Dying on the streets

Local media are mounting a dangerous campaign to roll back economic reforms.

October 1, 2008 21:29
4 minute read.
Dying on the streets

lots of money 88. (photo credit: )


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'People die on the streets," the anchorman of Politica, Oded Shahar, screamed at the sober (The Marker's) Meirav Arlozorov. She reminded him that yes, we are in a terrible crisis, but his gleeful assertion that capitalism was dead was a bit premature. The fact is, Arlozorov pointed out, that markets - despite imperfections and downturns - managed to correct themselves, to survive and even prosper. Indeed, the alternatives promoted by Shahar and his anti-market academic and media colleagues - a return to socialism and greater government control of the economy - were tried, several times and in several places. They always failed. Politica - a populist political talk show - is a venue for wild assertions ("Markets are savage, violent and inconsiderate," Shahar fumed), a shout-fest where arguments are clinched by bullying your opponent, with the anchorman's help. Unfortunately Politica reflects public discourse in Israel, which is shaped by leftist indoctrination, especially in economic matters. Israelis were convinced by their pundits that the present crisis is the result of a basic flaw in capitalism, its tendency to encourage cutthroat competition in which the greedy and dishonest always win at the expense of the poor and weak. No one even suggested that these flaws - yes, they do exist - are not created by the market but reflect the imperfect human nature that mars all human institutions (marriage or democracy, for example). Markets check these flaws best (not perfectly) by promoting competition and by enabling customers to identify and avoid dishonest practitioners. Regulation, entrusted to bureaucracies, mostly does not work. All major "market failures" - that Israeli economists and pundits gloat over - have been the result of government failures. That great symbol of capitalist failure, the Great Depression, was caused, Milton Friedman demonstrated, by the failure of the Fed to inject liquidity into the banking system so that a run on the banks could be checked. Instead the Fed recklessly contracted the money supply so badly that the banks were strangled and failed. The rest is history. THE PRESENT crisis too is government made. Holding the erroneous notion that governments, through the central bank's monetary policy, are able to "heat" or "cool" an economy, the Fed after the dot.com debacle pursued a policy that flooded markets with cheap credit. Cheap money had unintended consequences: a meteoric rise in commodity prices, especially oil (with an assist from Iranian-sponsored terrorism). It probably distorted exchange rates and undermined the value of the dollar, the universal currency and store of value. Cheap money also made possible the great proliferation of junk mortgages - a practice started not by greedy Wall Street capitalists but by the "socially minded" Bill Clinton. He put his cronies at the head of Fanny Mae and Freddy Mac and instructed them to grant mortgages to anyone, without demanding personal liability. Controlling half the US mortgage market, a whopping $6 trillion, these two giants recklessly leveraged their debts 50 to 1. Commercial banks followed. Those considered the culprits, the "greedy" Wall Street financiers, were the last to join the party. Fact is, commercial banks were hit first by the debacle, except that - unlike the Wall Street giants - they were bailed out by the Fed. Without cheap money and the prevalence of junk mortgages, then, the crisis could not have developed, voracious Wall Street sharks notwithstanding. Pinning the blame on greedy Wall Street sharks - who are the authentic representatives of the free market system, of course - in terms reminiscent of old Soviet propaganda, is the sweetest opportunity for the Israeli left to pronounce capitalism, and its cruel "Thatcherite" Israeli offshoot (they fantasize), dead. In cahoots with some prominent pundits, who have fought in the service of the bank cartel against the Bachar Commission financial market reforms, the left-dominated media are mounting a dangerous campaign to roll back these reforms and to reinstitute the banks to their former dominance in the economy as an all powerful cartel. If one can at the same time smear Binyamin Netanyahu, the progenitor of these reforms, all the better, of course. Outright lies ("Netanyahu screwed the poor" when in fact he saved the country from a collapse that would have destroyed the poor) and dangerous - almost criminal - scare tactics, are used by some commentators to foment a panic and have customers withdraw their savings from "dangerous" private funds and deposit them in the "safe" banks. But before the Bachar reforms, the banks were on the verge of bankruptcy (their problematic loans topped 130 percent of their capital). They granted most credit to cronies (70% to 1% of lenders) and created a dangerous credit crunch for the rest. Denial of credit, especially to medium and small businesses (the large crony monopolies got all the credit they wanted), resulted in two decades of non-growth, heavy recessions and the economic decline of the Negev and the Galilee, where only small businesses exist. Fact is that since the Bachar commission reforms, which, though incomplete, have revived financial markets, the country enjoyed a stunning growth spurt averaging 5% a year. The red professors who dominate the universities, especially the social sciences and the humanities, and their media friends who have sold their souls to the bank cartel are impervious to these facts. All they want is to destroy the little economic freedom that Israel has started enjoying recently and plunge it back to its former socialist dark ages. They must not succeed.

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