If Osborne was thinking at all he clearly would break up RBS
The late Christopher Hitchens wrote in his memoirs that an editor once said something to him that made it impossible to continue working for the man. A footnote revealed that those words had been "you're fired". That soupcon of wit springs to mind when one considers the spin around the news that Stephen Hester will leave the Royal Bank of Scotland this year.
There was a heroic effort by RBS and the Treasury on Wednesday night to impress upon us that Mr Hester had not been fired by the board (acting under the orders of George Osborne) but that instead he would leave the bank by "mutual consent". Well, I suppose we all leave employers by mutual consent. Eventually.
But more important is the question: why did the Chancellor want Mr Hester out? There have been conflicting interpretations. Some have suggested Mr Hester was opposed to Mr Osborne's plan to sell off slices of RBS stakes to investors at a loss to the taxpayer and he had to go. Others claim the former trader was still resisting ministerial pressure for him to slim the bank into a UK-focused mortgage and business lender.
Some even ponder whether Mr Osborne has been converted to the case for a good bank/bad bank split for RBS, a plan that the Banking Standards Commission has been examining and which Mr Hester would apparently not have stood for.
The least convincing explanation, naturally, is the RBS/Treasury line that Mr Hester is departing because he refused to commit to stay in the job post-privatisation.
All will be revealed in time. But the signals from the Treasury in recent weeks point strongly to the fire sale explanation for the sacking. Let's hope not, though, because such a move has all the makings of a costly mistake. The good bank/bad bank split is, in fact, the only policy option that will serve the broad public interest.
It has become fashionable for commentators to argue that while such a division might have had its merits five years ago, today it's too late. We're told RBS's toxic assets have been mostly successfully run down. But if this is true, why hasn't the RBS share price recovered? Even before yesterday's 3% slip in the share price, the bank was trading at a steep discount to its book value. Investors don't seem to believe the turnaround story.
Moreover, a little clear thinking shows a split cannot do any harm and might well end up doing considerable good.
If the optimists are correct and RBS's dubious assets, which would be taken into the public sector, are mostly fine then the state will ultimately get a profit as they are run down. Meanwhile, the cleaned-up good bank can be floated, just as the Chancellor desires, for a tidy gain.
But if the pessimists are correct and the questionable assets prove as toxic as many in the market apparently fear there's even more to be gained for the broader economy from a split.
Leaving the bad assets on the RBS balance sheet will turn the bank into a zombie, hobbled by its legacy debts and unable to expand its balance sheet.
For the taxpayer, then, a good bank/bad bank split is a win-win.
If the nationalised assets are fine, they ultimately recoup their money.
If the nationalised assets are bad, they get a privatised Royal Bank of Scotland that can help to finance a recovery.
As for the losses, as a majority shareholder they're ours already in practice.
The worst possible outcome would be to privatise a still-hobbled RBS at a loss to the public purse.
That would mean a hit to the public finances and no benefit to the economy.
A Chancellor who was thinking clearly would recognise this. We should hope that Mr Osborne did indeed remove the Hester roadblock to get to this destination and not to clear a path to a fire sale.