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The Crunch: The Scandal of Northern Rock and the Escalating Credit Crisis

Alex Brummer, Random House, June 2008, 244 + xii pages, £11.99.

There will be bigger and fuller books on the Credit Crisis of 2007 and 2008 and they will need to take account of the dramatic events of autumn 2008, unfolding further as I write. But as a well-written and reasonably priced guide to the collapse of Northern Rock in September 2007, and the events in the credit markets that both preceded and followed the collapse, this offering from British journalist Alex Brummer meets the need very well.

Alex Brummer is a respected financial journalist of over 30 years standing who worked on The Guardian for many years and in 2000 became City Editor of the Daily Mail, where he still works. As you would expect, the book generally reads well and the eleven chapters take the story of the credit crunch step-by-step from the rise of Northern Rock as a leading player in the UK mortgage market in the early years of the decade to the key date of 9 August 2007, or as he titles it “the day the markets froze”. Thereafter there are three chapters covering the actual run on Northern Rock in September 2007 and its subsequent effective closure as a mortgage bank and the surrounding actions of the main regulatory players: the FSA, The Bank of England and HM Treasury. Not surprisingly, none of the regulators come out of the events with many plaudits, with Bank of England Governor Mervyn King’s reported near-obsession with ‘moral hazard’ in the initial stages being singled out for especial criticism. And back of all the to-ing and fro-ing of the troubled days of August/September 2007 the cumbersome nature of the tripartite system of regulation (known as ‘T3’ in the trade) put in place in 1997 by the then Chancellor Gordon Brown is heavily criticised by the author.

At times the book is a little ‘fact-lite’, and a few more background numbers and actual dates would have helped. Phrases like ‘early 2007’ or ‘spring 2008’ sometimes grate when an actual month or date would be better. Occasionally the text is a little repetitive and this reflects poor editing; so we are told twice (p 61 and p 138) that Jean-Claude Trichet of the ECB was at his holiday home in St Malo, France on ‘the day the markets froze’. And the detailed rehearsals of the CVs of Messrs Trichet and Bernanke in Chapter 7 hold up rather than advance the flow of the argument at that point. Once or twice also currency signs look like they have sometimes been muddled up, with € (always ‘euros’ for some reason) and $ signs transposed (p 60 and p 63).

But if you want a relatively straightforward introduction to the current credit crisis, from the scandal of the sub-prime boom of 2005 and 2006 to the desperate efforts of regulators – on both sides of the Atlantic – to halt the slide into banking meltdown up to mid 2008, this remains an excellent (and inexpensive) place to start. Perhaps when the financial dust has again settled this month Alex Brummer will put out a revised edition, bringing us right up to date. Meanwhile the final chapter, ‘Painful Lessons’, closes with some wise words; they are well worth repeating here (p 227):

“Clearing the detritus of the credit boom… and cleaning up the banks will be a long-term process. The fear must be that the real economy of growth, jobs and rising living standards could be affected well into the next decade.”

Charles H Whitworth

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