To an outside observer it looks bad - one day a bank that holds financial assets of more than 200 billion dollars collapses - and after 3 days another bank collapses, with assets worth more than 100 billion dollars.
The amounts are fantastic and with them quite a few questions arise.
When it comes to fraud, for example, everyone is invited to remember Bernard Madoff (and this is the place to recommend the documentary series on Netflix about the man and the affair, you will see breathtaking exploits that no Hollywood screenwriter would have dared to invent), but when we are dealing with normal business, how can it be that a financial institution comes in One of many billions to zero?
So let's start with the easy answer: he is not.
Now we need a little more words to explain.
But before we move on to them, we should point out that in the meantime
a siren of calm has sounded all over Silicon Valley
, when Silicon Valley Bank was sold to the banking corporation HSBC which will bear all its debts to customers.
At what price did the bank sell?
Well, one pound, less than 5 shekels - https://finance.walla.co.il/item/3565054
The Israeli branch of Silicon Valley Bank.
From now on owned by HSBC (Photo: Reuven Castro)
You won't find Madoff here, not even sub-prime
First of all, it is worth clarifying that no financial disaster happened, that is - there are several victims, some of whom will lick the wounds of the recent incidents for a long time to come, but there is no fear of a collapse here as was the case at the end of 2008 or in the Madoff case, during which Americans (mostly) lost their life savings because They were tempted to believe the deceiver.
Second, following on from this, it must be clarified that the aid lines opened by institutions - whether governmental such as the Treasury and the Bank of Israel or commercial, such as the major banks, remain orphaned.
They gave the initiators of the move (which is good in itself, regardless of the motives) the required positive title, but actual assistance was not required.
The reason: the assets of the institutions that collapsed (or seem to have collapsed, we will soon explain) can compensate the debts to the account holders and deposits in almost full adequacy - and if this is the case, what is actually happening here and why is there a smell of panic in the air, even though so far it is not really a collapse People jump from the roof", as Shalom Hanoch described in the song "Waiting for the Messiah", somewhere 40 years ago.
Bernard Madoff, perhaps the most famous crook in history.
It should be understood that this is not the case this time (Photo: Reuters)
Between high-tech and crypto
Let's take a moment to look at the industry we call by the inclusive name "high-tech".
In the minds of most of us, who do not belong to the industry, an image of "something with computers" comes to mind, offices on the Herzliya-Ra'anana line, a Ten-Bis card, a Tesla in the parking lot, environmental awareness and demonstrations against the reform every Saturday night, with the prospect of re-location (or "in Hebrew" relocation).
Beyond the fact that it is not accurate (for example, not everyone has a Tesla), even after the prejudices, it is necessary to understand that the high technology (high-tech) business is not of one piece.
A giant like "Intel" for example, which even in the days when a severe diet is imposed on it, is one of the most stable businesses in the world.
She is not like three guys who met while serving in the 8200 and invented a new app that will tell us when the dog needs a walk even before she stands and howls at the door.
But - the last example can be misleading: because those 3 guys may well invent something that will be worth, one day, hundreds of billions.
Suffice it to mention Mark Zuckerberg and his friends who, after all, wanted to meet female students - and gave birth to Facebook, later Meta, which, even after a very difficult year for its stock, is still worth as much as a country in Africa.
So how do you know?
We don't know... Most of the start-ups (start-up companies) will close in a short time, some will burn down along the way for low-level investments, usually from private investors (angels) or from venture capital funds that were tempted to invest in the venture.
But not only "dream companies" (that is, those that try to fulfill a dream, both of the entrepreneurs and of the investors, a moth that lights up the morning light and brings with it a reaction, usually a bit disappointing) are among the start-ups, but also quite a few that will really change reality And create a new future: pharma-tech, bio-tech, food-tech, agro-tech and even cyber.
It is clear to all of us that they hold the key to the future (which does not necessarily mean that they will succeed).
The point is this: in a zero interest environment which means cheap money, these companies can become success stories thanks to raising capital from the public.
Remember the angels and venture capital funds?
Their wet dream is to bring the company to the stock market, to the capital market, where millions can be turned into billions - and when there is cheap and available money around that is just looking for an investment channel that will allow it to grow, any bastard can become a king, or in his new name, a "unicorn".
I'm sure some readers are now asking themselves "cheap money"?
Since they don't remember having one.
Well friends, I don't know how to tell you this, but you had it, even if you didn't see it in your bank account.
You had it in the pension funds, the managers' insurance, the provident funds and the training funds - you knew about some of the amounts, some remained hidden from view.
On the margins of the story of the high-tech industry, the crypto industry that excited - and still excites - the imagination of many has withered.
A decentralized currency locked behind digital ciphers, which does not belong to any government or central bank.
Even before there was a tangible (or seemingly tangible) asset, it was an idea that fascinated all the prophets of the new economy or those who sought to be a part of it.
The defenders of the domain will say that whoever purchased, for example, Bitcoin ten years ago, made a fantastic fortune.
On the other hand, those who bought before some of the falls in the sector (and they come in cycles) lost a huge fortune.
So how can you tell?
Well, very hard.
This area is less recommended for those who need money to buy an apartment in a year (for example), as it is exposed to extreme fluctuations in its price (and this even though as a long-term launch it may turn out to be an excellent asset).
And sometimes the party ends.
When money became expensive, the difference between dream companies and companies that have a real product became clear (Photo: ShutterStock)
So how did the crisis happen?
In one day (it didn't happen in one day, but relatively in a short time) money stopped being cheap.
The governments (mainly in the USA, but not only) that printed huge amounts of money to help citizens survive the Corona period without undermining the social order, began to understand (late, but this is already wisdom in hindsight) that the meeting between low interest rates (cheap money) and grants The corona virus (a lot of money) is a generator of inflation.
Inflation is not only an economic cancer but also (mainly for European countries) also post-trauma. History reminds us how during an inflationary spiral, a salary paid in the morning is barely enough to finance a loaf of bread for lunch. That is why the central banks are determined Fight it and kill it while it's still small.
How do you do that? Make the money more expensive, wait for expenses to decrease, push prices down - and lo and behold, inflation is curbed. No?
So that's it, no - this time what is known as a "perfect storm" was created - the public, still fed up with the Corona grants, was in no hurry to save, Putin invaded Ukraine and caused an energy crisis, the trade war between the US and China crushed the growth of the Chinese economy (experts will comment that this explanation is a little simplistic, but we are deliberately ignoring nuances).
Who did the increase in the interest rate manage to slow down? Real estate prices, for example (mortgages became expensive. In Israel, whose housing market has exclusive distress characteristics, this was manifested only in braking, but in other parts of the world, real estate prices fell Sharply), but no less than that: the factors that accumulated fast and easy money at a frightening rate, for example the high-tech capital raisings or (in contrast!) the investments in crypto.
Federal Reserve President Jerome Powell.
Pulled out the interest weapon and was surprised to find out how little effect it had on inflation (Photo: GettyImages, Drew Angerer)
How did the US banks "collapse"?
Let's start really: the banks didn't exactly collapse.
They were stopped by the authorities before collapsing - which is a very significant difference.
The assumption is that the two closed institutions, Silicon Valley Bank and Signature Bank (curiosity: it was originally founded by Bank Hapoalim, although it must be clarified that the bank has no partnership in the current ownership) have assets that will cover the debts to customers.
So what happened anyway?
In the first case, that of Silicon Valley Bank, its managers did not correctly estimate the duration of the central bank's interest rate policy.
They acted as if the interest rate was expected to fall, which would lead to a rise in the capital market, inject financial oxygen into the high-tech companies - and come to Silicon Valley Eli Goel.
This did not (yet) happen: their customers first stopped setting aside for deposits, then withdrawing funds - and in order to meet the obligations in an optimal way, the bank tried to sell assets, which turned out to be a serious mistake: the customers saw this as a sign of an approaching catastrophe, increased the withdrawals of funds, put pressure on each other - and so at once the regulator was forced to close the bank's gates, before the trouble turned into a real catastrophe.
Later he also sold the bank for less than five shekels, to someone who was willing to take on all of his obligations.
The buyer HSBC does not enjoy bailing out a losing bank.
On the contrary - he saw here an opportunity to deepen his foothold in the high-tech industry (we emphasize: still the industry of the present and the future!), without having to put his hand in his pocket.
But the snowball kept rolling: everyone started wondering who would be the next financial institution to collapse - and Signature Bank, which deals in crypto (which was sensitive anyway) was the next target.
The managers of the latter claim that they do not know at all why they decided to stop their activities since they have a property portfolio that can meet all obligations.
They may be right, but they less understand the trauma of the American regulator, who is still licking the wounds of 2008-2009.
Do you know the well-worn expression about those who are burned in the fire?
Well - it seems that this time the administration didn't even wait for the lukewarm - and took over the bank's activities, in a way that will still be discussed in court, since the owners, it seems, will not put up with the "Bank at 5" operation announced by the regulator.
Netanyahu and Smotrich.
They rushed to offer help that turned out to be unnecessary, but continue to race towards a dangerous horizon (Photo: Image processing, Olivier Fitossy Flash 90, Shutterstock)
Meanwhile in Israel, or - what will happen if the reform passes?
What is the Israeli lesson from the affair?
there are a few.
Let's start with the most important report, according to which "peace be upon the Israelis".
That is, no Israeli firm was damaged, certainly not severely as a result of the affair.
Despite this, this does not mean that Israelis will not be harmed indirectly: the welcome trend of decentralization that has begun to spread in the financial market in Israel and transfer classic bank functions to fintech companies, such as digital banks, is intended to benefit the citizen.
The fear is that conservative elements (and interested parties) will call for tightening the supervision of the banks, that is - not on the big and old banks, but through higher barriers that will be placed before new players, only their entry into the competition will lower the price of banking for the citizens of Israel.
But, that's half the trouble.
Because what did we learn from the affair in the USA, which seems to be on the way to a takeover (it is likely that Signature Bank will also be sold to a third party, although it also has assets that can, apparently, cover most of its liabilities)?
What we have learned is that as soon as the public is afraid, it attacks the banks to redeem its money - and there is no remedy against such an attack.
Imagine a situation where not only a few hundred hi-tech companies "run" to the bank to cash out their money, but hundreds of thousands of private customers.
This means the immediate collapse of even the most conservative and stable bank, with excellent capital adequacy ratios.
This is perhaps the place to draw a direct line between the "warnings of the generals" (which are relatively easy for us to understand) according to which if the reform is passed in the second and third reading, the pilots (for example) will not show up even for life-saving strikes in Syria and Iran.
and the warnings of the economists, which are a little difficult for us to evaluate.
Those who went against the economists' warnings made it clear how robust the Israeli economy is and how excellent Israel's macro data are - and they are 100 percent right!
But only part of the story is told, because economics is first and foremost - and after all - people.
And in other words: if one person withdraws his savings from the bank, let's say.
The same is true in the case of ten, a hundred, a thousand or even a thousand.
A hundred thousand is already a worrying number - and a million is already a collapsing figure, one that will turn even the oldest and most stable bank in Israel into an institution that will need an immediate bailout.
We saw this already happening in the US less than 15 years ago. Woe betide us if we foresee this happening in Israel as well.
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