Israel’s economy is dominated by fantastic wealth in the hands of a few families. During times of prosperity, these families have used the Israeli banking sector as a form of personal piggy bank to finance expansionary business activities. This has worked out well for the oligarchs and for the banking sector. These tycoon families have had ample capital to grow out their wealth and the banks have had very big, captive customers.
But what happens if these Israeli investors suffer from the same global malaise from which all markets and investors are suffering? Will Israeli oligarchs require a government buyout?
Well, Supervisor of Israel Capital Markets, Insurance and Savings Yadin Anteb, doesn’t think there is a crisis. When questioned this morning about the government stepping in to help bailout billionaires like Shari Arison who recently put her world-class yacht, My Shanti, up on the auction block for an estimated $100m:
If a company takes a loan and does not repay it, its other assets should be seized; it definitely shouldn’t get government aid…There’s no reason to inject money to save an Israeli tycoon. I don’t think that there’s any reason to do this. The pressure of the tycoons’ companies it transferred to the lenders.
When asked about Bank Hapoalim controlling shareholder Shari Arison putting up her yacht for sale for $100 million, [Bank HaPoalim chairman] Dankner replied, “To the best of my knowledge, Arison has no liquidity problem.”
Well, the lenders here are core Israeli institutions. We’ll see what the government says when a large Israeli bank comes crying and the ship has already left port.
So my wife asked me a question this morning. She asked, ” I just heard that the US government is going to take control over Freddie and Fannie. Does that mean that we can discontinue paying our mortgage?” Well at first glance that doesn’t seem to be a great question, but since my wife asked it, I figured there must be some deeper meaning, so I thought about it for a while, and then realized she had a point. What’s the point you ask? We have officially buried the concept of individual responsibility.
The fact is that aside from terrible mismanagement ( Hey aren’t some of those credited with mismanagement actually economic advisors to Barack Obama?), the main reason that these agencies are on the cusp of bankruptcy is because of the whole mortgage market fiasco. There, as we all know, people who couldn’t afford to buy the homes they purchased, were bailed out by the government. Now the agency, that underwrote half of those mortgages is getting bailed out by the government. To me that means if you do something really stupid, have no fear, because it doesn’t matter, there will be no consequences to suffer because the ever present government will take care of you.
There is an article on Seekingalpha.com written by Matt Cooper ” Frannie Bailout: Private Profit: Socialized Risk” that has some interesting insight on the bailout. There happens to be a spot-on comment written by ‘lavalyn’ which says, “the complaint about “private profit, socialized risk” is simply that of moral hazard and double standards. If you or I were to open a business and lose our shirts the way the GSEs have, the banks would stop lending, and we’d probably lose everything… easily beyond shareholder capital.
This bailout is the taxpayer stepping in to cover for mistakes made, which is already dubious… and that’s before upper management taking in millions in bonuses, shareholders getting dividends… and them then not giving back. In the interest of “limited liability.” The GSEs have been riding the implicit (and now apparently explicit) government backing, while not giving the taxpayer/government any return for it.”
Bingo.
Anyway, since I don’t want to be the only sucker left that makes monthly mortgage payments I am putting out a shout to Secretary Paulson, to contact me and take down my bank details to start making my monthly payments. Just one favor Mr. Secretary: Please make sure the payment is on time.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
