Businessman Nochi Dankner’s imprisonment Tuesday was first and foremost a tough development for him and his family, but it was also a significant moment for Israel’s financial elite. Dankner was convicted of manipulating the share price of IDB Holding Corp., which he did to try to save his empire, which was already near collapse. He's being imprisoned for a specific crime, but his record included lots of dubious activities – even if they were technically legal – whose sole purpose was to nurture that empire.
In those instances the business elites were quiet. Though many of them criticized Dankner discreetly, they didn’t have the courage to oppose him publicly. Some of his critics even took part in the “friends’ stock issue,” the one that ultimately led to his conviction.
This happened for two main reasons. First, excessive economic concentration meant that most of the elite had business ties with Dankner – as customers, lenders, borrowers, partners or even competitors – all with a common interest in charging the public high prices (for their cellphone service, for example). Thus they had no interest in confronting him. The second reason is that Dankner was essentially a pioneer in creating a dubious business culture, and his activities, they hoped, would pave the way for them to act similarly.
This Dankner-promoted business culture included control of assets of enormous value with little equity and a lot of credit from the public, control of companies operating in the local market whose profits were dependent on lenient regulation, the recruiting of former regulators and politicians to key positions at IDB, benefits to Dankner’s business partners in the form of generous fees, and transactions between interested parties in which a public company Dankner controlled would acquire a private company of his, including his personal debts.
It also included a hostile takeover of Bank Hapoalim’s board and credit portfolio through Dankner’s cousin Danny Dankner, the bank’s chairman; wild financial gambles like buying shares in Credit Suisse and land in Las Vegas during the 2008 global financial crisis, and seizing control of the failing Maariv newspaper for the sole purpose of using it against Dankner’s media and regulatory rivals.
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All these were preceded by the original sin of the Dankner family buying partial control of Bank Hapoalim using credit the Dankners received from Bank Leumi based on collateral in the form of land in Eilat and Atlit that was valued way too high. This too was facilitated by the corrupt ties between politicians and dealmakers.
Dankner’s entanglements, and those of other tycoons like Eliezer Fishman and Lev Leviev, exposed the public’s displeasure with this phenomenon, but were exploited by some moguls to claim that this was merely hatred of the wealthy and successful.
Well, it turned out that these tycoons were neither rich nor successful. If anything was revealed, it was the gap between productive businesspeople, who are entrepreneurial and work hard, and the small group of financiers addicted to credit and financial gambles in Israel and abroad who have given capitalism and the free market a bad name.
The business elite’s silence in the face of all the unacceptable phenomena typified by Dankner has stung the public’s confidence in the financial markets, in the banking system, and in the relationship between business and government, which was already low. Dankner, who has been sentenced to three years in prison, will have enough time to reflect on his actions, but business leaders will be making a mistake if they treat this event as his own private matter and not the result of economic and social processes.
They will certainly err if Dankner’s fall doesn’t teach them lessons about the ills of economic concentration, addiction to credit and risk-taking, and trying to control regulation rather than doing business fairly and sanely.