Governor of the Bank of Israel Prof. Stanley Fischer and Supervisor of Banks Rony Hizkiyahu are embarrassed. After World President Barack Obama and his advisor, David Axelrod, openly railed against the audacity and anarchy in wages of senior American bankers, the Israelis had to say something too.
But do not cry for Israel's bankers.
Fischer and Hizkiyahu have never intervened in the domestic revelry, and they won't do so now. Not even now, even after the bankers' failures have been disclosed for the umpteenth time, the banks' losses are hitting home, the recession is deepening, and a wave of unemployment is flooding the country, they will not intervene.
They will not intervene because with masses running wild with public money within their own domain while nothing is done to stop it, they cannot allow themselves to intervene in the mass tumult in the system they are supposed to oversee. As men living in glass houses, they will not throw stones. As men with butter on their heads, they cannot stand in the burning sun. Bank of Israel officials have a lot of butter on their heads, so who are they to question the mountains of butter on the heads of others?
In a few weeks, as the banks finalize their financial reports for 2008 and open negotiations on managers' salaries, compensation, and bonuses, Hizkiyahu will send a letter to the banks. It will be entitled "Compensation". He will ask, he may even demand - indeed insist - for thorough and weighty deliberations for the prevention of bonuses that carry the risk of creating risk-taking incentives by the banks.
At this point, interpretation will be handed over to the banks and their legal counsels. Who and what does this refer to? After all, we bankers never take risks, and who will decide which incentives enhance risk-taking behavior? Bank directors? Let's get real.
If Fischer and Hizkiyahu want to intervene in the banks' profligate celebrations, they know how to do it. However, they also know exactly how to formulate a letter of non-intervention that gives the appearance of actual intervention.
Fischer, Israel's top monetary policy manager, failed a long time ago in administration of the Bank of Israel and rebuilding it as a respected, honorable, and honest public institution. The gratuitously exorbitant salaries at the Bank of Israel continue, in parallel with the exorbitant salaries at the commercial banks.
The average salary at the Bank of Israel and at the commercial banks is nearly triple the average national salary. The excuse of the Bank of Israel and of the governor for their profligate employment terms and legal and illegal salaries and benefits is that the Bank of Israel wants top-flight employees, and you must pay them what they would get at the commercial banks. This means that rising bank salaries are an excuse to justify padding the salaries of Bank of Israel employees.
So why change or intervene?
Published by Globes [online], Israel business news - www.globes-online.com - on February 2, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009