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Moore&#39s code

It may sound surprising given the acres of space they have been filling in every publication touching on financial services but the Sandler and Pickering reviews are a long way from the being the biggest issues facing the financial services today.

Oh sure, they have occupied two highly qualified and bright men and their highly qualified and bright teams for months, let alone the hundreds of highly qualified and bright people within the industry who have spent millions of man-hours preparing submissions, lobbying and briefing.

But the industry has a rather more pressing problem to deal with. As I write, the stockmarket is sitting below 4,000 and is looking down at a very slippery slope towards 3,500. It is a sobering thought that tens of thousands of people who first started using the equity markets for their savings in the last five years, and I am one of them, will have seen a return of zero if they are lucky.

Personally, I can take the knocks because I have no need or intention to use the money that I have squirrelled away in various stockmarket-linked savings products for well in excess of 10 years, if not longer. That is the way you are supposed to treat saving with equities, after all.

But the falls have been so sharp and the bonus seasons so brutal that there are plenty of people who will be reassessing early retirement plans, taking increasingly nervous looks at the value of endowments and hoping that Estelle Morris&#39 pledge to improve “bog standard” local comprehensives is about a lot more than just pretty words and spin. Because there are plenty of school fees plans which may not be cutting the mustard any more.

It is hard to overstate the effect of the current crash. It all seems so banal when the BBC reads out the value of the FTSE on the 10 o&#39clock news.

But the falls those reports have been showing mask a million stories of woe as ordinary people have become victims of the chicanery of Worldcom boss Bernie Ebbers and Enron&#39s Ken Lay.

How the financial services industry reacts to this in future is crucial. For years, fund managers have been dazzling their clients with those dizzying graphs showing fund man-agers&#39 returns.

At the bottom, there is that nasty little risk warning which says that equities can go down as well as up but nobody bothers to read it. For years, with-profits funds, which are supposed to be low-risk, have been piling into the equity markets seeking to spark up their bonuses by sitting on the back of the eternal bull market.

The few siren voices who warned that shares were overvalued, that it could not go on for ever and that the pull of gravity would one day drag the markets back to earth were either ignored or dismissed as cranks. Not any more, though.

As we stand, there are some who say the recent falls have “corrected” the level of the market to about where it should be based on corporate earnings. Earnings, if they are believable, are a useful thing to look at because a share price is simply discounted future earnings and based on historic price/earnings ratios the market is beginning to look a little more realistic than it has for some time.

I suspect, however, that it will be moving downwards for a while yet because markets overreact on the downside as much as the upside.

Final-salary pension sch-emes have decided their exposure to equities has been too high for too long. Some of the more sensible life insurers are doing the same although not, I am sorry to say, Standard Life, whose relentlessly bullish pronouncements ought to be tempered with a reality check.

The pullout by these institutions, even if they are just not putting new cash into equities as opposed to actively selling, will not help recovery pros-pects one jot. There are hundreds of thousands of retail investors out there who are taking the same view. A marketing man from one of the big life insurers once told me that people should really think whether they could afford a holiday in Spain or whether they should actually put their cash in their, presumably equity-linked, pension and stay at home.

People who took that advice and have looked at their savings recently will probably be feeling rather bitter.

Eventually, the markets are going to recover although when remains to be seen and you will not find me calling the floor. At some point in the future, the FTSE will probably reach and exceed 7,000 alth-ough not for a long time. Saving through the stockmarket can, and will again, be a valuable and rewarding thing to do.

But for the financial services industry, the cult of the equity and the hard sell based on those stupid graphs needs to end because people get understandably upset when they are promised a Nirvana that fails to materialise.

For their part, governments around the world could do one easy thing to restore confidence. They could take steps to ensure corporate wrongdoers are treated like the thieves they are by jailing them.

James Moore is insurance correspondent at The Times

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