The Crunch: The Scandal of Northern Rock and the Escalating Credit CrisisBy Alex Brummer
Published by Random House Business Books, 2008
Available at Asia Books, Bt750
Reviewed by Paul Dorsey
The economy's broken back could easily make people forget about the comparative twisted ankle of 2007's
Northern Rock debacle in Britain. But less than a month ago the state-owned bank - stabbed multiple times for wrecking a century of solid business practice and left for dead in its own blazing mansion - stumbled out of the flames with a leering smile on its face.
With government approval and ₤14 billion it somehow found in its pocket, Northern Rock was back in the business of helping ordinary Brits buy their first house, the reaper's grin on its face mocking Gordon Brown's demands for a return to "prudent banking".
Northern Rock had been among Europe's biggest lenders, flogging mortgages of up to 125 per cent with the sucking-wound morality of a slave auctioneer. When flesh-eating disease inevitably set in, the government forced it to slow down, for God's sake, and do something about its ₤27-billion debt to the taxpayer.
The prime minister also insisted that no banker associated with a loss would receive any salary bonuses. Northern Rock, having saddled honest working men with a ₤3.8-million-per-day debt, promptly promised 500 of its executives tens of millions of pounds in payoffs deferred until next year.
And yet the horror show is allowed to continue, with loans on offer at 90 per cent, breathing fresh life into Alex Brummer's "The Crunch" just when the book was being buried in a global avalanche of fiscal terrorism.
In this instructive guide to who killed the economy, Brummer paints a portrait of the finance industry in a blood-soaked butcher's apron. No longer able to unload prime beef, it began grinding up yesterday's maggoty SIV (structured investment vehicle) sub-prime cuts into sausages marbled with fatty debts.
It then swept up the bits that had fallen on the floor to make a bilious thin stew of CDOs - collateral debt obligations. All of these goodies were packaged out to
scabrous street vendors and sold for a song that soon enough, sure enough, became a funeral dirge.
Where was the health inspector while all this was going on? Having given the butcher a licence to feed people this fiscal compost of toxins, he was dining elsewhere on filet mignon. Real filet mignon.
It's no wonder the world is now retching.
A starving man will eat anything, of course, but shame on the chef who doesn't tell his customers that the corrosive ingredients will only compound their suffering.
Brummer appears to have been an astute enough reporter at the Daily Mail to have spotted the suicide bombers boring a hole in the wall early on, but evidently he
didn't foresee the whole structure collapsing.
His focus remains on Northern Rock - the little community-building society fretting over social welfare that went very big and very, very bad - and shares his
amazement that the man in charge, Adam Applegarth, still, as of 2008, couldn't understand what he'd done wrong.
But there's plenty of big-picture stuff here too if you've got the nerve for it. The harrowing insecurity of "securitisation" is truly a wonder to behold.
"All seemed well in the sub-prime meat plant. New borrowers got their homes; brokers and banks made money up front; and investors received the higher returns they longed for in a low-interest-rate environment ... The investment banks were recycling the surplus savings in the world, most of them owned by the emerging market economies of Asia and the Middle East, into the poorest sections of US society - America's very own third world. And the bankers continued to draw their bonuses."