Northern Rock has been nationalized

The media here seem more shocked than I am.  But imagine — a country dedicated to liberal economics (more or less) nationalizes one of the largest firms in its most vibrant economic sector.  Martin Wolf has a good piece on the event.  The real question is whether the UK (and other countries) will feel compelled to move to a system of regularized depositor liquidity rights and larger deposit insurance guarantees.  Right now British depositors receive a lower guarantee, both de jure and de facto, and can wait for months for access to their funds from a failed bank; read more here.  For all its drawbacks and screwy incentives, arguably the biggest advantage to deposit insurance is simply that it makes bank nationalizations unlikely.  Simply letting the bank fail is not always a credible alternative, because of contagion effects, bank runs, and the simple workings of democracy.  The bank did face an offer from Richard Branson but it seems that the numbers did not add up and the government would have been left holding the bag anyway.  Felix Salmon adds commentary.