Re: Moral dimension
You start with a question:
"What would have happened if NR were allowed to fold like any other business?"
And then write some stuff that doesn't normally happen. You forgot stage 0:
0. Any slightly vulnerable-looking banks immediately fold from a bank run.
The entire reason all these bank bailouts, the FSCS, etc., were set up is because bank runs are horrible things, and entirely impossible to avoid for a bank as the only thing that can be 100% backed up by cash is a safety deposit box.
"1. Some other bank or other banks would have bought up the mortgages."
Isn't that what the Government did? You might argue about the price paid, or whatever, but what you suggest was exactly what happened. Most people who go all swivel-eyed about banks also like the idea of government ownership of companies, so surely you would be happy about this outcome?
"2. The other banks would have been legally obliged to cough up and pay according to Savings Guarantee rules."
They do, every year, pay the government for this protection. It's an insurance scheme, and so it's the government that coughs up. Of course it is, because you cannot expects the banks to have enough money put aside to bail out a bank.
Let's skip down to 5:
"5. The country would have been a better place. Instead of disabled people with one extra bedroom in their house than deemed necessary (the bedroom where the carer sleeps) and people at a similar level in society paying for austerity, the ball would have been in the banks' court, where it belongs."
So the collapse of a few banks and the others vastly reducing and tightening their lending, causing a 5-10% recession, would have meant the Government would have had more money to spend and wouldn't have to choose between austerity and a sovereign debt crisis? Have you seen Greece?