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The crisis is on its way here By Haaretz Editorial Tags: financial crisis, Business  The financial storm befalling American markets seems from Tel Aviv to be a foreign crisis whose connection to Israel is minor compared with the drama overseas. The diseases revealed on Wall Street stem from a financial apparatus resting on a real estate market that was inflated for years. The minute the real estate market there fell, the financial system that fed it with cheap, available cash collapsed, and the stability of enormous institutions was undermined. The fall of old-time investment banks such as Bear Stearns, which was sold, Lehman Brothers, which went bankrupt, and Merrill Lynch, which was forced to sell itself to the Bank of America, will change the face of Wall Street and bring with it strict regulation of U.S. markets. The nationalization of the two mortgage agencies Fannie Mae and Freddie Mac is a defining moment for the U.S. government, which had sanctified the free market and now will have to deal with its decision for a good many years. Advertisement Israel's financial system operates differently. It is less sophisticated and less leveraged, and therefore much less exposed to the collapses we have seen in the United States. The banks and insurance companies here are rather stable, thanks to the regulatory decisions made over the past two decades as a result of the Bejski Commission's recommendations, which have reduced most of the banks' inherent conflicts of interest. Alongside the Israeli financial reforms, the economy has increasingly been exposed to global markets. Globalization's contribution to the Israeli economy due to the entry of foreign investors has been enormous. But as we have discovered in the past few days, there are unavoidable side effects, which show up in Israeli financial institutions' exposure to the losses on Wall Street. Israel may be a bit player in the financial shake-up rocking America and the entire world, but as a global player, Israel's companies are clearly feeling the shock. In the short term, the effects are losses from investments in U.S. financial instruments. The big banks, Hapoalim and Leumi, and pension funds such as Mivtachim and the Israel Electric Corporation's fund are exposed to these losses. Every business in Israel is now trying to estimate its exposure to the institutions that collapsed, or might. In the longer term, we will feel other effects of the crisis such as a drop in foreign investment and lower trade with the United States and other countries. The reduction in such business is likely to spur further losses for Israeli firms, as well as layoffs. It would be a mistake to view this crisis as a twist of fate that we can do nothing about. Israeli decision makers, in the government and private sector, must strive to identify our exposure to the crisis and reduce it. They must manage a responsible budgetary policy that ignores the election season's rising populism, and conduct an interest-rate policy that allows businesses to survive without allowing inflation to rear its head. The United States may be to blame for the crisis, but Israel needs to find solutions to problems it has created here. Bookmark to del.icio.us   Unexpected guest Clinton cancels spot at Jewish groups' anti-Iran rally over Palin invite. Critique served cold Ex-IDF chief Ya'alon says the air force failed in the Second Lebanon War.

Read & React U.S. Jews outraged over phone campaign alleging 'Obama gave money to PLO' Responses: 172 Clinton cancels spot at Jewish groups' anti-Iran rally over Palin invite Responses: 115 Settlers: IDF backed down from plan to evacuate West Bank outpost Responses: 115 IAEA shows photos alleging Iran nuclear missile works Responses: 60 Ex-IDF chief Ya'alon: Air force failed in Second Lebanon War Responses: 44 More Headlines 01:29 Livni sweeps Kadima race; Olmert pledges cooperation 01:57 Shas: If Livni wants a coalition, she must fulfill our demands 23:44 Kadima primary: Key facts about Foreign Minister Tzipi Livni 23:23 Kadima leadership race: What happens next 01:26 Olmert: Stepping down is painful, but I feel no bitterness 20:35 Israeli bank stocks, bonds hit further by U.S. banking crisis 02:14 Germany makes list of Nazi-era Jews for archives 18:43 Clinton cancels spot at Jewish groups' anti-Iran rally over Palin invite 01:52 Baha'is buy military base to unblock view of Baji compound in Acre 23:53 Survey: Anti-Semitic, anti-Muslim feelings growing across Europe, world 01:23 U.S.: Strike on Yemen embassy was attempt to breach its walls 21:07 Hamas: West Bank militants must forcefully resist PA police 23:08 Paris prosecutors: No anti-Semitic motive in attack on 3 Jewish youths 01:36 Rose Pizem's body to be flown to France for burial Previous Editions Select Day 17 sep 16 sep 15 sep 14 sep 12 sep 11 sep 10 sep 09 sep 08 sep 07 sep 05 sep 04 sep

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