Jeremy Warner: Baugur was always an accident waiting to happen

Outlook In its own way, Baugur is no less of a proxy for the credit crisis than Northern Rock. The latter, it turned out, was just an outrider for problems that were eventually to subsume even the biggest banks in the land. Credit had been hugely expanded through undue reliance on fragile, wholesale funding. When that funding was withdrawn, the whole system fell apart.

Baugur, an Icelandic company created seemingly out of nothing by the debonair Jon Johannesson, was one of the credit bubble's main beneficiaries, riding like a Viking invader the tide of debt to buy up a string of UK high street brands, many of which were themselves sustained only by the consumerism of the credit boom.

Relatively early in Baugur's buying spree, I sent one of our reporters to Reykjavik to uncover the secrets of its funding, as well as to explain the mystery of Iceland's wider economic success. The story I wanted was that the whole thing was based on Russian money, which as it later turned out was not too far from the truth. But that was not the tale my reporter came back with.

Iceland's success, she enthused, was about much more than seal clubbing, fish and Bjork. Rather, it was based on financial services, which had grown like topsy, making Iceland into a mini version of the City. Having been one of the credit bubble's big success stories, Baugur is now one of its many victims. Despite repeated denials, most of the money seems to have come from Icelandic banks, and when they began to submerge beneath the hot springs, it was only a matter of time before Baugur went the same way. The strategy of buying up the British high street, often in the form of minority stakes at over-inflated prices, made no sense at all. Still less does the impenetrable ownership structure of this patchwork of retail interests. Three of Baugur's major investments – Woolworths, Whittard of Chelsea, and Mark One – have already gone the way of the flesh. Some of the others, particularly Iceland itself (the retail brand, that is, not the country), look salvageable, but the whole thing is an almighty mess, and there are bound to be more closures and job losses before it is all cleaned up.

Unlike the panel of financial journalists who appeared before the Commons Treasury Select Committee yesterday, all of whom claimed some degree of foresight of the credit crunch (believe it if you will), I'm not going to sit here and pretend I saw much of this coming. Yet Baugur was about as obvious as an out of control double-decker bus. Even a one-eyed Albanian could have seen it coming. How on earth apparently rational financiers and bankers allowed Mr Johannesson to get away with this bizarre construct we may never know.

Allowing yourself to get sucked into the madness of the crowd is one thing, but Baugur stuck out like a sore thumb. Nobody could have helped but notice this accident waiting to happen. Baugur was from the start one of those totally incredible bull- market phenomena which could only stay upright as long as the music kept playing. Yet it was by no means the only example of the genre in the British retail scene. I had better not mention the others for fear of a writ, but they'll be exposed soon enough.