The business media in the United States has been offering extensive coverage of the collapse of the unrestrained free market ideal on Wall Street, and its replacement by another model – a sort of “American-style socialism.” There was no newspaper, website, radio station, or TV network that failed to prominently highlight the death of the model that stood at the epicenter of America’s economic ideology (and not only America’s) – that is, the government is the problem while the market is the solution.
Now, as a lesson drawn from the latest crisis, the tables have turned: The market is perceived as the problem, while the government is perceived as the solution.
Yet this deep ideological revolution has been ignored by a significant part of Israel’s business and financial media. The failure of unrestrained financial capitalism and the collapse of the Wall Street method, which had been premised on “investment banks” that are not really banks, was not brought to the attention of media consumers and kept on the margins.
Is it because people around here are unable to utilize more comprehensive, abstract, and methodical thinking? That’s part of it, but not the whole story. Israel’s media disregard had another reason: The difficulty to accept the collapse of an ideal.
When Communist leader Khrushchev delivered his famous speech against Stalin and his methods, most leftist and pro-communist newspapers in the West ignored it. Their editors and writers hoped that the speech merely exposed temporary mistakes and distortions in the wonderful Soviet model, which they struggled to implement throughout their lives: How could they give up on it all of a sudden?
That same repression and denial is taking place around here these days among commentators, editors, and business columnists. In the past decade, this distinguished bunch tirelessly preached the adoption of the model that grew, flourished, and prospered in New York’s business district. They looked up to the Wall Street state just like the Communists in France looked up to the Soviet Union and refused to reconcile themselves to its collapse.
Netanyahu’s reform
The institutions which the Wall Street state was premised on were, as noted above, investment banks, which cannot accept deposits from the public and mostly deal with issuing, selling, managing, and trading securities. The legal separation between them and regular commercial banks (legislated in 1933) paved the way for the rise of financial giants Goldman Sachs, Merrill Lynch, Lehman Brothers, Morgan Stanley, and Bear Stearns. This flawed and damaging separation introduced an element of instability and irresponsibility to the American stock market and also sowed the seeds of the latest crisis.
The opportunity to implement the 1933 Wall Street model in Israel presented itself in 2004 when then-Finance Minister Benjamin Netanyahu was convinced to adopt a reform aimed at forcing “Wall-Streetization” on Israel. However, three years after a new system of laws (introduced via an act of government hubris) forced this model on us, the model itself has collapsed and is being replaced by another one.
The US Administration and the Fed have taken over assets and financial corporations worth $1,000 billion and are undertaking what Economist Prof. Paul Krugman characterized as the greatest socialization in the history of the financial sector.
Meanwhile, “investment banks” are disappearing. Two have gone bankrupt, one was taken over by a commercial bank, and the two others received a permit – which is in fact an order – to become regular commercial banks. The Wall Street state as we have known it for the past 76 years has ceased to exist.
Yet you will not realize this, or perhaps read a few dry words about it, if you only read Israeli business papers. According to them, everyone is at fault for the crisis – President Bush, greed, weak monitoring, and generous compensation offered to top executives – yet the system itself is the only one not at fault. They still maintain their allegiance to it.
Just like it took the Communists at Western Europe’s coffee shops many years to become disillusioned with Soviet Communism, even after its flaws were exposed, it will take Wall Street’s sympathizers in Tel Aviv a long time to free themselves of their subjugation to a disappointing idol.