Has Merv lost the plot?

Word on the street is that BoE Governor Mervyn King may be 'loosing the plot'.
In a stunning and uncharacteristic reversal on his word, King agreed with the FSA and other government regulatory bodies to do almost exactly what he said he wouldn't do and that is to use BoE resources and bail out 'unwise lenders'.
Surely 'unwise' is relatively tame to describe what the Rock has done - actually increasing the amount of loans on their books for the first half of this year, when all indications were that the market was going south, coupled with steadily rising interest rates, high inflation, the summer floods and decreased consumer spending:

In the first six months of 2007, its net lending rose 47 per cent to just under £11bn. And at June 30, it had a further £6.2bn pipeline of loans that had been agreed with customers but not yet delivered ... [w]hat’s perhaps even more embarrassing for Northern is that in its interim statement made earlier this summer, it was explicit that it continued to lend even as the interest rate environment turned against it.
[Peston]

Clearly that decision was unwise, but is Merv's decision any unwiser? Is he now under political duress to bail out banks?
Check the Northern Rock statement released today concerning the bailout:

...Northern Rock has agreed with the Bank of England that it can raise such amounts of liquidity as may be necessary by either borrowing on a secured basis from the Bank of England or entering into repurchase facilities with the Bank of England. Such repurchase facilities would include securities that have prime residential mortgage assets as underlying collateral. The collateral that can be used under this 'Repo' facility is similar in nature to the collateral currently utilised by many Eurozone banks with the ECB. This additional source of funding will enable Northern Rock to adapt its business model in line with the developing market conditions.

OK so get this, what Merv has actually done is collateralize the bailout using - guess what- "prime [read sub-prime - 'cause that's NR's main business] residential mortgage assets."
So the BoE - yes the Central Bank of England, Wales and Scotland - has now become a prime/sub-prime mortgage lender. But that's not the worse of it; now NR decides to adapt a business model in line with 'developing market conditions'; and King supports this?
To give yourself an idea of just what those conditions are, read what Rightmove had to say this afternoon about developing market conditions, then decide for yourself whether or not King is indeed - losing the plot.