Outbreak of commonsense at HM Treasury!

CityUnslicker linked to this article, Northern Rock Defers Payment of Subordinated Debt Coupons (which does what it says on the tin).

I did a bit of digging and uncovered this even better article of two weeks ago, UK government plans a great escape from Northern Rock, the upshot of which is that, as I have been saying since NR first went *pop*, the government can sort out the banks out at nil or negligible cost to the taxpayer by applying the logic of "debt for equity swaps". What these boil down to is that losses are first offset against shareholders' funds, and once these are used up, the next wave of losses is borne by bond-holders.

Happily, there is a pre-ordained, contractually agreed heirarchy as between bondholders, so there's not much to wrangle about. The losses are therefore shared out between 'reckless borrowers' (via higher interest rates, repossessions) and the 'reckless lenders', i.e. those who were willing to accept the highest risks in return for the highest possible rewards (being shareholders and 'junior' bondholders).