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Twenty years have passed since the Great Reform of Israel's capital market began, and last week we couldn't believe our ears. The chiefs of the provident and pension funds scene convened to discuss the spiraling crisis in their world and exited with an armful of suggestions for the Finance Ministry - steps it could take to stop the crisis from getting worse. Among other things, they propose that it resume issuing so-called designated bonds to provident funds.

Designated bonds?

Designated bonds are the instrument with which Jerusalem controlled and subsidized the capital market until 20 years ago.

Designated bonds were the dinosaur at which young brokers would snigger when complacently spearing the archaic, retarded capital market Israel used to have, where the government was the main player.

Until a few weeks ago designated bonds were a historic relic, shards of which still lay in the portfolios of some pension funds and life insurance schemes, a dusty memory of the days when the government ran the marketplace.

Yet behold! These rising young brokers so articulate on the benefits of the government leaving the market, so eloquent on the benefits of our wide-open, liquid, global market, are now screaming to Jerusalem for help.

Come back, they weep. Give us designated bonds like in the 1970s, give us exchange rate assurances like in the 1960s, give us safety nets like in the 1950s.

No, of course they aren't looking out for their own posteriors, they explain, their salaries and bonuses, no no no, huge loans taken to pay top dollar for provident and mutual funds that are now shrinking like snowballs in hell, not a bit of it. They're concerned about the widows and orphans whose savings will suffer. "The public is losing its faith in provident funds," they threaten.

Is that so? Is there real concern about the stability of Israel's financial system? Should Jerusalem intervene?

Wait. Before addressing these questions, let us address a far more basic one. A strange question, perhaps. But if the public does lose its faith in the provident funds or management insurance policies (bituach minahalim) - does it matter?

Well, ye friends managing other people's money, ye damsels of the free market - allow us to doubt it. Allow us to present a slightly more complex worldview than the one you so earnestly paint so Sir Treasury will rush to your succor.

A run on the provident funds, a stampede from management insurance policies may not be a bad thing, economically speaking. The public's loss of faith in the bodies managing its money is punishment for bad management.

We all know that the free market is based on reward - we see the huge salaries and bonuses, even though so many managers don't create real value for investors.

But where's the punishment? Did you forget it? Without punishment, there's no free market. With no punishment, the "free market" is just a machine that takes money from the many and gives it to the few.

There are good reasons to lose faith in the managers of the provident funds and insurance companies. Here are three of them.

? They did not make a true effort to warn the elderly among their clients of the tremendous risk they faced from market fluctuations. Investment in stocks is only appropriate for the young, below 50 years of age.

? Their fees are too high, so high that the manager is much less likely to beat the market.

? Concerned more for their bonuses and relations with underwriters than with the good of their clients, they hared to buy corporate bonds at unfeasibly high prices that failed to reflect their risk.

When the tide ran high, the institutionals generally managed to cloak their failures. When the tide ran out, their shame was exposed. The crisis showed the true face of all too many investment managers, and the true risk they'd imposed on their clients. The public doesn't like that face and plenty of people would like their money back.

The question of the advisability of withdrawing their money from provident funds or management insurance policies isn't relevant to the discussion of government policy. Each saver has to decide for himself what assets he'd prefer and what risk he's willing to undertake. The relevant issue is how to assure the punishment of bad or outright corrupt managers.

Possibly it isn't a question of penalizing this or that manager, but the sector as a whole. Possibly the crisis has exposed the fact that the prices of the popular pension savings vehicles in Israel are too high for some savers. It certainly exposes the screaming need for vehicles like American IRAs, where everybody adjusts their own assets composition and risk.

Six months ago, in an article "A clear and present danger," we warned of the dangers people with money in provident and mutual funds face. We warned about the apathy and inaction of the regulator, like his peers in the United States and Europe. Now people stand with jaws agape as their savings vanish into the night.

The risks materialized much faster and more powerfully than we'd expected, and now a new danger threatens. The jarred regulators may intervene, muck up the market and prevent the punishment it sorely needs, laying the foundations for the next crisis.

Debate is raging in the United States about which types of intervention were good and which might wind up costing too dearly. In Israel, there's no fear that the financial system will collapse because of the withdrawals from provident funds, so the government has to weigh its moves carefully and ensure that it's rescuing only the savers, not the managers.

If it must intervene, the government must spell out that its moves will come at a price: Managers asking for rescue using taxpayer money must accept caps on their future management fees and wages. They will have to answer not only for the merchandise they buy on your behalf, but for the way they market themselves as well.