Tel Aviv stock exchange.
(photo credit: REUTERS)
The crisis in the financial markets made headlines this past week. The pundits discussed why it came about, and how it affects Israel and Israelis. There was a consensus on a few issues.
One is that no one knows to predict how serious the meltdown is. It is not clear whether it is a “short term correction” or whether we are in for a prolonged decline which may seriously affect the world economy and Israel. The second is that the decline affects the pockets of almost all Israelis. The average citizen can no longer afford to ignore the markets for all of our savings are linked to them. Fifty years ago, the careful citizen would put savings into a government-backed and cost-of-living-indexed savings account and sleep well. This is today nigh impossible.
We are a rich society, and as the saying of our sages goes, one who has lots of possessions has many worries.
Listening to our radio or viewing our TV sets however, one would think that nothing has changed. Economics reportage on Israel’s mainstream electronic media is rather poor and does not provide good service to the responsible citizen. At face value, one might wrongly perceive that there is broad coverage. Kol Yisrael’s Reshet Bet has a daily hourly economics program at 4:05 p.m., usually presented by Anat Davidov. Galatz has such a program at 7:05 p.m., presented by Oded Levinson, who has a law degree. Both stations have permanent economic reporters, Ran Binyamini at Kol Yisrael and Yuna Leibson at Galatz.
A similar situation is found on TV. Oded Schachar is the economics czar of TV channel 1. He is a graduate of Hebrew University, with a B.A. in economics and an M.A. in business administration. Keren Marciano is his counterpart in Channel 2. Her B.A. is in law, her M.A. is in business administration. She runs a daily program at 7:30 p.m., The Savings Program, which provides the average citizen with financially related advice. Channel 10 has Matan Chodorov, who also served as head of the channel’s labor union.
Chodorov’s professional education is in law. Is it only by chance that the formal education of most of these “stars” is law, not economics or finance? Or is this a poor professional choice which seriously impacts quality? One may safely say that many of the reporters are socialist in their outlook, and this reflects itself in their reportage.
The question of employment is very important. If any Israeli company fires employees or is on the verge of bankruptcy, these reporters will immediately pick up the story, even though usually it affects only a very small minority. Messrs.
Binyamini and Chodorov went out of their way to prevent closure of Channel 10 TV. Shouldn’t their job have also included covering the economic logic of closing down the channel? Shachar’s reportage is severely colored by his socialist worldview.
But perhaps most problematic is that their reportage has very little to do with the financial markets.
A simple example is the bond market.
Anyone who listens to the news programs with the intent of understanding how the bond market fared is naïve. At most, the reports will refer to TA 25, Israel’s analog of the Dow Jones Industrials index, which provides a very partial reflection of the market. The bond market is huge. Most of our savings are in the bond market, not in stocks. Why is it ignored? Is it because the reporters are just not sufficiently conversant with bonds? The rule of thumb is that bonds, provided they are not junk bonds, are the more conservative investment.
Why then did our bonds lose enormous value at the same time that the stock market failed? An Israeli invention is the “Keren Hishtalmut” which can be translated as “education furtherance fund.” The fundamental idea was a good one: any employee should have the opportunity to further her or his education. This is good for the employer, for the state and the employee. The government thus decided that any funds deposited in such a fund would not be taxed for profits. Today, the fund is just another source of income – even the best deal in town. Not only are the profits exempt from taxation, most of the financial companies that service these funds are willing to give out loans at sub-prime rates using them as collateral, thus even further increasing their value.
Different funds have different policies.
Does the public know this at all? Do our diligent reporters keep an eye on them or are the funds in the news only when someone in the Finance Ministry suggests taxing them? But there is even more to it. The managers of the funds are quite negligent in their financial reports. The customer receives one only once a month and even then the report is 20 days outdated. Given the volatility of the markets, it becomes very difficult for the concerned owner to decide when to sell the holdings. We once pointed this out to a senior economic correspondent, who was completely unaware of it. When asked if anything would be done about it the answer was evasive, and to this day nothing has changed.
It is much easier to feed the consumer the facts the major financial companies give out, rather than delve in-depth into their operations. Most companies offer financial management programs and even advertise them in the media. Their fees are high and their performance is nothing to be very proud of. When was the last time that Oded Shachar provided his public with an in-depth analysis of these companies? Why is it that their actual fees are a well-kept secret? Israel radio had an ongoing advertisement from a real estate company indicating a 20 percent return on investment in US properties. This reminded us about a famous story attributed to Professor Moshe Kaveh, the former president of Bar-Ilan University. Someone tried to convince him to invest the university’s endowment funds with Bernie Madoff, noting the assured 10% annual return.
Kaveh’s supposed retort was that this was the very reason why one should keep away, since no one could provide such high returns on a year to year basis. Bar- Ilan University saved a lot of money. Has anyone investigated this real estate company? Or is it sufficient that it pays for advertising to keep them immune from a serious study? We are not economists nor are we trained in finances. However, the lack of professionalism of economic reporting in Israel’s electronic media is just another symptom of the prevailing attitude – we know everything better, the consumer should just appreciate us and not ask questions. In truth, Israel does have very serious economic reporting in the written media, but somehow, this information, vital for a “start-up nation,” has not yet diffused into the electronic media. Sports are covered much more thoroughly than finances! It should not take a financial crisis to bring the markets to the forefront.The authors are respectively vice chairman and chairman of Israel’s Media Watch (www.imw.org.il).