While on Hold at my Broker's . . .

(Israelnationalnews.com) Gentle readers, let me worry about Tzipi next week.  This week I have something more general to get off my chest.

This blog is about Israeli topics, but it’s not inappropriate to comment on wider issues in the news and their possible effect on us.

The American financial meltdown underlines a couple of basic principles: 

1.  Economic survival depends on functioning markets.  The real threat to the world economy is the possibility that people, fearing the risks, will stop buying and selling capital—money, for those who want a simpler word.  That’s like no longer buying and selling oil because you’re afraid of the price, only worse; some things don’t run on oil, but every economic transaction runs on credit, even if you pay with what you think is cash in your pocket.  No capital transactions=everything stops. 

2.  It IS the job of governments to ensure that markets function, because that’s a vital social activity.  One doesn’t want the government actually running them, but it’s got to make sure they run.  That means efficient and effective courts, legal rules, monetary policy, fiscal policy, bankruptcy laws, etc., etc, not to mention judicious regulation.  Yes, regulation.  The idea that that precious creation, the free market, is sustained by government going away is one of the most vicious myths people with libertarian tendencies have propagated.  The free market is a delicate plant that needs a lot of cultivation. 

I’m a conservative, but I don’t think serious conservatives have ever doubted that proper regulation and oversight of markets is critical in order to make markets function well.  Regulation per se isn’t the enemy; there is a proper balance between more and less regulation at which markets function optimally over the long term.  The balance isn’t fixed, but American market regulation has been way below optimal for a while.

When people who should know better—like American financiers—go on a binge, like a drunk at the wheel, then preserving the free market requires aggressive intervention.  Now is one of those times.  Watch what happens to that drunk when he’s wheeled into the emergency room after the crash.  Watch the surgeon.  Is he engaged in nonintervention?  Is preserving the individual autonomy of the drunk on the gurney his highest concern?  Does he act like he believes that the doctor who operates least, operates best?  If he does, we’ll fire him after the funeral.

If the American economic tailspin deepens that’s going to be bad news for a lot of its allies and trading partners, including Israel.  One Israeli bank has announced that it will write off between 88 and 109 million dollars worth of Lehman Brothers paper that is now worth its weight in Confederate scrip.

That hurts, and other Israeli banks will also note serious losses, but Tel Aviv’s Ahad Ha’am Street is not panicking because it Can’t Happen Here.  Seriously.

That’s because Israel has first-rate regulators.  Its banks are regulated by the Bank of Israel.  Most Governors of the Bank of Israel during the past 23 years have been stellar, including the incumbent, Stanley Fischer.  Over a decade ago the BOI laid down a hard and fast rule:  No bank can invest more than 20% of its portfolio in property or property derivatives.  Other regulations on fancy derivatives have emerged with time.  The banks have complained.  So have property developers who weep that they’re being “strangled of credit.”  But most ordinary Israelis have little reason to weep over the BOI’s policies.

An economic crisis in America may leave the next President, whoever he is, with a lot less time and attention to deal with the Middle East Peace Process.  It’s an ill wind, they say.