The Israeli media has done the public an enormous disservice in its
miscalculated, misguided and mishandled attempt to vet Jacob Frenkel as the next
Bank of Israel governor.
As it gleefully sank its teeth into an alleged
shoplifting scandal, the kind of tabloid story that has few, if any,
implications for Frenkel’s qualifications to manage Israel’s monetary policy, it
shifted the blame from more important questions.
For starters, it seems
odd that Frenkel, a man who made millions of dollars as an executive for the
world’s biggest banks, would have been a shoplifter. At the ripe age of 63, when
the alleged scandal took place, he had no prior record of any such acts. Even if
Frenkel did have more in common than first meets the eye with the likes of
Winona Ryder, an actress who was caught and convicted of shoplifting despite her
fortune, it would have very little impact on the money supply, the price of
housing, the inflation target, the strengthening shekel, or the myriad economic challenges for which Israel needs a world-class economist on
That is not to say that Frenkel was a perfect nominee or that the
media should not have done its utmost to vet him. However, the fact that the
media directed its resources – and subsequently those of the Turkel Committee
and the attorney-general – toward an insignificant scandal is particularly
troubling given the relative silence over Frenkel’s term as vice chairman of
AIG, the international insurance behemoth that nearly felled the world financial
system in the 2008 financial crisis.
From 2004 until 2009, Frenkel took
in a hefty salary to offer his insights on global affairs at AIG. He was brought
on board by former CEO Maurice Greenberg, who was ousted from the position by
then New York governor Eliot Spitzer just a year later, triggering a credit
downgrade that brought on some of the company’s financial woes.
Boyd, a reporter who covered AIG and authored a book on the subject called Fatal
Risk, told The Jerusalem Post
that Greenberg had hired Frenkel “to do 1,000-foot
“You’re dealing with a rare global economic mind, you
want him looking at what happens if oil drops to $5 a barrel,” said Boyd. “Or
rises to $250 a barrel.”
Greenberg was the kind of man who had
contingency plans set aside for how to reconfigure the company in extreme
situations, such as a nuclear attack on New York, Boyd said.
having Frenkel look at the world from AIG’s perspective with a bunch of
macroeconomic shocks. What’s happening with currencies? What’s happening
to the major economies?”
As someone who was in charge of global affairs, perhaps
it was not in Frenkel’s purview to consider what happened if the company’s
credit rating was downgraded and housing prices dropped across the board.
Perhaps he did not even know about the Financial Assets unit, or that it was so
overexposed to high-risk derivatives it had to be rescued to keep other big
banks that were exposed to its risk afloat. Such questions missed the
As someone who had his hand on the wheel of AIG, does he carry
some responsibility? “Of course he should have seen something,” said
Frank Zarb, a subsequent AIG chairman who worked with Frenkel,
“It’s such a simple way to get to that conclusion,
particularly if you’re looking for something negative,” Zarb told the Post
“There’s no merit to the conclusion that he had any responsibility. You could
use that same analysis to relate to any senior official anywhere in the world
who had access to real-time data, and as you know, nobody of any significance
anywhere in the world foresaw that.”
Nonetheless, it was Frenkel who went
pleading to the New York Federal Reserve when the financial feces hit the fan.
According to the 2011 US Financial Crisis Report, on September 12, 2008, “AIG’s
board dispatched a team led by Vice Chairman Jacob Frenkel to meet with top
officials at the Federal Reserve Bank of New York.”
The Reserve refused
interview requests from the Post
on the matter.
Most people who knew or
worked with Frenkel at AIG praised him as a brilliant economist and a pleasure
to work with.
“He’s a well-rounded, good guy with a lot of integrity and
good background and you’re lucky to have him,” Zarb said.
Boyd, too, says
he “would be perfect to run your central bank.”
Picking apart the
culpability of the higher-ups, let alone any one particular executive, at an
organization as large and complex as AIG would take teams of good reporters and
investigators, and a healthy dose of national debate to boot.
talking about that, and the $182 billion bailout that went with it, Israel has
been shouting about a bottle of perfume.