Iain, there’s nothing particularly wise (or believable) about saying ‘never.’ I doubt if Lord Liverpool would have said quite the same thing when faced with financial markets very different from those that existed in early 19th Century England. As I read the full text of what (my old friend) Martin Hutchinson has to say, I note that he too does not rule out bail-outs. He merely observes, rightly, that they should be rare. Martin’s comments on the fate of Lehman are well worth reading too.

On the wider topic, I continue to think that more closely following the model of the Nordic bank restructurings of the early 1990s might have been the way to go, in which connection, these 2002 comments from an IMF official are worth pondering:

The principal [lesson] is that you cannot rely on the private sector or markets alone to solve systemic banking problems. Similar to the need for a lender of last resort to deal with systemic liquidity shortfalls, there is need for an investor or owner of last resort when all other sources of capital have dried up—and closing down an entire banking system is not a feasible option. There is also a role for a blanket government guarantee to restore confidence and prevent bank runs and a potential “financial meltdown”—with the wholesale destruction of values that such a scenario would imply. This now seems noncontroversial, but it was certainly not so at the outset of the Asian crisis.
The Nordic banking crises taught the world powerful lessons of the need for prominent state involvement in the resolution process: it was the state rather than the private sector that had to lead the systemic restructuring exercise seeking to bring in private sector owners and investors as much as possible. The Nordic crises also showed a role for the state in the protection of asset values of banks, in situations where private asset markets collapse; the use of special asset management companies and loan workout units, that have to be government owned, if no private investors were available—as they seldom are in a systemic crisis. Such bodies can protect values through careful management rather than destroy values through rapid “fire” sales.