Northern Rock fiasco

Another victim of the credit crunch in the US was the newcastle based firm which is the highest profile UK victim of the credit crunch. Not like most banks which make their money from customer making deposits into savings accounts, Northern rock is build around its mortgage business. Basically, they raise money which it provides for mortgages via the wholesale credit market and they sell the debt on in the form of bonds. With this model of business they werent prepare for the credit crunch therefore it was forced to ask for the Bank of England for emergency funding. The loan that they took was also a shown by a loss in confidence from the public. Some consortium of buyers such as Virgin group tried to buy the bank but it was seen that they undervalued the bank and Ministers where forced to nationalize the bank, the first such move since 1970s. Behind this move, the government wants to stabilize the situation of the bank as the bank now is operating normaly and then sell it and repay the tax payer because if the bank was to be sold now it will be much undervalued. This year the firm share have already fallen by about 50%.