Tonight:
5°c
This Government has always been hot on consultation, though rather less so on responding positively when the consultation throws up protests. In his early days as Chancellor, Gordon Brown's characteristic reaction to objections was to offer to explain again what it was he proposed to do because the objector clearly had not understood how beneficial the original proposals were. It has not changed much since.
Nevertheless, it will be interesting to see how the Government reacts to the response from the Association of British Insurers to its ideas on how to prevent another Northern Rock debacle.
Rarely, if ever, has there been such a broadside of dissent. It starts by saying the Government's proposals should be judged against three criteria; their focus on systemic risk; whether they identify and address the relevant issues in a proportionate way, and whether they will avoid unintended consequences. It then says, without the mealy-mouthed woolliness one so often gets from trade associations, that "the proposals are deficient on all three counts".
The ABI does not like much of what is on offer, but it singles out for particular criticism proposals that the authorities should have the power to move in on banks they think are in danger of failing. Its particular concern is that a twitchy government will pull the trigger too soon (to avoid more Northern Rock-style pictures of people queuing up for their money) and when there may not in fact be any systemic risk.
Such an action would override the legal rights of shareholders and wholesale lenders. This, says the ABI, would "lead to a general loss of confidence in London as a financial centre...make the market less willing to provide finance even to healthy banks...risk contagion and loss of confidence in the money markets...with little or no regard paid to institutional investors whose confidence is vital..." For these reasons, the ABI does not support the proposals. However, fearing theGovernment will press ahead anyway, it then demands that such a new regime should be authorised and supervised by the courts. The reason for this, the ABI says bluntly, is that "we are not currently confident of the rigour of a public interest test conducted by the Government".
The nub of the matter is that the ABI does not believe the Government has made the case that these additional powers are needed, and it therefore urges more thought and less haste before deciding what if anything to do. Its great fear is that "rushing prematurely into legislation could result in arrangements which are not fit for purpose and end up damaging confidence in the City of London and making it less competitive internationally".
In other words Gordon, please don't screw this up too.
Stuffees turn on the stuffers
Meanwhile, back in the real world, insurance shares have begun to detach themselves from banking.
In the first stages of the credit crunch the sector fell because bankers had for years been telling everyone the insurers were the stuffees - the hapless souls who bought all the toxic products and were going to make huge losses.
Now it has become clear the banks were in fact stuffing themselves without realising it - shades of the Lloyd's of London LMX spiral of 20 years ago - because most of the sales were going to off-balance-sheet vehicles and hedge funds where they were supplying the vendor finance, and that is now all coming in again via the back door.
But in insurance, with the notable exception of companies like AIG and XL which have achieved formidable own goals, it does not look so bad, and the shares are beginning to make progress. Rightly so.
As Aviva shows today, sales are still OK in emerging markets and not disastrous in the rapidly slowing West. But the real point is that the insurers have cash in abundance. They may even now start buying some of that stuff the banks can't sell, provided they can get it at eye-watering discounts. The boot is firmly on the other foot.
Interestingly, the markets still have not cottoned on to how bad banking is. They talk about writedowns when they should be talking about write-offs. In a de-leveraging economy even seemingly good-value stuff becomes worthless. There has been much hype about the loans the banks have finally sold in the past few days, which ignores the fact that they gave the buyers loans of four times the sum required at artificially low rates to persuade them to take it. If that is a normal market transaction, ABN Amro was a bargain.
Next milestone in the meltdown? When Royal Bank of Scotland's shares fall to the rights issue price.
