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Every day our page 3 babe reacts to the news

Pretty blonde Alexa, 19 is a bit worried about the looming credit crisis, and the collapse of Northern Rock. She said "By 1997, Northern Rock had followed other building societies such as Abbey National and Halifax to the market. While rivals diversified into insurance, business banking and fund management, Northern Rock “stuck to its knitting” of residential home loans. But the UK mortgage market was highly competitive. How could the Rock, with its small market share and tiny branch network, compete with giants such as Halifax? In the late 1990s, Northern Rock began to tap the growing debt markets to gain cheap funding for its growth. As it began to expand rapidly, the collision of the once-sleepy former building society with the global capital markets was set in motion. Securitisation allowed the Rock to generate cash and unload risk by parcelling its home loans as bonds and selling them to willing investors. When Adam Applegarth took over as chief executive in 2001, the bank increased its growth rate in a grab for volume and market share. By this year, the Rock was tapping the markets for nearly three-quarters of its funding – more than any other UK bank. Since the bank’s near implosion there have been plenty of voices saying they saw it coming. Yet reliance on the booming credit markets meant Northern Rock’s problem was not risky lending but reckless borrowing. As interest rates rose, investors worried that pricier wholesale funding would squeeze margins and profits. But no one asked what would happen if there was a complete freeze in the markets that fed the bank’s expansion. After the freeze on 9 August, it became clear Northern Rock was barely a bank at all. A senior source says: “Northern Rock was a gigantic SIV.” Like a structured investment vehicle, Northern Rock issued cheap short-term debt to fund longer lending for higher yields. While SIVs invested in US sub-prime securities, Northern Rock sold mortgages. And, as with SIVs, when investors fled the markets the Rock struggled to refinance its debt as loans matured. The run on the Rock began more than a month before queues formed outside branches, when its wholesale depositors stopped lending. The Rock turned to the inter-bank market, but other banks were aware of its problems and had reined in lending. The Rock was doomed. In response to the crisis, the Bank of England and the FSA will step up scrutiny of banks to get a better understanding of their businesses. Regulatory checks are said to have focused too much on the quality of management and governance at the expense of the numbers. The monitoring of liquidity will be urgently upgraded and the Bank and the FSA are pushing for extra liquidity measures in the Basel 2 bank safety rules."