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loan, at
     most 90–95 per cent of the value of a property and up to three times the borrower’s income, was already looking rather old-fashioned
     in the competitive but booming mortgage market around the turn of the century. Northern Rock was willing to go further than
     its competitors. There were 125 per cent ‘Together’ mortgages: that is, loans of 25 per cent more than the value of a house
     (in the form of a 95 per cent mortgage plus a 30 per cent top-up loan). In a world of ever increasing house prices, borrowers
     were assured that their property would soon be worth more than their debt. Loans were advanced on the basis of double the
     traditional three times income. The mortgages were sold with evangelical zeal, as part of a process of helping poor, working-class
     families to enjoy the freedom and inevitable capital gains of home ownership. Other banks followed suit in what was a very
     competitive market – precisely as the Conservative demutualizers had hoped.
    The strategy worked, for a while. Share prices soared. Mr Applegarth acquired fast cars and a castle from his share of the
     profits. According to the
News of the World
, a mistress was rewarded with five mortgages and a property empire. In the marketplace, Northern Rock doubled its share of
     mortgage lending over three years; it held 20 per cent of the UK market (net of repayments) in the first half of 2007, giving
     it the largest share of new mortgages. It looked too good to be true – and it was. There was increasing critical comment in
     the financial press. Shrewd observers noticed that Mr Applegarth had quietly disposed of a large chunk of his personal shareholding.
     Shareholders picked up on the worrying reports, and the share price slid from a peak of £12 in February 2007 to around £8
     in June after a profit warning,and then to £2 in the September ‘run’. One crucially important body did not respond to these concerns: the financial regulator,
     the FSA, which to the end remained publicly supportive of Northern Rock’s business model and did little to avert the coming
     disaster. Indeed, in July 2007 it even authorized a special dividend from the bank’s capital.
    In September the model collapsed, in the wake of the decline of the sub-prime lending market in the USA. Northern Rock was
     the closest UK imitator of the US sub-prime lenders whose ‘ninja’ loans – to those with no income, no job and no assets –
     were the source of rumours of defaults. Since so much sub-prime lending had been securitized, there was a wider collapse of
     confidence in mortgage-backed assets, which, it emerged, were often ‘contaminated’ by bad debts which were difficult to trace.
     The market dried up and Northern Rock was no longer able to raise funds to support its operations.
    The process by which the Rock was then rescued and, six months later, nationalized, is a tangled and complex story. There
     were, however, amid the detail, two important issues of principle. The first was the need to strike the right balance between
     the perceived risk of creating a damaging shock to the whole banking system, if one bank were allowed to go bust, and the
     danger of moral hazard, if foolish and dangerous behaviour were to be rewarded by a bail-out. I shall pursue the wider ramifications
     of this issue in the next chapter. Suffice it to say that, having initially emphasized the latter concern, moral hazard, the
     Governor of the Bank of England was then prevailed upon to undertake a rescue.
    The second issue was how to strike the right balance between public-sector and private-sector risk and reward as a result
     of the rescue operation. After protracted and expensive delays in order to try to secure a ‘private-sector solution’ – which,
     in the eyes of critics, including the author, would have ‘nationalized risk and privatized profit’ – the government nationalized
     the company, effectively expropriating the shareholders.
    Although it was