Taking Stock / The Hour of the Real Tycoons

The global crisis isn't only a disaster, it's an unprecedented opportunity, for the public.

This is the biggest economic story of the day, as packaged, marketed and sold by the media.

A financial crisis unprecedented in scope that was sweeping through the global village reached Israel. It knocked down the capital market as the great companies' stocks and bonds reeled and fell.

So far, that's a nice, simple story that's hard to argue with. But now it takes a twist.

Some of the big companies and businessmen can't meet their interest payments, let alone repay the loans they took from the public. Their liquidity problems are threatening their very survival.

To prevent the collapse of these giant companies, which constitute a significant part of economic activity in Israel, the government has to help them via so-called "leverage funds," or, to pass laws that will let them defer making interest payments or repaying the actual loans to a more convenient time.

And that in a nutshell is the story you're being sold by Big Business, advised by their lawyers, bankers, accountants, public relations people and pet journalists.

Sounds reasonable enough.

But allow us to present an alternative version of reality, this time seen through the eyes of the financial world.

The world of finance is perceived to be a highly technical one, a cruel, capitalist environment. But as you will see in a moment, when these self-proclaimed "capitalists" aren't allowed to ruin the market economy, the world of finance can draw its fangs and become a kinder, more just method.

In the eyes of the finance community, the entire crisis is a correction of the gigantic financial bubble that developed worldwide, and in Israel, during the last few years. It was a bubble that enabled people who specialize in raising money from the public to become enormously rich - at the expense of the public.

According to the finance community's view of things, over the last few years companies, businessmen and entrepreneurs managed to raise money at interest rates and terms that didn't reflect the true level of risk. Some of the nouveaux riches of the last few years, says the finance community, made their money by borrowing from naifs who agreed to lend their funds without demanding a share of future profits.

Truth is, that's nothing new. Throughout history the ones who grow rich are the ones who took risks, with other people's money, and usually paid low tax while about it.

You may be suspecting by now that this is the narrative of "socialists" or bleeding-heart sock-knitting societies for the poor. But actually, TheMarker published a remarkably similar analysis a year ago by none other than "Bond King" Bill Gross, manager of the biggest bonds fund in the world.

Gross, a cruel capitalist who reigns in the most complicated market in the world, ruled back in 2007 that the subprime crisis portended the end of the cheap-money era. No more could companies or funds rake in money from the public for free, without sharing future profits, he predicted.

A billionaire himself, Gross mocked the rich who lavish donations on the poor to show how generous they are, and said the rich are no model for emulation; ultimately it's that very public, consumers and investors, who are responsible for the tycoons' great wealth.

They say every crisis brings opportunity, and this time, it's true. The great meltdown gives investors a chance to demand a share of the profits.

The liquidity troubles of the great borrowers are an opportunity for the Israeli saver to get a better return for his risk, or in English, to increase his chance of retiring in comfort rather than in penury.

During the next two years, institutional investors managing other people's money have an opportunity to seize ownership of the companies begging the public for money to stay afloat. Every tycoon or minnow who can't repay debt to bondholders and banks should be forced to hand over shares in exchange for a bailout.

In contrast to the debt rearrangements and rescheduling suggested by the companies' controlling shareholders and their collaborators in government or the press, an arrangement that transfers the controlling interest in the companies has three advantages.

? The share allocation to the creditors would improve the companies' equity structure, reduce their business risk (for example of being sued by creditors) and improve their chances of recovery.

? The public would get a share of future profits, if any. Right now the public gets to share in the risk but not the reward.

? As the controlling shareholders are diluted, the power would become more diffuse, not concentrated in the few grasping hands of the local oligarchy.

So this global financial crisis presents an unprecedented opportunity for the public, which is the real tycoon financing the adventures and gambles of businessmen, to share in the profits.

The problem is mainly that the public itself is unaware of this great opportunity that beckons. People who put their pensions at risk through loans to Big Business don't always grasp their rights. In the capital market, the public is represented by the institutional investors - banks, provident and mutual funds, pension funds and insurance companies - and their managers are the greatest obstacle. Some of these investment vehicles are owned by the very same tycoons, and the managers identify with the interests of their bosses, not of Mrs. Cohen, the widow from Sderot.

Another obstacle is bankers who also identify more with the tycoons than with the shareholders and their cute little deposits.

So this opportunity comes to rest at the door of the "independent" institutionals, the ones that don't belong to the biggest borrowers in the land, the most prominent being Psagot, run by Roy Vermos. Psagot is the biggest institutional investor of them all. It rests at the door of the regulators, who should push the entire banking and institutional market to reduce risk in the investment portfolios they manage. Vermos and the regulators should be delivering the word: You people in the street, this is your time.