Here's a thought experiment. Would John Key's Government have been so ready to sign a $1.77 billion cheque to South Canterbury Finance depositors and its preferential main creditor, George Kerr's Torchlight fund, if the Christchurch earthquake had occurred before the bailout?

My view is that the Government would have reached for an entirely different tool kit.

Either get behind South Canterbury chief executive Sandy Maier by agreeing to the warranty conditions that the preferred buyer had sought - basically a bunch of caveats relating to the Government's deposit guarantee scheme that the buyer wanted put in place before injecting new equity into the finance company so it could continue as a "going concern".

Or, slap South Canterbury into statutory management and clear the way for the statutory manager to compromise all claims, including Torchlight's usurious fees and the over-the-line amount the company was paying to attract depositors.

And argue (very successfully) force majeure.

Just imagine the uproar if the sequence had been reversed.

Consider: Key goes down to the earthquake zone. Tells Cantabrians the Government will get behind them. But it will not be able to stand fully behind those who don't have earthquake insurance. As he told TVNZ's Q&A programme on Sunday: "It's the 5 or 10 per cent of people that don't have insurance that have said, 'Look, I'll risk it' ... and that's the moral hazard for the Government because, on the one hand, if we pay everybody out, why would people take insurance. On the other hand, you're gonna have people with real hardship and deprivation, and it's getting that balancing act right. It's not going to be easy."

His Government has since indicated it will come to the party with a range of social services. But nobody is pretending a bailout is on the way for those who failed to take out insurance.

Consider again: if having already made crystal clear his Government's view that it was too concerned about moral hazard risks, and the signal that would be sent if the Crown restored the losses of uninsured earthquake victims, Key then turned around a day or so later and said the Government was prepared to overlook moral hazard concerns when it came to South Canterbury's bond investors and creditors and fully pay them out so it could get full control of the situation.

I suspect the uproar of hatred that has been pouring out against South Canterbury founder Allan Hubbard on far too many uncontrolled websites over the past week would have instead been directed against a Government arguably looking after well-heeled opportunists to whom it did not owe a red cent as they were not covered by the guarantee scheme.

It will become clear in due time that the Government's receivership option didn't just appear out of thin air while Maier negotiated into the night to try to reach an accommodation with the preferred buyer.

And that the Treasury officials had been working on this for some time. And that word had obviously leaked into the market that the Government might entertain a so-called commercial solution aka receivership which arguably sparked a flurry of speculation before the trading halt was called on the Friday immediately preceding the $1.77 billion investor bailout.

As Maier said on Tuesday last week: "A lot of bets in the casino paid off big time today."

This Monday, Key endeavoured to spin the overall loss the Government might achieve from bailing out the South Canterbury depositors by tallying up the amount that has come into the Crown's coffers from fees for the retail and wholesale guarantee schemes and netting them from the projected amount the receiver will get for the finance company's assets.

This was how a $600 million projected loss last week was downsized into a $300 million to $400 million projected loss within a mere six days.

It's a specious argument.

McGrathNicol receivers Kerry Downey and William Black will now be getting to grips with the business.

The work Maier has done in separating out the profitable loans into a "good bank" and non-performing loans into a "bad bank" will pay dividends. The good bank is said to be returning double-digit rates.

The Government has said it moved swiftly to pay out the depositors to avert future interest payments running up to the expiry of the guarantee period. But the loan assets are also returning cash to the receivers.

The furore against Hubbard has been immense. I hold no brief for him. But the anger against him is fundamentally unhinged. Hubbard did sign across good assets such as the stakes in apple exporter Scales Corporation, the Helicopter Line and a third share in Dairy Holdings to South Canterbury.

If the Government had tipped the company into receivership or statutory management last year - when it must have been obvious to officials it was acting outside of the Government guarantee provisions requiring it to be a prudent lender - those assets would not have been available to the receiver.

So to the future: there are big lessons to be learned from this affair.

It is true New Zealand was in a different space when South Canterbury came into the guarantee scheme with a bunch of other finance companies which have now kicked the bucket. Our trading banks were justifiably concerned that their ability to access international funding lines had been crippled by the global financial crisis.

They needed the Government to stand behind them.

But there were also options.

The Reserve Bank itself had previously looked at options where creditors (aka depositors) could have part of their investment converted to equity so that an affected bank could be recapitalised, thus avoiding liquidation.

If they had used this mechanism in South Canterbury's case - perhaps combined with a statutory management period while things were being brought under control - the overall cost to the taxpayer could have been lessened and some real lessons on moral hazard learned.

What we have ended up with is very untidy: the Government has paid out "in the know" bond investors and foreign preferential shareholders who did not qualify for the guarantee.

Forget about moral hazard - the smart money now knows that the Key Government can be "gamed".