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Once, when its economy was in particularly dismal shape, a wag suggested that Israel attack the United States. The idea was that America would crush us like a bug, destroy Israel and then rebuild it, which would end the crisis. "Terrific," said his friend. "But what if we win?"

Bank of Israel Governor Stanley Fischer chuckled at the joke. He was here to hear it, having stayed home from the International Monetary Fund conference to handle the local end of the unfolding crisis. He has been through a few crises in his time, including as chief economist at the IMF. But nobody has ever seen a combination of a worldwide credit crunch, a liquidity crisis, plunging asset prices, banks collapsing like dominoes and the nationalization of giant companies and banks. Governments have been injecting hundreds of billions into the markets, hoping to restore confidence: The West even coordinated a half-percent interest rate cut last week as Europe's banks reeled toward the brink, and Britain partly nationalized its banks, a move America is thinking of aping.

Yet over here, no Israeli will lose his money in the banks, Fischer vowed in an interview. Israel's financial institutions are not in danger, he said.

The Bank of Israel also lowered its lending rate by 0.5%, three weeks before its usual monthly monetary meeting and a day before the other central banks. But no, it was not coordinated with them, Fischer said.

So why the cut? Developments in world markets exacerbated the risk of a slowdown in Israel, Fischer explained: "The cut was designed to help the economy meet the challenges it faces ... Low interest rates are good for the business sector and the financial markets. This will also weaken the shekel to a degree, helping exporters."

Inflation is dropping, Fischer added, so the rate cut accorded with all the Bank of Israel's aims - keeping inflation low, bolstering financial stability and stimulating growth.

Fischer has spent much of his three-year stint as governor of the Bank of Israel fighting with the Finance Ministry over the bank workers' wages. But he is an economist of world repute, an author of textbooks on economics. Now is his moment.

The liquidity crunch is more severe than people realize, the central banker explains. "When a stock loses 50%, you say, wow, but it isn't as if a whole market will disappear by tomorrow. Liquidity is a more serious problem," he says: If nobody lends money, 1930s-style recession could ensue.

Still: This is not the end of capitalism, as so many suggest, Fischer said. "I believe there will be major changes in the American financial system, in risk management and in supervision over financial institutions. But I don't think it will be a revolution, and this isn't the end of capitalism. Churchill said that democracy is the worst system, except for all the other ones. The same is true of capitalism."

Some Israelis complain that Fischer has been too passive. Suggestions have poured in: lower interest rates, boost the dollar's exchange rate, spread a safety net under the provident funds, guarantee bank deposits. But Fischer is not getting dragged into the debate. His mandate is to keep Israel's financial system steady and minimize the inevitable slowdown.

Israel's banks are stable, insist our economic leaders. Does that mean our less sophisticated, leveraged system is better? No, said Fischer: Events in the U.S. teach mainly that better supervision is needed. The U.S. has multiple supervisory mechanisms that work independently, and many things - including mortgages - slip through the cracks. The supervisors need to work together, Fischer said.

Why isn't the West obeying free-market orthodoxy and letting bad banks fail? A bank collapse will not restore customer confidence, Fischer responded.

Generally, he approves of the U.S. bailout scheme, but qualifies that it is an open question to what degree the U.S. treasury can prop up troubled banks. Also, all crises have surprises lurking, he pointed out.

"In 1994, when I was at the IMF, Mexico went through a crisis. It started in December. Then we had quiet for half a year and thought we'd handled the problem. A year later, in November, we had a second round," he said. "We have yet to see the turning point. If Europe acts, too, the turning point will come, but it won't end the crisis."

He was surprised that American asset prices continued to fall despite Congress' support for the second bailout plan: "There are problems at some banks, but I think the plan brought us into a new era in the crisis" - one in which governments supports their banks.

Fischer believes that Congress' failure to pass the first program weakened Europe's banks. Rumors can be self-fulfilling, he noted.

Is Israel or is Israel not laying out a safety net for savers? Fischer isn't telling.

"There are talks with the Finance Ministry, but this isn't the time to answer hypothetical questions," Fischer evaded. The safety net that Jerusalem laid out in 1996 followed the collapse of Israeli government bonds. That is not the problem today, he pointed out, but refused to elaborate.

Should the government increase its budget in these troubled times, as Labor insists?

"That isn't a good idea," Fischer answered. "We're apparently heading for a harder time than we'd initially expected. There's no question that if economic growth does slow, the government will run a substantial deficit. This isn't the time to step up spending."