Why Bail Out UK Icesave Depositors?

Ok, here's what it looks like from my not-an-economist-or-financier perspective.

Over the past year since the failure of northern rock, the news has been blasting loudly the stated government policy on bank deposits: the government only guarantees up to 32K. That's it.

Last year i was rather angered by this: why not guarantee 100%?I've only recently heard a good explanation, and we'll come back to that. But suffice it to say that many people who were in the position to have more than 32k in savings moved their money across multiple banks. The consequence of this move of funds across multiple banks is that one could not park all their savings in a place where there was the highest interest rate - like Icesave's 7%. It meant shopping around for good but not as high interest rates. It meant having to swallow that lesser interest to play by the rules.

Yesterday, the news was filled with the lament of savers who had put over 100k in savings into Icesave, and dam, when the bank froze its assets and said, as it always said that it would guarantee 16k thereabouts, and that the UK's 35K would aslo kick in, well how awful that people would lose the rest, but that was the rules within which the rest of us have been playing - and baring the cost of that caution. But it looks today like that was rather stupid.