IN MAY The Economist failed to dispatch a correspondent to Tirana, Albania, to attend the opening function of the third International Deposit Insurance Week. That may have been a mistake. By this week interest in the technicalities of how to protect the cash the public keeps in bank accounts had reached the campaign trail in America. Both presidential candidates, keen to calm a rattled public, proposed lifting the ceiling on deposit insurance from $100,000 to $250,000. This, said Barack Obama, would “help restore public confidence in our financial system”. The change was included in the revised bail-out bill Congress is considering. Meanwhile Britain’s government said it would raise its scheme’s ceiling and other big countries in Europe could follow.

Political faith in deposit insurance is very widely held. Since America’s Federal Deposit Insurance Corporation (FDIC) was established in 1933, 98 other countries have embraced it, with Australia alone among big rich countries in offering depositors no explicit safety net if a bank fails. The ceilings vary by country (see chart), as do the funding mechanisms, with some schemes paid for by a levy on financial firms and others by governments. But almost all are justified on two grounds. First, an information asymmetry: Joe Sixpack is even worse than regulators at identifying which banks take foolish risks with depositors’ money. Second, if the public is convinced deposits are safe, systemically dangerous bank runs are less likely. …

CONFRONTED by blaze after blaze in recent weeks, America’s financial firemen have rushed to douse the flames—with one exception. Unable to persuade any rival to take on a battered Lehman Brothers, the government was left with a hard choice: spray the investment bank with public money or let it burn. In choosing destruction, the government has provided a painful lesson in the dangers of doing the right thing at the wrong time.

In a sense, Lehman’s misfortune was not to have hit trouble earlier. After broking the sale of Bear Stearns, another Wall Street firm, and nationalising the country’s mortgage agencies, officials felt an example needed to be made so as to combat “moral hazard”, or the risk that banks will act recklessly if they know they will be bailed out when their bets sour. Hank Paulson, the treasury secretary, believed Lehman’s problems were sufficiently well advertised to have given derivatives markets time to prepare for the worst. …

“AND gentlemen in England now a-bed, shall think themselves quite lucky they are not here, because it’s going to be extremely scary.” Had Henry V issued such a rallying cry before the battle of Agincourt, the English army might not have achieved such a famous victory.

Political leaders have duly chosen to be upbeat in the face of economic and financial calamities, albeit at the risk of historical ridicule. “The fundamental business of the country…is on a sound and prosperous basis,” said President Hoover in October 1929 (see article). The reasoning behind such piffle has been that any sign of panic from the nation’s leaders would only make matters worse. …