The banks fight dirty

The Jerusalem Post
4 Sep ’04

If anyone had doubts about the corrupting effects of the absolute economic and financial power our bank duopoly wields, the multi-million shekel campaign they have recently launched in an effort to block Netanyahu’s bold financial market reform, should remove them.

The campaign has revealed to what length the bankers are willing to go in order to preserve a monopolistic system that has enriched them personally but has impoverished everyone else, a system that is responsible for most of the ills afflicting the Israeli economy.

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financial markets

Israel's bank duopoly

If anyone had doubts about the corrupting effects of the absolute economic and financial power our bank duopoly wields, the multi-million shekel campaign they have recently launched in an effort to block Netanyahu’s bold financial market reform, should remove them. The campaign has revealed to what length the bankers are willing to go in order to preserve a monopolistic system that has enriched them personally but has impoverished everyone else, a system that is responsible for most of the ills afflicting the Israeli economy.

The banks have taken dozens of full-page ads, radio spots and TV commercials. They have plastered our streets with hundreds of huge billboards in an unprecedented campaign designed to convince us that they run a successful and stable industry that promotes a healthy economy, and that any changes forced upon them will not only destroy their vital operation, but the whole Israeli economy.

To bolster this preposterous claim the bankers quote an old (year 2000) report by the International Monetary Fund that ostensibly confirms their good standing.What the Bankers neglect to mention is that the same report also referred to the exceedingly high concentration in the industry that involves them in many conflicts of interest and endangering customers’ rights. They also habitually fail to mention the many public commissions, starting with the post bank share collapse Beijsky commission, that over twenty years ago recommended breaking up the banking oligolopoly; nor the several other (Brodet) commissions reports which followed with similar recommendations, or the damning State Comptroller reports that exposed banks malpractices. Most significantly, they do not reveal that in the sale agreement of Ha’poalim, the government preserved the right to make structural changes as the present reform stipulates.

The bankers also resort to scare tactics and threats by claiming that a comprehensive reform will damage the banks’ stability, with catastrophic results. But what stability do they allude to? How can anyone typify a banking system that brought the Israeli economy to the verge of ruin not once, but thrice, as “stable”? In the mid eighties the banks almost destroyed the Israeli economy and caused a decade of non-growth by their illegal, reckless share manipulation. In ninety-three, at a height of a stock exchange bubble, the banks seduced thousands of clients with easy credit and prompted them to recklessly invest in bank funds trading in shares. When the bubble burst, thousand of families lost their life savings. And only about a year and a half ago, the banks brought us to the verge of an Argentinian crisis, by lending 70% of all credit to 1% of borrowers, all the bankers’ cronies. These subsidized loans, lacking proper collateral, were used for highly leveraged, risky deals in real estate and entertainment. When the deals failed, the banks were left with 61.4 billion shekels in doubtful debts (after already erasing many billions in bad debts). The banks’ capital base is only 45 billion shekels! The bankers covered up their dismal failure in what is supposed to be their core business, loan giving, by gouging households. They imposed hundreds of arcane inscrutable commissions, including, until recently, a line payment, for every entry in the monthly statements. They take usurious rates from families that resort to the bank invented “overdrafts”. As a result, Israeli banks make most of their profits from households, forcing them to subsidize in effect their habitually bad business loans.The destruction by the banks of twenty years of the public savings had disastrous consequences for the Israeli economy: two decades of non growth, massive unemployment, very low wages and hundreds of thousands of families barely eking out a living. Exacerbated social problems have created a massive drain on the government budget, with over a third devoted to transfer payments.

The banks are also responsible for enlarging the income gap in Israel. The salaries paid to the excessive number of bank workers are three times the average Israeli salary, and the inflated salaries and millions in perks and bonuses that the banks’ higher hierarchy allots itself, contribute to this growing gap. But what mostly contributes to it is the annual transfer of many billions of shekels from low and middle-income savers to the dozen and a half families and entities that own the banks. The banks use their duopoly powers to deny savers true market rates on their savings (as evident from the over 5% financial spread). It is truly a huge bank robbery of savers.

To fight the proposed Netanyahu reform, the banks are manipulating polls. They present in their ads plain folk with fictitious addresses who ostensibly are so happy with the banks stability and performance that they do not want the government to force the banks to sell their provident and mutual funds.

We are not told that these hapless people are captives in funds to which the banks repeatedly sold worthless shares in companies that owe them a mint. We are not told that the banks funds performance is dismal, half that of private funds and with much greater risk

Again, our failing bankers use fabrications, personal attacks and threats to protect their excessive power and riches. For twenty years these tactics worked and paid them handsomely. For twenty years they have bamboozled the public and intimidated government officials and Knesset members, successfully managing to shelve any reform.

Will we let them succeed again?

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