A couple of days ago, I thought my call for full-scale nationalisation of the banking sector would remain beyond the pale of political acceptability for at least a week. But in today’s paper I read the following, very sensible assessment

Inevitably, the US, Britain and Europe are going to end up with nationalised banking systems in one form or another, and with governments guaranteeing not only their deposits but probably all their liabilities. The nationalisation will be a temporary emergency measure. But for some time at least the systemically important banks effectively are going to be public utilities and must be regulated accordingly.

This taxpayer rescue of banking systems opens up a new and potentially very important avenue for unfreezing bank lending and restoring the flow of credit. If governments effectively control the banks, what is to stop them from demanding that they start lending again?

And what wild-eyed socialist wrote this? Alan Wood in the Australian.

Meanwhile, calls for a guarantee of bank deposits are gaining force.

Of course, none of this constitutes a shift to socialism in any meaningful sense of the term. But it does mean, for quite some time to come, the end of neoliberalism (or free-market liberalism or whatever you want to call the set of ideas centred on the proposition that markets can do a better job than governments in managing risks of all kinds). The question of what will replace neoliberalism has come up so suddenly, and in such chaotic circumstances, that no-one has a clear answer. I’m confident that the response must be broadly social democratic, but there are a lot of details that need to be filled in.

Note The spam filter has been rejecting comments because of the ci*lis problem in the post title. I’ve fixed that, but commenters will probably need to asterisk the S word (Soci*lism) to avoid the filter.

A couple of years ago, I wrote a piece in the Fin about the precarious economic situation in Iceland, a small country with a massive current account deficit. Now it appears, the full-scale implosion I talked about has come to pass. Rather startlingly, Iceland is looking to Russia for a bailout. Among the implications noted by Felix Salmon, the fall of the S&P index below the 1000 level it first reached back in 1997.

As I say in the article, Australia is much less vulnerable than Iceland. Still, it is now clear that the consenting adults theory of current account deficits has its limits. We’ll just have to hope that we are within those limits, and that we can turn the recent trade surplus into the beginning of a sustained reduction in our net foreign debt.

Thanks to another conference (a big one, on infrastructure) I’m running far behind on everything. So here, a day late, is the Monday Message Board on Tuesday. Comments on any topic, civilised discussion, no coarse language.

We’ve all been strictly enjoined to avoid schadenfreude in the current crisis, and indeed few are likely to escape unscathed. Still I’m struck by a couple of examples of historical irony

* Ten years ago, I was debating representatives of the Dutch bank ABN-AMRO, who were pushing for the privatisation of ACT Electricity and Water (ACTEW). A couple of days ago, the Dutch operations of ABN-AMRO were nationalised

* British Bank Northern Rock was nationalised following a run by customers seeking to withdraw their money. Now, seen as safer than it’s competitors, it is being forced to limit deposits.

The analogy between the strategies that have made the financial sector so profitable in recent years and the martingale strategy in betting (keep doubling down until you win) have occurred to quite a few people. Jordan Ellenberg has an excellent article in Slate on the topic, in which I get a brief mention.