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To truly appreciate the collapse of the American capital markets, we have taken the Metromedia telecommuncations company as an example. Its share a year ago was trading at $2.50, while today it is hovering at around 7 cents. In other words, if you had invested $1,000 a year ago in the share, you would now have $28 in your pocket.

On the other hand, you might have bought over the past year bottles of beer or cola worth $1,000, drank them all, and, after returning them, collected $50 in deposits. Therefore, it would have been preferable - from a strictly financial perspective - to drink and enjoy yourself rather than invest on Nasdaq.

On the background of what is happening with the telecoms companies, it is all the more amazing to find that Jack Grubman - one of the leading American analysts who was forced to resign a few days ago from Salomon Smith Barney investment bankers - will receive from his former employer a $32-million compensation package.

In the second half of the roaring 90s, Grubman was considered one of the strongest people on Wall Street. He would recommend a whole slew of telecoms companies, particularly those for which his bank worked or led share issues. And so the system worked like this: Salomon Smith Barney received the underwriting business for a tidy sum, and Grubman would be used both as the analyst and as a consultant for the same companies. He would favorably review the share issue, the firm's management would receive large share packages in the pre-issue stage, the public would lap up the offering, the share would soar and he would earn a handsome bonus. This is how the U.S. market worked. And for as long as the general public was flying high along with the Nasdaq, which blithely followed along, Grubman et al pocketed hundreds of millions in the process.

And in order to justify these incredible high prices for the companies, they thought up a new "finance theory," according to which the worth of a company was determined not by its future profits, but according to its potential customers, the number of hits on its website, etc. And as they themselves had invested in the same companies, they continued to recommend the telecoms sector even in the thick of its downfall. So how do you correct the distortion? How can you make the managers and analysts act according to correct economic interests? How can one prevent the salaries from reaching illogical proportions? How can one prevent corrupt managers and rogue analysts?

One way is to refuse to grant incentive packages to managers based on profits or share price in the approaching quarter, but based on long-term results, say in five years. In that situation, there would be little incentive for the analyst and manager to exaggerate or swindle, because it would be impossible to misstate balance sheets or sell overpriced bonds for long periods of time. And the recommendation would work well in the Israeli market too.