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only a relatively small regional bank, NorthernRock forms a central part of my story because it was the small hinge on which the British economy swung. It opened the door
     to the credit crunch and influenced the wider international financial markets. Its extreme mortgage-lending practices marked
     the outer limit of the home-lending boom, which is now bursting. And, towards the end of 2009, the government was seeking
     to split Northern Rock into a ‘good’ bank and ‘bad’ bank as a prototype for the return of banks to the private sector.

    To describe the last decade of UK house price inflation as a ‘bubble’ does not do justice to it. Even in a notoriously volatile
     market there are few precedents in recorded British history, or in that of any other major country, for the scale of the inflation.
     There were booms in the late 1940s in the immediate aftermath of the Second World War (followed by two decades of depressed
     prices in the economic boom years when Britain had Never Had It So Good). There was a short, sharp spike in prices in 1971–3,
     followed by another slump until the mid-1980s, and then the boom of the late 1980s and early 1990s, which led to the painfully
     remembered era of home repossession and ‘negative equity’. Measured in relation to average after-tax income, housing had proved
     – contrary to popular myth – a disappointing store of value. Looking at underlying trends, and ignoring boom and bust cycles
     over the post-war period, shares have beaten property – and so has working for a living. But from the nadir of 1995 to the
     zenith of 2007 house prices doubled from four and a half times earnings to more than nine times earnings. They more than doubled,
     increasing by 130 per cent in real terms (that is, relative to inflation). The increase was more extreme than in the USA or
     in any other major Western economy. It was more like a large balloon than a bubble, and as vulnerable to being burst.
    Why did the balloon grow so big? Ms Kate Barker reported to the government that the explosion of prices was explained by a
     mixture of demographics and parochial NIMBYs using theplanning system to obstruct new development. The only solution was to build more homes. A target of 223,000 new homes a year
     was set for the period 2001–16, and councils were instructed to find room for them, whether or not they liked the idea of
     concreting over back gardens and diminishing amounts of green space. Yet there was something not quite right about this explanation.
     The UK population has increased fairly steadily, from 50 million in the 1951 census to 60 million today, under much the same
     planning regime and without, until recently, triggering any sustained shift in the trend growth in house prices. One new factor
     since the mid-1990s has been net immigration – but a significant part of this (from eastern Europe) is related to the economic
     cycle and is temporary and reversible.
    The panic about the housing ‘shortage’ had started earlier in the decade, when there was a fall in the annual construction
     rate from around 200,000 new homes per annum down to 142,000 in 2001–2. This was at a time when the government was predicting
     an annual increase in households of 223,000 in England and Wales. Ergo, prices must inevitably rise. But as the market saw
     unprecedented inflation in response to the ‘shortage’, the reality on the ground was different. Production – which had in
     any event fallen mainly because of a drop in public-sector, not owner-occupied, housing – recovered to 173,000 in 2006–7.
     And between 2001 and 2006, the number of households increased by only 80,000 a year, according to the Office for National
     Statistics. The more expensive houses became, the more children remained with mum and dad, the less family rows led to couples
     breaking up, and the more grannies were accommodated at home rather than separately in a big old house or a sheltered flat.
     There was