Insurance, not nationalisation
The government really really really doesn't want to nationalise Royal Bank of Scotland or any of the other big banks.
That was the thrust both of Adair Turner's interview on the Today Programme this morning and of Paul Myners's article in this morning's Financial Times.
As if you needed telling, Turner is the silken-tongued chairman of the City watchdog, the Financial Services Authority, and Myners is the big-booted City minister who made a modest pile building up a fund management business in the boom years. We can safely assume they speak with authority on this issue.
Turner said that losses being incurred by banks right now are "not dramatically worse" than the FSA expected in October when it forced the big banks to raise £50bn of new capital - with £37bn coming from us, from taxpayers.
That was an unambiguous re-affirmation that they're not bust, in the FSA's view - which matters, since it's the FSA which has the power to determine whether a bank is fit enough to continue taking deposits.
However that's not the end of the story, because the banks could of course suffer losses that would muller them in a fundamental sense - and would of course prompt yet more financial support from taxpayers to prop them up.
In that context, it's striking that Turner was dismissive of demands that the banks must "come clean" about the extent of their dodgy loans and investments - which if memory serves me right has been something of clarion call by the prime minister in recent days (is it plausible that the head of the FSA would contradict Gordon Brown?).
Turner said that the banks and the FSA have a detailed understanding of what's on their balance sheets.
However only a soothsayer would claim to be able to predict with certainty how markets will move in the coming weeks or the precise course of our recession.
That's got nothing to do with whether the banks are hiding stuff. It just means that no one can know with certainty the future market value of banks' investments or the degree to which businesses and householders will have difficulty keeping up the payments on their debts.
These are, to use the Rumsfeldian cliché, "known unknowns".
And it's because there are these "known unknowns" that the Treasury announced on Monday its scheme to insure the banks against losses on loans and investments that could destroy their balance sheets and cause them to collapse.
Or, as Turner makes crystal clear, the insurance scheme is a way of staving off nationalisation of the big banks.
In other words, the government has decided that it would be better for you and me as taxpayers to take on the liability for the potential future losses of the banks, while preserving their semi-detachment from state control, than for us to own them and control them outright.
That said, Royal Bank and Lloyds Bank can only be semi-detached from the Treasury, because we as taxpayers own 70% of Royal Bank (or at least we shortly will do) and 43% of Lloyds.
But this is what you need to know and what investors in general appear to have missed in an outbreak of mass-hysteria that nationalisation looms: the prime minister and chancellor have made an unambiguous judgement that the general good would be better served by the semi-autonomy of the banks than by making them instruments of the state.
This is what Myners says in the FT: "The capacity for soundly managed banks and markets to support the generation of wealth in the economy could never be matched by the public sector...British banks are best managed and owned commercially".
Hmmm. On that basis, let's hope that the past, in the form of the banks' grotesquely inadequate management of risks during the last few years, isn't a guide to the future.
All this means that a very heavy burden rests on those at the Treasury who are frantically trying to make a success of the insurance scheme.
The guinea pig is Royal Bank of Scotland. It hopes that by the time of annual results on 26 February it will have made significant progress in identifying loans and investments whose losses above a certain level will be insured away by you and me.
This is a pretty tall order, because the bankers and Treasury officials will be trying to put a price on "known unknowns": it won't easy to agree the fee that RBS will pay us for being relieved of liability for losses whose certainty simply can't be measured in a scientific way.
But, as by now you'll have worked out, the Treasury will be pulling out the stops to make the insurance scheme work. Because if they can't get it to work, it's difficult to see how the 100% nationalisation of Royal Bank of Scotland - and even perhaps of Lloyds Banking Group - can be avoided.