I was about to publish a post pointing out the message of Alistair Darling's guarantee to Northen Rock last night: that if you run a bank irresponsibly, it doesn't matter because the government will bail you out.
But Daniel Finkelstein got there first:Guaranteeing deposits at Northern Rock and offering to do the same for other institutions may prevent meltdown, but there is a large moral hazard cost. Banks now know that they don't pay the full penalty if they find themselves at risk of running out of cash.
