Additionally I understand that billions of taxpayer's money will be tied up for a considerable time, not just months, but years.

As above, IMHO you share with 99.9999% of the poulation the general misapprehension that taxpayer's money has gone anywhere near Northern Rock.

It hasn't. We are talking about Bank of England "fiat" money here, created out of nothing - as with bank notes, but without even the cost of printing - and then loaned to Northern Rock.

Are the govt willing to repeat this level of market support to avoid the apparent ideological no-no of nationalisation again and again ? At what point might they begin to realise that chucking good money after bad is a deeply stupid thing to do

The BoE's role is to provide the necessary liquidity, and that costs literally nothing to create.

What does (or should) cost money is a guarantee.

I don't see why the government (ie the Treasury) should not provide guarantees to any Bank's lending (they do guarantee deposits) and charge a fee or provision for the use of it, which will then go into "Default Pools" to be managed by Banks as service providers.

Banks would then share in the default experience - to keep them honest - by putting their own Equity on the line to back the guarantee.

You are right that this is lots of stuff to happen yet, due to the fact that there is a lot of toxic wholesale waste out there and because the retail depositor is a dying breed......

"The future is already here -- it's just not very evenly distributed" William Gibson