Taking Stock / We Shall Raise the Zionist Currency, Only to Bring It Down

David Arzi, chairman of Israel's Export Institute, seems to think he's tracked Osama bin Laden and his gang down - on Wall Street and in London.

Tens of thousands of American secret agents have been hunting for Osama bin Laden and his gang for years. Not only have their efforts been in vain, they've thoroughly embarrassed Western intelligence.

Maybe they haven't been looking in the right place. David Arzi, chairman of Israel's Export Institute, seems to think he's tracked them down - on Wall Street and in London. Last week he shared his intelligence assessments with the Knesset Finance Committee: "I'm afraid of the hedge funds in which our enemies sit, the bin Ladens," he said.

Actually, Arzi meant to target exchange rates. According to his intelligence assessment, the shekel's appreciation against the dollar originated in "speculative" activity by bin-Ladenesque forex traders and hedge funds. To quote: "We're under a Qassam missile attack of speculators".

The Export Institute is not a private institution. It's a government body, so its intelligence assessments should not be dismissed with a giggle. What may have sounded like an unthinking remark made at an innocent Finance Committee discussion about the dollar's decline could be a hint of secret information the government obtained about nefarious doings in dealing rooms on Wall Street and in London, where our haters scheme to bring about Israel's downfall.

"The missiles and bombs at the malls aren't doing the trick any more. They're passe," remarks Ahmed R., terror chief. "We have to adapt to the new millennium."

"Poison their wells?" suggests Mohammed Z., his deputy.

"No, you idiot, that doesn't work and it doesn't look good, either. We have to adapt to the times. We have to adopt the weapons the Zionists used when attacking the foreign-currency market in our Islamic country, Malaysia! We shall smite the Zionist currency!"

"Ahh, I get it. We'll open a giant short position on the shekel against the dollar through dealers in London, bring down the Zionist currency, trigger inflation and a capital flight from Israel - at first the foreigners will flee the bond market, then dump their shares and finally they'll ditch their real assets too," gloats Mohammed, revisiting memories of Financing 101 at Oxford, before he joined the terror cell.

"You got it backward," mocks the chief. "We'll borrow money from European banks, spend billions on buying the Zionist currency, strengthen it to 3.50 shekels to the dollar, ruining business for Israeli exporters whose business is in dollars and who pay in shekels..."

"But isn't a strong currency usually the sign of a robust economy with low inflation that foreign investors love?" inquires a trembling Mohammed.

"Fool! We shall raise the Zionist currency just to bring it down, to crush it into the dust! After a month we'll instruct the dealers to sell shekels, convert them to dollars and the shekel will collapse."

"But when the shekel falls and the dollar rises, according to your scenario, those Zionist exporters will flourish anew and we'll be back to stage one, with speculation losses as well. We'll be buying currency at the top and selling it at the bottom," the deputy objects.

"Relax, we'll get out in time. Remember how we bought put options on American airline shares before the Twin Towers job?" says the chief, and ends the debate.

It seems that Arzi, some of Israel's manufacturers and imaginary terrorists at hedge funds haven't grasped that in 2008, the government and industry and the Bank of Israel may heatedly discuss exchange rates, with about as much effect as heatedly discussing the weather. Fume and fulminate and plan as they might, they can't change it. It may have escaped Arzi's attention, but just as he was sharing his terror-hedge fund scenario with our elected leaders, the Bank of Israel was announcing that the shekel was joining 15 leading currencies in becoming fully convertible. Soon you can enter a bank in Sweden, hand over shekels and get krona.

Making the shekel convertible was technically enabled by resolving some knotty technological issues regarding clearing. But what really makes it possible is the sharp improvement in Israel's financial status and the series of reforms that have made us a part of the international marketplace.

The manufacturers whom Arzi represents enjoy the fruits of Israel's involvement in the international marketplace progress each and every day. So does the rest of Israel. Some $50 billion in foreign money that arrived in Israel in recent years, and the termination of various quotas, barriers and restrictions are behind much of Israel's economic growth, surging tax revenue, and the government's ability to help the underprivileged.

One would think that in the year 2008 the manufacturers would know the rules of the game, and that currency prices are determined by millions upon millions of players - exporters, importers, financial institutions - what Arzi calls "speculators".

Arzi and the manufacturers are right about one thing: The strong shekel makes life more complicated for exporters, who get less in exchange for their goods. But that's the way it goes in the open market.

He's also correct in that the government should intervene, but the method he suggests is irrelevant. The treasury and Bank of Israel can't and shouldn't meddle in the forex market, not through interest rates and not through buying or selling foreign currency. It would do no good at best, and could trigger a massive speculative attack at worst.

There are no magic tricks to help exporters. All the government can do is help the manufacturers improve their productivity and competitiveness, by spending more on education and infrastructure, by reducing the bureaucracy and by encouraging people to work. It is a complete waste of the Knesset Finance Committee's time to "discuss the dollar".

If they feel there's nothing left for them to discuss, let them ask the accountant-general at the Finance Ministry to drop by...

The brand-new accountant-general at the treasury, Shuki Oren, recently started an investigation into the Mossad. Yep, the one with the spies and assassinations. The accountant-general discovered that the "missions pit" that the Mossad recently built cost some NIS 100 million more than a similar hole that the Shin Bet service recently erected (or dug, whatever).

First off, kudos to Oren: The new watchdog is evidently following in the pawprints of his predecessor in lifting up public rugs and barking at the cockroaches underneath.

But, if we may be excused for turning a bit personal: Shuki dear, it's true that you led Bank Leumi Switzerland for years, but you're no starry-eyed new immigrant. You cut your teeth in the accountant-general department in the early 1990s. The problem with the Mossad, the Shin Bet and the defense establishmen, as you certainly know, isn't the cost of this or that hole they build (or dig), it's that their pits have no bottoms.

Israel's defense establishment and the secret projects that it carries out are a bottomless pit, completely lacking standards of efficiency or economic feasibility, and they're completely protected from the cleansing sunlight, too. This immunity enables the government and the defense chiefs to lavish a lifestyle undreamed of by the hoi polloi on themselves and on their nearest and dearest, not to mention their friends, suppliers and so on, while in parallel slashing government support for the old, the sick and the weak.

Your digging, Shuki old friend, in the bowels of the books of the Mossad, the Shin Bet and the various defense bodies should go a lot deeper than "mission pits." For instance, you should start digging in the office of your main actuary. Ask him to explain how it is that the state's liabilities to pensions for defense personnel (who pay not a single penny toward their retirement) have mushroomed not by NIS 100 million but by NIS 100 billion since you left the accountant-general's department for the banking world.