Analysis:The British have been feeling pleased with themselves lately. The economy has been growing strongly, the City of London has outshone Wall Street in attracting business from overseas, sterling has risen above $2 and home owners have become a lot richer, at least on paper.

So when it emerged that the Bank of England had agreed to bail out Northern Rock, the mortgage bank, the first instinct of many was to blame foreigners - particularly US banks that made subprime mortgage loans.

"Perhaps if someone in America had looked more closely at who they were lending to . . . some of these problems would have been avoided," Alistair Darling, the chancellor of the exchequer, told BBC radio.

The story the UK authorities are putting about - nothing much to worry about and all the fault of the Yanks - is nonsense.

Actually, there is something to worry about, even if those queuing outside Northern Rock branches to withdraw their money yesterday were (understandably) overreacting. The Bank of England does not bail out banks every day. The last comparable wobble was the secondary banking crisis of 1973-74, in which the Bank of England launched a "lifeboat" for troubled small banks and National Westminster Bank nearly foundered.

Here is the blurb to Margaret Reid's book on that crisis: "Abundant credit in a liberalised financial system led by a government hell-bent on growth provided a hot-house atmosphere for a breed of self-styled financial entrepreneurs . . . Their reign was brief, foundering in a mix of political chaos, currency crises, rebounding interest rates, over-investment in property and the inevitable and dramatic change in that most fickle of ingredients - confidence."

British banks are better capitalised now and the UK faces nothing like the same economic (or governmental) problems. But there are some echoes of the past. Property prices have been rising at an unsustainable rate, until the financial bump in August, and economic growth has been lopsidedly dependent on the City's expansion and housing.

Northern Rock, the allegedly innocent victim of US speculators, has been an active orchestrator of this phenomenon. It offered loans of more than 100 per cent of the value of properties to first-time buyers and grabbed a chunk of the increasingly speculative buy-to-let market; it disclosed yesterday that its net residential lending had risen by 55 per cent in the first eight months of the year as it accelerated into this summer's liquidity crunch.

Even worse, in terms of its financial health, Northern Rock has been the most aggressive of the former building societies in moving from funding its loans with retail deposits and going instead to wholesale markets for cash. As any banker knows, retail deposits are often more expensive to obtain than wholesale ones, but they are more stable and dependable in times of financial instability or illiquidity.

So far, Northern Rock's mortgage loan book is not in bad shape - its bad debt ratio is below the industry average. But it was not picked on at random by other banks and wholesale lenders. They knew that it could well have liquidity problems (a concern that unfortunately tends to be circular) and that it would probably suffer heavily if the UK housing market went the way of the US, with slumping sales and prices.

The notion that Northern Rock was prudently minding its own business when it caught a bout of American financial flu is ridiculous. In fact, it had made itself very vulnerable to a financial and property market upset, no matter where it emerged. The fact that the inciting incident happened to originate in the US mortgage credit market does not absolve it.- (Financial Times service)