational disease since the 1980s, according to the guidelines.

More minor symptoms include a rash, itchy or runny eyes or nose, sneezing and coughing.

Other products used in the NHS containing latex include balloons, adhesive tape and bandages, condoms, catheters, rubber bands, dental dams, tourniquets and resuscitation equipment.

Dr Syed Ahmed, a specialist registrar in occupational medicine at East Kent Hospitals NHS Trust and guideline leader, said: "The optimal management of latex allergy in the workplace has been unclear for a long time.

"We're delighted that our work has looked comprehensively at all the research and has established evidence based guidelines to address this important issue."

ADVERTISEMENT

Iconocast is about learning and teaching without borders; we offer eMarketing, Internet Advertising, Internet Marketing, Search Engine Optimization, Search Engine Marketing, Online Branding, and eMarketing News Services.

Iconocast Home Page

Contact Iconocast

Iconocast Health Articles

© 2003-07. ICONOCAST is a trademark of iconocast.com.