-- February 22, 2012- Netanyahu Blames the Messengers, Tal Decision Impact, Pyramids in the Israeli Economy

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Israel Update
A Daily Analysis
By Marc Schulman

February 22, 2012- Netanyahu Blames the Messengers, Tal Decision Impact, Pyramids in the Israeli Economy

Today was a very busy news day in Israel. Which of the stories is most important I am not sure... So in no particular order...

The fallout from the forced resignation of Netanyahu's closest confidant, Natan Eshel, has probably become as bad as the initial scandal. It began the night of Eshel's resignation, when Netanyahu thanked Eshel for his service and spoke about his accomplishments, without saying anything about the individual who was harassed. To some extent I was not surprised. As I was friends with one of Netanyahu's secretaries when he was Ambassador to the U. N. and....

The situation became much worse yesterday, and again today, when Netanyahu publicly criticized the three members of his staff who brought the scandal to the legal advisor to the government. Netanyahu stated they should have come to him first. Netanyahu reprimanded the actions of these staffers, even though they were dealing with his closest advisor, and despite the fact that the governement's legal advisor has publicly stated it was a good thing the staffers had not gone straight to Netanyahu. One of Netanyahu's advisors, the head of information, was forced to resign. Netanyahu's military aid, who is coming to the end of his term, is in the doghouse, and the government's secretary who clearly does not have a future with Netanyahu. So instead of blaming Eshel, the harasser, it is those who put an end to the harassment who are being blamed. What a lesson.

The fallout from yesterday's Supreme Court decision on the Tal Law continues. The prevailing views seem to take two extremes. On one hand, there is the view that all this will blow over and a new version of the Tal Law will pass. On the other hand, there is the view of many non-haredim that we are now at a historic moment to change what has become an ever-larger failure of Israeli society. I come down on the side of the later, mostly because of the calendar. The Tal law expires in August. The Haredim will never agree to the sort of changes that the rest of the country is demanding. However, the power the Haredi bloc is greatest after an election, when the time comes to put together a coalition. Before the election all of the parties will be unwilling to give in the Haredim. So, I am going to go out on a limb today. I will optimistically predict that a law is passed in August, (similar to a law presented by Kadima) that will force everyone to do either army service, Sherut Leumi, or another type of national service for three years. A small number of brilliant Talmud students will be exempted.

The Israeli government committee on concentration in the economy presented its report today. Both the government and the Bank of Israel endorsed the committee's report. The report showed that the Israeli economy is the second most concentrated in the world; the only economy with greater concentration is Indonesia. "Concentration" mean that a small number of people control much of the economy. The two main recommendations of the committee were that no person in the economy should control both a financial entity and an operating company. That means that one individual cannot control a bank or an insurance company and a cell phone company. The second major recommendation is that pyramid ownership has to end. Pyramid ownership is when someone who owns a controlling interest of one company, uses that company to purchase 51% of another company, thus gaining control of a second company. They then use that second company to purchases 51% of a third company, which is how the pyramid is built. The result of the pyramid business purchasing paradigm, is that someone with very little equity can control many companies.

If I have not confused you yet, let me explain the major difference between the American economy and the Israeli economy. There are very rich people in the US. Some of that wealth has been created by people who started companies such as Microsoft or Facebook and managed to hold on to their stock for a long time, and become wealthy, while maintaining control. Others have made their money by selling their shares, either on the stock exchange or by being bought out. But the money came from building a company. The other major types of American wealth come either from building real estate empires or frompeople made large sums on Wall Street. There is of course inherited money in the US but that is a different issue completley. In Israel, the 20 wealthiest families control over 50% of the large companies. These are not companies they founded, but rather companies they have acquired by means of the above pyramid schemes. If the government successfully implements the proposals of the economic committee (something that is not guaranteed), it could have a huge impact on the Israeli economy.

Finally, the scenes from Syria have become ever harder to take today. At least a hundred people killed by artillery bombardment in Homs, including two western journalists. There were also images of a group of youngsters who were massacred outside a town in southern Syria that came out today. The images look like the scenes from Bosnia in the midst of their war.

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