On liquidity and Northern Rock, it is a shame they did not remember the bank scene from the film, Mary Poppins.

FRANCIS X. HEALY, JR., WARRINGTON, PA US

If administration followed by nationalisation is the way for one bank, does not that apply to all banks who become insolvent? That may mean the end of the global capitalist system, but I think that process would need to be carefully managed, for the skills needed to run a command economy may need to be re-invented.

John, Kenilworth,

Bring the gold system back. This is the only solution to this global uncertain market crisis. Not having a physical object to back your currency with, is the main reason behind this inter-bank lending crises and collapse of giants such as Northern Rock.

Tauseef Zahid, London, UK

J McAleese, Derby: You are missing the point. Many of NR's mortgagees will not repay because they can't. That is why nobody will buy these mortgages at face value.

Matthew, New York, USA

Kaletsky does not understand the word "solvency". He is wrong to say "It is now apparent, however, that Northern Rock also faces a solvency problem". A company is insolvent if it is unable to pay its debts as they fall due. Northern Rock (with the taxpayers' money generously donated by Darling) is clearly solvent. The losers in this mess are the taxpayers and the shareholders, not the ordinary depositor creditors. Heard the one about the difference between a shopping trolley and Alistair Darling? The trolley has a mind of its own.

TG, Newark,

If NR's mortgage book is sold at a discount why should NR's mortgagees repay someone who is sitting on a guaranteed profit?

j McAleese, Derbys,

cww from Suffolk - protecting the broader economy from financial disaster is more important in the short term than worries about inflation especially when it's not particularly a major problem. It is not a Central Bank's sole purpose to control inflation.

Paul, London, UK

If NR are having trouble selling their mortgages, then why have they not started to encourage their existing borrowers to go elsewhere? This could be done by waiving Early Repayment Charges or even by a small financial incentive?

As things stand, they are still lending, which means that they are taking mortgages on their book that they can not sell at a profit. Surely this should stop now.

Minute, Maidenhead, UK

The problem is debt. There is too much of it about.

And what is the difference between the government printing more money, and the banks cutting interest rates, to shore up the debtors?

Clive, Colchester,

Unbelievable!

The losses on mortgage related financial assets will be huge. House prices have only just started falling. Northern Rock's 25b pound bail out (2 * UK's annual primary school budget) will seem small fry.

The million dollar question: where will the government get the money from for wholesale bale outs of the whole UK banking system. In practice there is now way taxes can be increased sufficiently, so that leaves one other possibility- print the money needed. Result: hyperinflation.

I don't like the sound of this option. I would much rather the banks that have lent badly to fail. I would also like bankruptcy laws to be abolished

Nigel Watson, Guildford, Surrey

'Nobody questioned the underlying value of the Rock’s mortgages and therefore its ability to repay depositors in the long term.' Well yes actually, Anatole, they did. Nearly everyone in the country knows that house prices are at least double what they should be. Building Societies and Banks maintain the fiction of mortgages being 'assets' because they have to. The alternative is to admit the possibility that a Northern Rock lurks behind the smart facade of every financial institution in the country. Which it almost certainly does - given the propensity of these institutions to admit to huge, VAST losses and then immediately claim that they are operating soundly and are on target. If I lend someone £100 on a car worth £50 then I deserve to lose £50 and no one should feel sorry for me. If I lend £100 of someone else's money on the car then no one with sense will lend me money again. At the basis of this crisis is just that. 'Credit crunch' = 'no one lends money to fools'. BOE excepted.

eric campbell, harrogate, uk

"...Instead of a once-and-for-all repricing of mortgage assets, markets have kept pushing values ever lower..."

In other words, the fundamental mistake was that at the start of the crisis, everyone expected the markets to behave rationally? There really is nothing new under the sun, is there?

Ian Kemmish, Biggleswade, UK

I think the inflation risk ahead is exaggerated by the current high prices of two important components, oil and food. In other circumstances the threat of more general inflation would indeed be real but the severe and continuing credit squeeze and high cost of debt will prevent companies passing on higher costs to consumers or paying higher wages. Paradoxically higher fuel, energy and food costs will have a deflationary impact on the rest of the economy via squeezed household budgets, that will cancel out any inflationary effects. Therefore even the normally cautious ECB should follow the Fed and BoE and deliver a cut in rates now.

Robert Cookson, Milton Keynes, UK

The central bankers have only themselves to blame for this unnecessary credit crisis. They panicked post 9/11 by lowering interest rates too far and then leaving them there for too long resulting in a colossal property and consumer boom. Even within the MPC's remit there was no real need to do so. Lessons to be learnt? No, they simply failed to learn from history.

cww, suffolk,

It has been clear for some time that the underlying asset value of NR is suspect. There have been stories of 125% mortgages as well as possible overhyping of property valuations. Add to this the effect on prices of distressed selling in a weak market and the real value of the mortgage book can be easily up to 50% discounted or more. (the quality of the borrowers will of course affect the rate of liquidation)

The taxpayer is at extreme risk of funding this black hole and can only be saved by a restoration of confidence and an orderly unwinding. This option may no longer be available (perhaps Lloydstsb offered this last hope) The administration and nationalisation route is a way of 'solving' the problem by hiding the ultimate losses into one more government department, quango or business taking the losses over many, many years.

I fear the government is now in the position of an avuncular investor who has foolishly bailed out a reckless nephew only to find himself ruined also.

peter boswell, chagford, UK

The central bankers have only themselves to blame for this unnecessary credit crisis. They panicked post 9/11 by lowering interest rates too far and then leaving them there for too long. This resulted in a colossal property and consumer boom which went unchecked. Even within the MPC's remit there was no real need to do so. Lessons to be learnt? No, they failed to learn from history.

cww, suffolk,

If the Government nationalises Northern Rock, mortgage holders will probably feel less inclined to keep up their payments. Some may feel their predicament is in part caused by the govenment so why should they repay.

And, If the govenment gets tough and starts repossessing people's homes, I can well imagine the flak they will get.

It seems to me the asset backing for taxpayers' money will suffer if the company is nationalised. The government should do more to faciitate a sale to the private sector even at some cost to the taxpayer.

Anthony, London,

Switzerland has long had a capital gains tax on owner-occupied property, while having none on financial assets. This means that speculative money tends to find its way into stocks and shares rather than the property market, with the result that the country has experienced neither excessive rises in property prices nor, currently, a property value crisis. UBS is another matter, of course!

Doug, Basel, Switzerland

As just released by Rightmove, House prices in London have fallen by an average of £28,000 in the past month. I fear Northen rock have a business that no-one will buy except for a paltry sum. Nationalisation is the only way forward now. The last crash took many years to bottom out. The goverment should take a long view and not sell until banks are profoitable again. Let not squander the taxpayers money.

However, who will save the next northen rock? There are clearly a few shaking balance sheets out there.

John, Reading, UK

Why this continued fear of 'marking to market' depreciating assets? House and mortgage valuations are falling because of real world, financial reasons, not because of some irrational vicious circle... Let it be! Let the deadbeats and their shareholders go bankrupt - any further state intervention can only make the inevitable fire-sale reckoning of distressed asset values even sharper. It will also fuel inflation, encourage yet more borrowing and insane risk-taking, destroy more people's savings and eventually reduce living standards for all...

Chris. Fulker, Jiji Township, Nantou County, Taiwan, R.O.C.

Why would the Finacial markets be impressed. The Western Nations areTrillions into Debt.One Bank, Norther Bank Requires more than $50Billions.
They have now done all they will do and say they tried their best.
Ther Banks have knowingly destroyed the western worlds economy by charging userouse interst. Ever Credit card and loan I have looked at have been ripping people off.

John, Middlesborough, UK

This is what happens when house prices rise higher than general inflation.It pretty obvious to me what the outcome is going to be,a stock market crash.Look where the Nikii was in 1990 and 1998 and where it is now.Didn't they keep cutting interest rates?

stephen hulton, eure, france

Why don't the Government nationalize and give the public the option of renting their homes at rates which will be lower than their mortgage and releive those unable to pay of the fear of repossession? This would create council housing through bank nationalization. Well it all seemed acceptable when it was privatization of council housing! In any case many of the properties will be former council housing anyway.

Heiko Khoo, London, UK