Frenkel: A media misfire

Israel has been shouting about a bottle of perfume instead of Frenkel's role at AIG and its $182b bailout.

By NIV ELIS
Jacob Frenkel 370 (photo credit: Wikimedia Commons)
Jacob Frenkel 370
(photo credit: Wikimedia Commons)
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 board.
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.
Roddy 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 high analysis.”
“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.
“He was 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 headlines.
As someone who had his hand on the wheel of AIG, does he carry some responsibility? “Of course he should have seen something,” said Boyd.
Frank Zarb, a subsequent AIG chairman who worked with Frenkel, disagrees.
“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.
Instead of talking about that, and the $182 billion bailout that went with it, Israel has been shouting about a bottle of perfume.