It's a good time for the financial sections in the local papers. The open war raging between the Bank of Israel and Bank Hapoalim is providing new headlines and new, spicy material on a daily basis - just when the reports about the havoc in the global economy seem to exhaust themselves. The aggressive show that Mrs. Arison, who holds the controlling interest in Hapoalim, presented last week, and the decisive decision the bank's board of directors took this Tuesday to bluntly ignore the supervisor of banks' demand to cancel Mr. Keinan's appointment as their new CEO and to dismiss Mr. Dankner from the chairman's office, just fed the flames. The fight is getting more and more personal. It's Arison versus Fischer, a duel between the two most famous olim in Israel. Then you have Supervisor of Banks Rony Hizkiyahu against chairman Dani Dankner, with a lot of bad blood and history involved. It's juicy, sexy and draws high ratings. But there is another issue here, not as sexy, but much more important. Assuming that eventually Shari Arison will have to make concessions and go the extra mile toward the Bank of Israel, which has the power given in the famous Article 11A of the Banking Regulations to overthrow whoever it wants, Hapoalim will find itself in a place where the chairman, the CEO and some members of the board are de facto direct appointments of the central bank. This reality leads to an interesting situation. Right now we are witness to a bullish trend in the world's capital markets, a trend many experts who forecasted the current crisis insist is deceptive. After what happened in 2008, it is reasonable to assume that the worst is still ahead of us and that the basic flaws of the global financial system haven't been cured yet. So let's imagine that 2010 will be a terrible year and that the Israeli economy will suffer much more than it has so far. In that kind of a climate, many firms and households are expected to default on their loans and, in an extreme but not groundless scenario, a bank will fail to meet its capital requirement or maybe even reach negative equity. It almost happened to one of the banks here in 2002, when the crisis was much less severe, and it happened all over the world just a few months ago. What will happen then? Basically there are two options: one is a full nationalization, like Israel underwent in 1983, or something like Sweden did in the early '90s. The other is dealing with it "bailout" style, as the US government recently chose to do with Citigroup, Bank of America and many other financial giants. Just to remind us what such a bailout means, let's look at Citigroup, once the largest financial institution in the world. The US government gave the bank, whose deputy chairman in the years before the crisis was none other than Prof. Stanley Fischer, a total of $45 billion in cash and a blank check to cover up to $300b. in future losses. In return the government received about 40 percent of the bank's shares and some power over lending practices, executive payments and dividend policy. The total market capitalization of the bank during that period ranged from $6b. to $20b., not even a fraction of the money poured in by the government in cash and guarantees. So which way is better? A full nationalization is the preferable option. Not only does it put a complete stop to speculation about the future, but since it is by its very nature a last resort, it is also morally correct. The bailout solution definitely does not provide an answer to the acute problem of the "moral hazard" issue, the notion that if mistakes are not punished they are bound to occur again. And seizing the shares of an institution that failed due to its catastrophic decision-making is the only punishment that can work. Moreover, nationalization doesn't involve spending tons of money. All there is to it is a government seizure for a short period, with no cost at all to the taxpayers, who shouldn't be the ones to pay for mistakes made by greedy board members. Having the government as a sole owner provides the ultimate level of confidence for the public, and after a period of stabilization, the government can sell its shares to private investors, at a profit. That's exactly how control of Hapoalim was sold to Mrs. Arison's father, Ted Arison, after the bank was nationalized in the aftermath of the Bank Stock Crisis in 1983. And therein lies the rub. After all, no one, not even the central bank, is claiming that Hapoalim is in default right now. On the contrary: Bank of Israel Governor Fischer has repeatedly said there is no danger to the stability of any of the banks. His argument in Hapoalim's case is completely personal. But by taking direct control over the bank's business affairs through its top management, Fischer is eliminating in advance any chance of full nationalization in case of a real default by Hapoalim. If that would happen, Mrs. Arison could justifiably claim that since the bank is already under direct state control, the state should take all the responsibility for its affairs without punishing her, the poor girl who was cut out from any actual decision-making. "It happened during your own people's watch," she might argue, and it is highly possible that any court of law would back her. In that case, the government would have no choice but to choose the flawed bailout solution - and inject tens of billions of shekels into the bank without even receiving a single share. One might say that the scenario pictured here is highly unlikely, and therefore mustn't be used as an argument against Prof. Fischer's current actions. But if we have learned anything from the 2008 financial tsunami, it is that financial institutions are much more fragile than we figured - and that what was a healthy giant in the evening, can become a stinking corpse by the morning. Moreover, it is precisely the central bank's actions that can contribute to a default in Hapoalim, if the bank is run with no head in the coming risky months. We wonder if anyone in Jerusalem considered the option described here - or maybe, as an ex-Citigroup top executive, it is so clear to Prof. Fischer that, in any case, a Citi-style expensive bailout is the only solution possible?