The nationalisation of Northern Rock is a colossal indictment of the company's mangement, the country's system of financial regulation and the Government's economic competence. For six months, Gordon Brown and Alistair Darling have been at pains to point out that the problems in the financial markets did not originate in Britain. The credit crunch, they have rightly noted, has been a global phenomenon, triggered by the downturn in the US housing market. German banks and American financial businesses have gone cap in hand to their governments too. But it has been in Britain - and only in Britain - that the market turmoil has resulted in a run on a high street bank and, now, the humiliation of taking a private financial institution into public ownership. Not so long ago, Britain liked to boast that its financial regulatory regime was the envy of the world. The credibility of new Labour has been rooted in the Government's record of impressive economic stewardship. The desperate decision to nationalise Northern Rock will tarnish both Britain's and Mr Brown's reputation.

The blame does not, by any means, lie solely in Downing Street. The root cause of this failure is the hapless and reckless management of the company. The Bank of England and the Financial Services Authority failed to spot trouble brewing and then bungled the rescue. The long weekend in mid-September when the troubles at Northern Rock first emerged now seems like one of the most profound missed opportunities to intervene in modern economic history. No one seems to have known who was in charge or what to do in an emergency. The golden rule of banks in dire straits is to act swiftly, preferably secretly, to impose a solution. What has occurred instead is a melodrama more akin to the personal distress of a C-list celebrity than to a financial institution.

Ever since Mr Darling stepped in to guarantee that Northern Rock customers' money was safe, the Treasury effectively took responsibility for the bank and the Government had three options: shut it, sell it or run it. In theory, the Government should have closed it down. A failed business should not be rewarded with a public subsidy. Mr Brown and Mr Darling apparently calculated that this was the worst possible outcome, as conducting a firesale would put taxpayer funds at most risk. The second possibility was a sale, but the buyers were few and far between. The only viable offer involved Sir Richard Branson getting government support which ensured that taxpayers were exposed to all the losses, while Sir Richard stood to make the bulk of the gains. Having mulled that indefensible proposition, Mr Brown and Mr Darling understandably concluded that this was not “value for money” for the taxpayer. So they have, as predicted by this newspaper, ended up nationalising Northern Rock not out of conviction, but by default.

Nationalisation is meant to be a temporary measure, but the Rock is likely to be in public ownership for months, if not years. There is no obvious exit for the Government. Neither a flotation of Northern Rock nor a sale of the bank will be possible any time soon. The Northern Rock debacle is too easily compared to the humbling of the Conservative Government on Black Wednesday in 1992. The problem of a broken bank in Newcastle is not as significant or intense as a currency crisis. But Labour is likely to find that its economic embarrassment lingers just as long: Black Sunday marks not the resolution of the problem, just the close of the first chapter.