One of the most talked about op-eds in recent months was published last Wednesday in the New York Times. Greg Smith, an executive director at Goldman-Sachs, chose to write his resignation letter as an op-ed criticizing the investment bank’s methods. He basically stated that Goldman-Sachs was only interested in profit, and put profit above the interests of its clients, often deceiving them in the process.
This is not new information. We saw similar methods among the causes of the economic crisis of 2008 and since. It is the basis for the Occupy Wall Street movement, which claims that the financial sector is holding the public and government hostage while gambling away the public’s money and engaging in unethical and perhaps illegal activities solely for the sake of profit and bonuses.
The stats also support the notion of a dangerous game being played. One example was an article in The Wall Street Journal that showed that the the size of the financial sector in the US relative to its debt was too big and posed a real threat. That threat is further exacerbated when there is not enough regulation.
Commentary following the op-ed in the New York Times also mentioned the ties that government officials and politicians have with the financial sector and the revolving door between the two realms. A government official that wants to earn millions in the private sector after leaving his post will act in a certain way when meeting his future boss to talk regulation.
Why am I writing this here? Because we have the same problems in Israel. Only in Israel the majority of the glacier is still underwater. We are heading toward it, but we cannot see how large it is.
Israel’s financial sector is big. How big? I can’t provide numbers. But I can say that after working in the media and with government for years, I have not seen a sector more active and noticeable than the financial sector. Banks, investment companies etc. The financial newspapers in Israel are the only ones worth reading. While they are also not offering the best representation of the facts, at least you can read the announcements of the people who are actually running Israel with their money.
The pensions of Israeli workers are invested in and by the financial sector. When they fall, millions of Israelis will not be able to retire. We already saw signs of that in the past year.
Israeli officials, working in the ministry of Finance or Industry & trade or even Knesset members are being hired by big companies & financial institutions right out of their regulatory positions. How do you think that influences the work of regulators being recruited by the institutions they need to regulate? These companies & organizations employ lobbyists & public relations specialists to influence any move that they want to promote or prevent. Just like in America.
In Israel, much like in America, they gamble & fall on their behinds and ask for a bailout. They want the government (which is the public) to pick up the bill and allow a “hair-cut”, as it is called in Israel.
Following in the footsteps of American “free market” and unregulated Capitalism will bring us to a crisis even bigger than we can imagine, sooner than later. I am not sure Israel, being so small, can sustain such a blow, as we do not have the size & purchasing power to rebuild so fast. We need to start preparing for a crisis such as this, with regulations, savings and whatever is necessary.
Israel needs to stop adopting bad ideas from its big sister across the ocean. Moreover, it needs to start learning from the U.S. Experience. While there are a lot of good ideas and values to adopt, deregulating the financial sector and giving the keys to the country to brokers & consultants is definitely no one of them. Time to wake up before its too late.