Taking Stock / All Fall Down

Israel's bizarre ethnic rituals include an annual cliche, sorry, event, called "the prime minister's meeting with the economic leadership."

During this ritual, the great "economic leaders" from the great companies gather from far and wide and make the trek - or helicopter trip, whatever - to Jerusalem, to meet with the prime minister.

Prime minister Ariel Sharon created this annual rite, in his case at his famous ranch. One after another, bankers, top businessmen, buyers of privatized government firms and industrialists parked their Mercedes and their drivers outside the ranch, in order to share their ground-breaking ideas for improving Israel's economy.

When Benjamin Netanyahu took over as finance minister six years ago, he eliminated the ludicrous annual ritual. Scorning a meeting in the spotlight with the "economic leaders," he summoned economists and other professionals instead.

This time, though, before taking the helm as prime minister, he bowed to convention and held the ritual, summoning the old guard to salute the flag again. Perhaps it was his protracted exile in the opposition that drove him to this yearning for ceremony.

Whatever their reasons, these meetings between prime ministers and "economic leaders" naturally do nobody any good whatsoever, beyond creating a photo op for the prime minister. Oh, and they let some 20 businessmen try to position themselves as "economic leaders."

Why can nothing come of it? Because it's a ritual, public and leaky as a sieve, conducted by people with agendas. Since what's said in these meetings is useless, we thought there might be some value in listing what isn't said (more's the pity).

Prime minister-designate: "Hello, sir, chairman of Distinguished Bank. What do you think we should do about the tidal wave of unemployment threatening to swamp the land?"

Distinguished banker: "Put off payment of corporate bonds that everybody in Israel now owns through their pension funds."

PM-designate: "Will that create jobs?"

Banker: "If you don't, tycoons will fall!"

PM-designate: "Do the tycoons create jobs? I thought the biggest borrowers were real estate investors who invested billions and billions outside Israel. The borrowers are holding companies with a few dozen workers, max, all of whom are lawyers and accountants."

Banker: "Right, but you have to understand, we bankers also lent these companies billions and billions of shekels. If these companies can't repay their bonds, we'll have to make huge provisions for doubtful debt."

PM-designate: "That's interesting, because I keep reading in the papers how careful and cautious Israel's bankers were compared with their counterparts everywhere else, and that the problem is entirely in the bond market outside the banks."

Banker: "Right, and we're going to keep telling the press exactly that. But we aren't at a press conference now, we're in a closed room."

PM-designate: "Look, I don't think much of your suggestion. If a problem arises at the banks, then the banking system will need to be handled directly. I'd rather help the jobless directly, and shore up the economy, and stabilize the banking system, not just help a few huge borrowers represented by 'economic leaders.' Maybe you have some other idea."

Banker (pained, and ironic): "Sure. Invest in infrastructure and make structural reforms."

PM-designate: "Structural reforms? Great idea! What do you think about increasing competition in the retail banking sector?"

Banker: "No, there's no need for structural reforms in the banking system. It's stable, strong, it's good, it pays NIS 15 billion a year to 50,000 bank workers. You have to look elsewhere."

PM-designate: "Thank you, Mr. Bank Chairman. Tell me, Mr. Owner of a Real Estate Company, what do you think should be done?"

Owner of a Real Estate Company: "No credit is available outside the banks. The non-bank lending market has seized up. Institutional investors should be given state guarantees so they can buy at least NIS 50 billion worth of new bonds we issue."

PM-designate: "Why should we give you guarantees? Why should we use taxpayer money to help out a group of businessmen who borrowed tremendous amounts from investors to carry out leveraged buyouts, or to buy property outside Israel?"

Owner: "Because otherwise we'll fall. I warn you, we'll fall!"

PM-designate: "I'm not sure that's true. All that will happen is you lose a chunk of your company. You bring in new investors, replace debt with equity - give creditors shares instead of money back. In any case, perhaps it would be best for you to exchange a lot of your mountain of debt with equity. Your company would be healthier for it. You could invest more in new business when the economy rebounds. I suspect the era of high leverage is over.

Owner: "But we'll fall! We'll fall, I tell you!"

PM-designate: "So you fall. I won't argue with you. A few lawyers and accountants will lose a client. Your operational companies will continue to do business as usual. The truth is, I'm a lot more worried about the hundreds of export companies that are sliding into the void because of the global crisis. I'm more worried about the thousands of small businesses that employ hundreds of thousands of people, which are in danger, than I am about a few leveraged borrowers. Forget guarantees - maybe you have a better idea."

Owner of a Real Estate Company: "Yes, invest in infrastructure, increase the deficit and make structural changes."

PM-designate: "Increase the deficit? I think it will grow by itself this year, we don't have to help it. Structural changes, now, that's interesting. I understand your company has holdings in the automobile and cellular sectors. How about we allow a fourth service provider into the cellular market, a virtual one? That would heat up the market. And maybe we should carry out reforms that lower the price of spare parts for cars."

Owner: "Have you lost your mind? Israel's cellular market is the most competitive in the world. You mustn't touch it! It doesn't need structural changes. The automobile market is also perfectly competitive."

PM-designate: "But I see the profit margins, I see the return on equity on car imports and providing cellular services - the margins are higher than those of most high-tech companies. Some sectors out there behave more like a tax on the public than a service provider, a tax charged by some private company, not the government. Do you think that's justifiable?"

Owner: "Of course it is. These areas are unbelievably complex, fonts of groundbreaking innovation - you have to encourage the private sector. Capitalism is the driver of social wellbeing."

PM-designate: "Ah, so if the private sector needs encouragement, why are you asking for public money and discouraging competition?"

Owner: "I am all for competition! That is, competition in other industries, where I don't operate."

PM-designate: "Thank you for sharing your ideas. Now that I've understood the bankers and financiers, I'd like to hear from the industrialist. What ideas do you have for us?"

Industrialist: "Invest in infrastructure."

PM-designate: "Thank you, though that isn't exactly an original thought. We've heard it maybe four million times since the establishment of the state. Maybe you have something more concrete?"

Industrialist: "No."

PM-designate: "So why did you come?"

Industrialist: "So everybody would realize that I'm an economic leader."

PM-designate (smiling): "Okay, I see. That's legitimate. We all have egos. But aren't you too busy for such things?"

Industrialist: "It isn't about ego, it's about money. If regulators and government officials see I'm an economic leader and that I'm here, talking with you, they remember it. It's worth a lot of money to me."

PM-designate to staff: "Is anybody else outside?"

Secretary: "Yes, Mr. Prime Minister, but they can't come in right now. They're busy - they're talking with the press and TV."

PM-designate: "What are they saying?"

Secretary: "Infrastructure, Mr. Prime Minister. They say we need investment in infrastructure."