Crisis at Northern Rock

Just how serious the credit squeeze is becoming, not only in the U.S. but also in Europe, hit home late on Sept. 13 when news emerged that Northern Rock (NRK.L), one of the five largest British mortgage lenders, had been forced into a bailout from the Bank of England. In a conference call Sept. 14, Adam Applegarth, Northern Rock's chief executive, said: "Frankly, life changed on Aug. 9, virtually like snapping a finger. Watching liquidity disappear on a global basis has been astonishing."

Northern Rock, a former Newcastle building society taken public in 1997, thrived on—and then was brought down by—its innovative business model. With a relatively small deposit base, it used securitization of mortgages and other capital-markets funding to grow rapidly to a nearly 19% share of the British mortgage market by the first half of 2007.