DC must pull together to recover economically, as Jerusalem once did.
By CALEV BEN-DAVIDmoshe bejski 224.88(photo credit: GPO)
"Imagine a financial scandal that forces the resignation of Federal Reserve Chairman Paul Volcker along with those of the heads of Citibank, Bank of America, Manufacturers Hanover Trust, Chase Manhattan and the First National Bank of Chicago. Such a massacre of top moneymen might seem far-fetched in the US, but something very much like it is now going on in Israel."
Ahh, imagine that. It was certainly difficult for Time magazine in 1986, just a few years after the Israeli bank shares scandal had nearly collapsed most of this country's leading financial institutions. Such a thing may have seemed possible here, where the stock manipulations by a handful of top banking executives could bring down Israel's cosy little economy. But such a prospect certainly seemed "far-fetched" in the massive and diverse US economy - until this month, of course.
Increasingly though, at least from a local perspective, aspects of the current Wall Street meltdown increasingly resemble Israel's financial crisis of the 1980s - with some lessons painfully learned from that experience worth noting today about how to contend with such an occurrence, and hopefully avoid it happening again.
Although the details behind the causes of these implosions vary greatly, both of them were the result of financial institutions falling prey to greed and forsaking sound banking and investment practices for reckless speculation, aided and abetted by official negligence and encouragement.
The immediate cure to the problem was unprecedented government intervention in the private sector, here in the extreme form of temporary nationalization of Israel's leading banks - Leumi, Hapoel, Mizrachi and IDB - and in the US the huge bailout program now working its way through congress, with possible passage coming Friday in the House of Representatives.
Although total collapse of the financial system was avoided here when the bank shares scandal first broke in 1983, it took several more years for the economy to be sufficiently repaired from the cycle of hyper-inflation, low-growth and devaluation that followed. The key was - take note, Washington - bi-partisanship, in its Israeli version of the unity governments established the year after the scandal under the leadership of rotating prime-ministers Yitzhak Shamir and Shimon Peres. Without their joint leadership - and the still historically under-rated contribution of then-finance minister Yitzhak Moda'i - it is unlikely the tough but necessary budgetary and fiscal steps needed to stem the decline could have been taken.
Even more impressive is that Shamir and Peres did so working together despite far deeper ideological differences, on almost every level, than those separating today's Republican and Democratic congressional representatives struggling to form a consensual solution to America's woes.
Yet the economic recovery program instituted by the unity government was not enough to insure that such a breakdown would not reoccur. That took both making new rules for the banks and markets, and assigning proper blame to those individuals most directly responsible for abusing the old ones.
This job fell to the government-appointed Bejski Commission, whose groundbreaking report in 1986 turned out to be unprecedented, both in the scope of its suggested reforms and in the censure it imposed on the senior executives and public officials it found guilty of having recklessly caused the bank shares collapse.
That the commission went further than expected in its recommendations was in large part due to the moral courage of its remarkable chairman, Supreme Court Justice Moshe Bejski - better known to the outside world as the daring and ingenious Holocaust survivor whose forgery skills had helped Oskar Schindler create the famous list that rescued so many Jews from the Nazi gas chambers.
Alas, not enough Israeli public officials share Bejski's fortitude; 22 years after his report - and a year after his death - some of his commission's recommendations remain unimplemented, and Israel's banking scene still remains too much of a clubby semi-monopoly. Fortunately though, those Bejski regulatory reforms that were incorporated have until now helped shield our financial system from the shockwaves of the Wall Street earthquake, despite dramatic fluctuations such as those that shook the TASE today.
Today, the US is in the midst of struggling its way through the kind of crisis that Time, upon observing a similar situation here, once thought unimaginable for America's mighty financial institutions. Washington will have to pull together in the coming days and overcome its partisan ideological gaps to forge a path to economic recovery, just as Jerusalem once did. But in order for justice to be done - and to avoid a repetition of the kind of economic catastrophe that the Western world cannot afford to have its only superpower protector go through again - America will also have to find its own Moshe Bejski, and give them the authority and tools to set things right and restore confidence in the free markets that are needed to underwrite free minds.
Calev@jpost.com
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