Nate, you're right but IMHO it only applies to smallish countries such as Iceland, i.e. the countries left standing have to be able to absord the loss. It's similar with insurance policies whether private or tax payer funded, e.g. the whole population cannot be unemployed and in receipt of benefits.

You are familiar with what happened when Lehmans went under and the whole banking market almost died so imagine something several times worse if the UK went bust. There could be no failout. The trillions being carried on other banks books would have to be written off (mark to market and the market value would be zero) and it would trigger financial meltdown within minutes.

You're both exactly right.

Until critical mass is reached, those on the periphery, opting out
of the system, can avoid the violent vortex crashing
the last hanger's on to the ground.

Option A then becomes the lifeline back to the Titanic
whereas Option B the lifeboat to build on the flotsam jetsam
floating up and out.

reminds me of Asimov's works and the Foundation Trilogy.

Might a government prepare for sovereign default by deploying food stuffs, establishing community shelter centers, prohibiting household evictions and then let the banks fail?

If you are going to panic, better panic early.