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I read in the paper that Israel's banks won't become infected by the crisis. That they're stable and didn't make stupid investments like their American and European peers. Is it true?

No. It is true that Israel's banks aren't directly exposed to "toxic" assets like their peers overseas, not to any significant degree. But they are wide open to the global financial markets. A lot of the deposits in Israel's banks belong to foreign residents: more than $40 billion, money that Israel's banks deposited mostly abroad.

So why are we being told that Israel's banks aren't in danger?

The bankers and authorities have to keep the public calm. Anything they say that might smack of worry could spark a panic. The greatest danger is that panic could trigger a bank run. Israel's banks can handle a lot of things, but no bank can handle a stampede of investors desperate to withdraw their money.

Is my money at the bank in danger?

After what we've seen in the last few months, we can't state anything definitively. That said, let it be clear: If any bank in Israel stumbles into a liquidity or other crisis - whether because of the international jolts, the collapse of major Israeli business groups or a run on a bank - the government will react instantly. The Bank of Israel will guarantee all depositor money. It will do that because the collapse of a bank would lead to economic chaos.

So we depositors can sleep in peace because of unstated government backing for the banks. Why can't the bankers?

Because never before has Israel's banking system been this vulnerable. Most of the banks' assets face threats never seen before.

The first threat is to the banks' deposits in foreign banks. The entire perception of risk in the banking world has changed in the last two weeks. Banks and financial institutions that had been considered solid as rocks proved to be shaky. Meanwhile, Israel's banks have tens of billions of dollars deposited at foreign banks - directly or through securities. And they have already lost money on their holdings in Washington Mutual and Lehman Brothers, both of which had been considered safe as houses - but collapsed.

The second threat lies in the diminishing value of corporate securities. Because of the global panic, assets that also had been considered solid as a rock have dropped like stones.

The third threat to Israel's banks lies in the loans they extended to Israeli businesses. Israel's business barons insist that everything is fine, but their bankers know perfectly well that things have deteriorated in the last month, if only because most of the capital markets have seized up.

The major tycoons alone have more in loans than the total equity of Israel's entire banking system. But that isn't the only weak part of the banks' loans portfolios. An even more threatened part is loans to small and medium-sized companies, which were in bad shape a few months ago - and now the collateral that the banks hold against their loans has shrunken like snowballs in gehenna, not to mention that the developing economic slowdown won't do them any favors.

Are we in for a recession like in the 1930s?

No, comparisons with the Great Depression are frivolous. After every major crisis, American unemployment has risen from 4% to 6%.

Next year it will reach maybe 10% at worst. But during the Great Depression, U.S. unemployment hit 30%. The American and global economies are much stronger now.

However, the year 2009 is going to be much worse than 2008. At this point in time, though, the depth of the coming slowdown or recession doesn't matter - the question is how to reinvigorate the international money markets.

The economies are stronger? So why is the media so hysterical?

Because the financial crisis now unfolding is unprecedented and the best efforts by the strongest governments have failed.

What is our government doing about it?

Not much, and it hasn't done well at delivering a clear message to the people either. But it doesn't matter much what our government is doing: The crisis is global and the question is what America, Britain and the euro bloc are doing.

What are they doing?

They're pouring tremendous sums into the financial system, in every possible way. The whole system has seized up and they're trying to get the wheels turning again.

Every morning they come up with a new idea. At first they lent vast sums to banks. Then they said they'd buy the bad (read, dangerous) assets from the banks. Last week they started to shower down money - buying banks, guaranteeing the banks' liabilities. Now America is going the whole hog in government intervention by lending government money directly to companies, through corporate securities.

Is government intervention good?

No, it's bad, and will cause tremendous damage to the economy: towering deficits, discrimination between kinds of investors. It will create a filthy mess. But the governments have no choice. If the governments can't get the wheels of the financial system turning again, the snowball will grow to unimaginable dimensions.

Why not let the market forces clean up the system? Let the bad financial institutions fall?

Theoretically, it would be better to let the market clean out the bad institutions and the toxic waste they accrued. But at this point, the cleanup might cause even more damage.

All this was caused by American banks granting mortgages to unworthy homebuyers?

That was the trigger, perhaps the worst of the dodgy loans granted in recent years, but it's just the tip of the iceberg. Over-leveraging had become a plague throughout the global financial markets. America was perhaps the primary source of toxic assets that spread worldwide, but banks in England and Europe also leveraged themselves far too much. It's facile for the German and British leaders to blame America.

Britain's banks may have invested some money in subprime assets from America but their problem was a fatal combination of the collapse of the interbanking loans market and panic among their depositors. Not only Americans but Britons borrowed far too much to fuel their consumption, and Britain's banks also gorged on dangerous derivatives. Israel's banks, unlike Britain's and America's, have more assets in deposits than they have outstanding loans.

The U.S. remains the strongest economy in the world and U.S. government bonds remain the asset most in demand worldwide, even now. We can't say what today will bring: You'd have to be a complete idiot to hazard a forecast in these maddened days. I'm willing to bet on only one thing: that the crisis isn't over yet, and that it's going to last a long time. Massive government intervention will ultimately stop the snowball, but a lot of new diseases will be birthed en route.