Friday, September 12, 2008

Review: The Crunch by Alex Brummer

This review appears in today's Liberal Democrat News.

The Crunch: The Scandal of Northern Rock and the Escalating Credit Crisis
Alex Brummer
Random House Business Books, 2008, £11.99

One of the abiding memories of last year’s Liberal Democrat Conference is the long patient queue outside the Northern Rock branch in North Street. What we were seeing in Brighton was something no living Briton had experienced outside Mary Poppins: a run on a bank.

This lively and approachable book will help you understand how it came about. It has many villains. Among them are the board of Northern Rock (which included Gordon Brown‘s favourite banker Derek Wanless), Alistair Darling, Mervyn King, the Financial Services Authority and the City’s bonus culture.

But it does have a hero. At this year’s Royal Bank of Scotland AGM - a stormy event held in Edinburgh in April - a private shareholder called John Steen addressed the board of directors. "You guys are paid as though you are superhuman," he said, "and it’s very clear that you’re not." He was loudly applauded.

Politicians, you come to realise, don’t create a successful economy: they ride the wave when it is doing well and take the blame when it is doing badly. And this book suggests that is true of managers too.

Take the board and senior management of Northern Rock, the local building society that overreached itself by trying to become a major bank. No one challenged the chief executive Adam Applegarth as he ran the company into the ground: any rival ideas were rejected by those close to him because "Adam wouldn’t like it". And when the business began to collapse around them, several key people went on sick leave and never came back.

The Financial Services Authority - the brainchild of Gordon Brown and Ed Balls - failed to check Applegarth’s excesses. That said, there is something pathetic about the way managers blame the regulators for failing to save them from their own greed and stupidity.

Brummer widens his narrative to take in the subprime mortgage crisis in America, which lay at the heart of Northern Rock’s problems. He paints vivid portraits of many of the main players and explains the technicalities clearly. As a guide to our current troubles, this book is hard to beat.
Jonathan Calder


dreamingspire said...

Hasn't Labour run itself into the ground because people said "Tony wouldn't like it"? Worse than that, people who were tasked with looking seriously at why problems were occurring, and (in my case on a team with a very small contract in a corner of something much bigger) looking at how a new technology deployment should be managed, were later simply told that there will not be any money. Things that I helped plan 4 years ago are at last beginning to happen because the bullying has stopped - but the leadership isn't there to harness all the goodwill and to guide others in the right direction.

Anonymous said...

Sir Derek Wanless created this mess. At best he allowed, at worst he encouraged, the Rock's reckless and imprudent business model. The NR Board slavered rapaciously for ever more profit, and drank from only one well. When that well went dry Wanless vanished and airbrushed all reference to Northern Rock from his biography and CV. It is an utter disgrace that this failed and imprudent actuary STILL sits on the Government's Board for Actuarial Standards. How can Wanless possibly proffer actuarial advice with any credibility, or a straight face ! I guess the 'Good and the Great' can never be seen to fall from grace ? This is what sucks about the UK. Plutocratic cliques that scratch each others backs. I despair. Stand down Sir Derek and salvage a little honour. You have been 'sussed' mate !