"The crash on world financial markets has reached the freefall stage. The financial system is collapsing further daily, but the bottom is in sight," economist Micha Astrachan told Globes TV today. Astrachan was lecturing at Tel Aviv University in a conference on the financial crisis organized by The MIT Enterprise Forum of Israel.
Astrachan, who correctly predicted the recovery of the markets after the high-tech bubble burst in 2000-2002, says, "Israel is in a worse situation than the rest of the world.
"You have to remember that Israel, like other export-orientated countries, has an especially large part of its economy exposed to international developments, and so the damage will be much more severe than in the countries to which we export, such as the US and Europe."
Astrachan does not spare criticism of the Ministry of Finance's stimulus package for the Israeli economy. "The Finance Ministry's plan doesn't do a thing. It's neither positive nor negative. Nor is there much that can be done in a situation where we are like a flea on the dog's tail."
Could a situation arise that will force the Finance Ministry to take much more urgent and drastic steps?
"I'm sure they will do a lot of urgent things. What has to be done is to avert a crash of the financial system in Israel and to support the weakest sections of the population, but all the plans for providing jobs all of a sudden can't work. There will be no jobs, there will be unemployment, and we will all suffer, and I mean all no class in society will be unscathed."
When you talk about a safety net for financial institutions, what do you mean?
"We should copy what they're doing in the rest of the world. We must safeguard the banks, safeguard the financial institutions, and not safeguard our savings in the banks.
"We can't rescue the market, we can't rescue the tycoons, we can't even rescue all the savers in all the different kinds of pension plans. We can rescue those of them who have really fallen on hard times.
"We must ensure that the financial systems continues to function and inject credit where it's needed, and that at any cost. The Americans and the Europeans have already injected a great deal of capital into the banking system, and they will continue to do so as much as necessary, and Israel should go the same way. On the other hand, rescuing those who receive the credit is not the government's job."
What signs will indicate that the trend is changing?
"The Americans will have to double and even triple what they're investing in the banks, and by the way, not just in the banks but in the entire financial system, meaning the insurance companies as well. Investment in equity is needed, and quickly. If they do that immediately, there's a chance that the crisis will be short. If they don't, it could develop into something like the Depression."
Can you estimate how long it will be before we see some sort of improvement?
"If the inject another $250-500 billion dollars in the banks' capital bases and the financial system this week, then I reckon that within a quarter or two the economy will recover. Every week they put it off costs another $100 billion, because the needs are growing, because the system is collapsing and needs more of a fix. If they only do it in another couple of months when the new president takes office, we are already liable to be in a depression and then it could take years."
Published by Globes [online], Israel business news - www.globes.co.il - on November 20, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008