Showing posts with label Banking. Show all posts
Showing posts with label Banking. Show all posts

Wednesday, August 7, 2013

High Price Apartment Solution: Higher Mortgage, Lower Interest, Easier Credit

Gindi, a leading real estate developer, market luxury in Tel Aviv (Israel)
As Israel's real estate prices soar, banks are not sitting by the sidelines. Banks are making home buying easier than ever before. Israelis are taking more debt, at a faster rate, worrying the central Israel bank regulators. Yet Israeli mortgage is not as leveraged as the US and European markets were when the real estate bubbles collapsed there. While Israeli regulators and policy makers (i.e. government agencies) are worried and taking steps to lower the market's exposure to collapsing prices, Israelis are still following the path buyers in the west went down before. Are Israelis not aware of the danger in taking high percentage mortgages? Are Israeli banks unaware of the risk in a collapsing housing market? What about the regulators and policy makers, are they not aware of the economic collapse due to real estate bubbles? Well, it is not the case of now knowing or misunderstanding. But it is a case of “this happens to others, not to me” (or to “us” here in Israel). We call it the “ostrich behavior”, stick your had in the sand when you are being chased. You don't have to be Australian to understand the ostrich analogy. Pretty much every western culture understand ignoring reality and hoping not to fall in the same situation as others. Just keep on ignoring things enough, and hopefully things will take care of themselves.  
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Wednesday, November 11, 2009

Simple Economic Models: Cars, Water or Real Life

When the economy changes drastically government officials and economists try to tell stories about it. They give us a model like a lesson in high school science class, sometimes they even give draw a diagram. A car is a good model for the economy, it has been used by senators and governors, we have a car but no fuel so we can't go anywhere. This model works great in the US, running out of fuel is a real emotional issue for Americans. There is a model of water, when it stops flowing we need to "prime the pump" (famous quote from depression era economists.) Water model is good, there are pipes and pumps, reservoirs and leaks, all kind of elements in a water system. Do we need simplified models to understand what is going on in the worlds economy? Do we need models for local economies? Why don't we deal with the economy as it is? When a bank collapses we should talk about the risk the bank investment managers took. When the US sub-prime Real Estate fiasco was going on, even Warren Buffet wrote about it in his eloquent yearly report to stock holders.

Models are good for certain things. But making an analogy for the world economy using a car and fuel is an over simplification. So is the use of water in a pump for the flow of money in any economy even a small one. Why don't we have accurate explanations from economists and government leaders on the economic situation? Why do we need to wait for a book to be written a year from now telling us how demand for durable goods (cars, refrigerators, diamond rings) goes down forcing less manufacturing of these goods to stop manufacturing, which means factories have less money for worker's salaries. Or demand for old technology like big cars running on gas goes down but there are still not enough new designs and not enough electric engine production capability to make hybrid and electric cars which would be more in demand if we had them. Or that in the last fifteen years American car companies has not produced a single low cost model so Hyundai a Korean car company or Sang Yang a Chinese company are becoming an attractive alternative? Demand, competition, trade advantages, import tariffs, these are not such hard concepts to grasp.

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Wednesday, September 30, 2009

Shift Your Image of Tel Aviv: Buzzing & Financial ?

The last few posts' feedback bring up again the gap between image and reality of Tel Aviv. The main reason I write about this has nothing to do with "righting the wrong" in our world. There is no reason to prove CNN or NBC wrong about their reporting emphasis on the Israeli-Palestinian fighting. Mainstream media highlight of military skirmishes, storm casualties and political meetings among world leaders is their version of the news. Blogging specifically and the Internet in general has validated a whole different view of the news. One that is much more relevant to most people most of the time. There are so many other important issues to deal with on a daily basis. To most people the traditional news content has almost become irrelevant. I say almost because the older population and the consumers of TV news are not going to replace their cable TV with a laptop connected to the Internet. Commuters on the way to work are not going to turn off the radio and listen to podcasts on their iPods (MP3 players.) As radio survived all these years in the shadow of TV, so will TV continue in the shadow of the blogging, Internet sites, podcasts, video clips on YouTube, networking with FaceBook, Twitter and Linked-In... add your own favorite Internet format here.

Tel Aviv and Israel in general has never been treated fairly in the mainstream press. That is the average Israeli's opinion at least. In my opinion this issue has more to do with the openness of Israel to foreign media plus the ongoing skirmishes between Palestinians and Israelis. The Palestinians are simply stuck in limbo and have had bad luck with their leadership. It does not seem like this will change. The Israelis are simply strong militarily and have absolutely no place to go. So CNN TV reporters and London Times photographers are having a field day here. Israelis only see this part of the equation and are as mad as hell. OK, enough with the bad news... here comes the good news. (PLEASE do not write comments on the Israeli/Palestinian conflict, there are plenty of other blogs to do that.)

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Wednesday, May 6, 2009

Stanley Fisher and Bank Governance: What Should Be Done

A curious story is on the newspaper headlines the last few days. Stanley Fischer the Israel bank governor seem to think that some bank executives are not doing the "right things". I am not sure what the "right things" are all about. But with credentials like past vice-chairman of Citigroup and author of the second most used university economic text book (Macroeconomics), Fischer needless to say has some clout. Now Israeli banks are not in as much trouble as the American banks. Israel did not go though the sub-prime loan disaster and even if you had money you could not have found a hedge fund in Tel Aviv as easily as in New York, London or even Paris. Because the economy in Israel is smaller than the American one and because Israelis basically have much less money to invest, we have not seen the downturn of the US or Europe. But still, Fischer feels responsible to the government and the people of Israel.

The case is about Bank Ha'poalim's board of directors' responsibility to stock holders and customers. Fischer is alleging that the board of directors has acted irresponsibly and has asked Shari Aarison the bank's controlling stock holder to fire Dan Dankaner the bank's chairman of the board. The issue is over the sudden departure of the bank's president Tvi Ziv and quick appointment of a new president Tzion Kinan. Why the shuffling, are they using Ziv as a sacrificial lamb? Get rid of the old president now the bank will be in good shape! All this management shuffling came with the last yearly report (2008) of a loss in revenue in the sum of 895 million shekels. This is the first time the bank has reported a loss, and it's a big loss. Apparently Fischer is unsatisfied with the quick firing and replacement of the bank's president. I wonder if Fischer is forcing American banking standards on Israeli executives. I am not making this accusation lightly. It is hard to describe the way things work in Israel until you face this type of situation. Israel and Israeli executives are much less formal in business management than American or European management. This is actually the biggest advantage of the Israeli economy has. Not only is the economy smaller, which makes it flexible and responsive, it is also informal and can do things Americans can't even imagine. To outsiders it seems like a closed private club, elitist at best, discriminatory at worst. Americans quietly accuse Israeli business of being one big fraternity. It seems like you have a better chance to be appointed a bank president by your old army buddy rather than by a committee selecting on merit or experience. Is this modus operandi a reason to intervene?

Fischer may have a point. After all he is in Israel to change the banking system from a small and isolated position to international (i.e. American) standards. If Israel did not to change anything why bring in an American to run the country's central bank? Fischer has history of flexing his muscles when he wants to make a point. A year ago the central's bank employees complained of being underpaid in international and industry terms. Fischer requested raising the salaries of all bank's staff to something equivalent of market and international levels. This meant changing the way the Israeli government paid employees and making the bank's employees salaries much higher than other government workers. Fischer claimed that he simply can not attract high caliber workers with such low salaries. The government postured that the central bank, a government agency, can not expect to pay double or triple of equivalent workers (judges, generals, physicians). In the end Fischer prevailed, not only that he got a nice budget to improve facilities, infrastructure and computing systems. But other government leaders do not have Fischer's clout (or is it chutzpa?)

It is unclear what will happen in this case. Should Fischer, the international reformer prevail and nudge Israel to a more formal business practices? or is Israel's small, flexible and clubby way more appropriate? What do you think? Powered by Qumana

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