Fischer: U.S. Bailout Didn't End the Danger

Don't blindly follow the unthinking herd, FM Roni Bar-On advises local savers.

Washington's rescue plan for the American financial sector hasn't ended the danger that matters could deteriorate, and Israel's savers should think carefully before taking any drastic measures, Israel's economic leaders warned yesterday.

This is not the time to succumb to the temptation to blindly follow the herd when it comes to long-term savings, warned Finance Minister Roni Bar-On yesterday at an emergency debate of the Knesset Finance Committee.

Committee chairman MK Avishay Braverman Labor) called the debate to discuss the developments on Wall Street and their fallout in Israel. One local result was a mass movement among the general public to cash in money held in long-term savings vehicles, such as pension and provident funds. Last week about NIS 5 billion was withdrawn, prompting analysts to warn the public that it might well be selling in the dip.

Bank of Israel governor Stanley Fischer also attended yesterday's discussion, echoing the call to think carefully before acting. "I can't give advice," he said, but he urged people to consider the situation clearly before doing anything, with an eye on the medium to long run.

Washington announced its dramatic $700 billion bailout for the shattering U.S. financial sector at the end of last week, Fischer said, calling it a "positive move" - a position that not everybody accepts.

Some analysts have termed the rescue scheme, which will fundamentally redefine the relationship between government and the American financial scene, "cash for trash." Fischer himself, though applauding the plan, warns that it doesn't mean the danger is over. "The financial system is sensitive and fragile. We have to wait and see how the plan progresses," the governor explained.

The meeting was also attended by the chiefs of Israel's banks. The local banks have been disclosing, each to a different degree, their exposure to the American marketplace, whether through exotic derivatives, as in the case of Bank Hapoalim, or bonds issued by the mortgage giants Fannie Mae and Freddie Mac, in the case of banks Leumi and Discount. As the Wall Street investment banks imploded local banks reported relatively little exposure to securities issued by the sector. Braverman repeated assessments that Israel's banks aren't in danger: "Happily, the Wall Street culture seeped through only a little," he said.

"Israel's banking sector is strong," Bank Hapoalim chairman Danny Dankner told the committee. He called on the legislators to consolidate the regulatory authorities responsible for the capital markets and to lay down standards that would govern operations by Israeli financial institutions operating outside the banks.

Eli Yones, chief executive of Mizrahi-Tefahot (and former CEO of Bank Hapoalim), predicted that the crisis won't be ending any time soon. "I fear it will migrate to our district," Yones said. America and Europe have been amending the relevant regulations as the crisis unfolds, he said: They haven't been sitting around waiting for years to pass before acting. Yones suggested that more conservative options for asset portfolio management be developed.

The bankers didn't miss the opportunity to take a swipe at their pet peeve, the Bachar reform, which deprived them of their holdings in provident and mutual funds. "For the last two years we have witnessed repeated efforts to weaken the banking system in Israel," said Discount Bank chairman Shlomo Zohar. "We must show a sense of national responsibility and let the banking system alone to do its work properly."