The Government came up with a good, if highly complex, plan to stabilise RBS yesterday. Then it went and spoilt things with some bad, if easy to understand, political posturing.

First, the important stuff. The scheme to insure RBS against catastrophic losses on £325 billion of its assets stands a fair chance of nursing the bank back to health while keeping it (however tenuously) in the private sector.

In an ideal world, it would have been better if the toxic assets had been completely removed from the balance sheet. In the real world, this is just too difficult, not least because it would require all the assets to be valued. It would also have put greater strain on the public finances.

The Government has had to go to great lengths to prevent the injection of up to £25.5 billion of taxpayers' money from diluting other shareholders down to nothing. But, on balance, it is right to bend over backwards to avoid outright nationalisation.

The terms are not as attractive for RBS as they look, and are only a bit more generous than those offered by the US Government to Citigroup - which hasn't worked. By giving RBS a good deal less than it wanted, the Government is taking a risk. After all, the last thing we need is for RBS to have to come back, yet again, for more.

Officials say that the Government could not make the RBS terms too generous because it needs to offer the same terms to other banks. But the circumstances of the different banks vary so much that hardly seems a problem.

In particular, the corporate loans Lloyds inherited with HBOS could be judged more toxic than the RBS assets so requiring higher insurance premiums.

Meanwhile, Stephen Hester's strategic plan for RBS's looks sensible and doable, although he is realistic about the timescale and the likelihood of mistakes along the way.

As for Sir Fred's pension, the Government richly deserves having the issue blow up in its face.

Of course, the pension is outrageous, and, of course, if he had any sense he would give some of it up. But it looks very much as if Sir Fred's original concessions were agreed with Lord Myners, the City minister. So the Government can scarcely change its mind now.

It is hard to see what it can do short of passing the Fred Goodwin (Deprivation of Pension) Act. And it has rather more important things to attend to.

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