Fischer's warning

By JPOST EDITORIAL

10/30/2012 23:51

Bank of Israel chief lowered the interest rate in order help rejuvenate the slowing economy.

It is reassuring to have a world-class economist at the helm of the Bank of Israel. Just knowing that Stanley Fischer – a former chief economist of the World Bank and former professor at MIT whose students included the current chairman of the US Federal Reserve, Ben Bernanke – is responsible for our monetary policy can have a calming effect on the economy as we approach turbulent times.

When Fischer expresses concern about a particular aspect of our economy, political leaders should sit up and pay attention. The Bank of Israel governor is, apparently, unhappy with our overheated housing market.

In a move billed as nothing short of “dramatic,” Fischer ordered the banks to lower the loan-tovalue (LTV) ratio to 50 percent for mortgages provided to house purchasers who intend their purchase to be an investment – including foreign investors. Mortgages for a first house will be limited to a LTV ratio of 75%.

The move is designed to counter the effect of yet another prime interest rate cut from 2.25% to 2%.

Fischer lowered the interest rate in order help rejuvenate the slowing economy.

However, lower interest rates also tend to push investors out of solid investments such as government bonds or savings plans offered by banks and to encourage them to look for alternative “solid” investments such as the housing market.

Rent yields pay off the low interest; capital gains from rising real estate prices (housing prices are up 2.9% in the past six months) provide the investor with easy profits.

Of the 20% of Israelis who hold mortgages, it is estimated that 9% are investors while only 3% are those who own only one home. About a quarter of all house purchases are made by investors.

Fischer is concerned that banks are overly exposed to the housing market. Some 40% of banks’ credit is extended to building contractors and home owners. A sudden decrease in housing prices could result in an economic crisis similar to the US subprime mortgage crisis of the late 2000s.

By restricting the LTV ration to just 50%, Fischer hopes to reduce banks’ exposure and slow the sharp rise in housing prices by lowering demand for houses.

Still, Fischer’s ability to fight rising housing prices is limited. Restricting the LTV ratio might make it more difficult for investors to buy houses.

But as long as investors recognize that there is a severe shortage of housing in Israel they will have an incentive to invest in the housing market.

Fertility rates are higher in Israel than anywhere in the Western world and they have been for decades. Every year tens of thousands of young families add to the demand for housing. In parallel, the Israel Lands Authority, which controls the supply of land for housing, is notoriously inefficient and burdened by red tape. As a result, the construction process is dragged out and land prices remain high.

The only way to truly fight housing prices is by focusing not on demand, but on supply. Currently, the number of houses constructed every year cannot keep up with demand. More new housing – for sale and for rent – needs to be provided. In parallel, the zoning process for housing needs to be made more efficient, while at the same time not compromising the necessary oversight that prevents damage to the environment or to historical sites. Replacing old, low-story buildings in city centers with high-rises should be encouraged as a way of limiting to a minimum building in open green areas.

Only the government, which is currently focused on elections, can direct all these changes. Voters must demand that a solution to the housing shortage be a central issue in the election campaigns of all the major political parties.

The next government must commit itself to grappling with the housing shortage. We are lucky to have a man as talented as Fischer heading the Bank of Israel. But there is only so much one man can do.

Connecting to the South

By JPOST EDITORIAL

10/29/2012 23:43

Regardless of the strategy or strategies implemented by the government, it is imperative that the residents of the South know that they have not been abandoned.

Since the latest escalation in southern Israel began a little over a week ago, hundreds of mortar shells and rockets have been fired at cities and towns there. Hamas and the myriad Salafist and jihadist organizations operating inside Gaza that are launching their ballistic attacks on Israel have disrupted the lives of hundreds of thousands of innocent men, women and children in places like Sderot, Kibbutz Nirim and Beersheba.

Schools have been closed down, families have been forced to spend hours locked up in bomb shelters and the regular pace of life has been underscored by the constant fear of the next mortar shell or rocket falling from the sky.

Israel’s options for stopping the barrage of fire from Gaza are limited. Diplomatically, Jerusalem might succeed – with American help – in putting pressure on Cairo to use its influence with Hamas to stop the shooting. Egyptian President Mohamed Morsi might be interested in preventing further escalation between Israel and Hamas-controlled Gaza in order to avoid getting dragged into a direct conflict with Jerusalem and Washington.

But even if Morsi agrees to attempt to put pressure on the Hamas leadership, it is not at all clear that Hamas is fully capable of bringing about a cease-fire.

Firstly, many of the terrorist groups operating inside Gaza are not fully under Hamas’s control. Secondly, in the world of fundamentalist Islamic politics that aggrandizes death and destruction, Hamas does not want to be perceived as conciliatory and weak vis-à-vis Israel.

Israel’s military options are likewise limited. It could continue the present tactic of launching either a preemptive attack or retaliation – either by air or on the ground – for each attempt by Hamas or other terrorist organizations to strike against Israel. Our armed forces could supplement this ongoing military response with targeted killings directed at the upper echelon of the various terrorist organizations operating in Gaza.

The IDF could also initiate a escalation from the air, the sea and the ground aimed at drawing out and eliminating additional terrorists operating in Gaza and destroying their infrastructure. Though such an initiated escalation could strengthen Israel’s deterrence, it could also lead to a full-fledged war, complete with unintended civilian casualties and international condemnation.

However, in the short run, none of these tactics will enable Israelis living in the South to return to normalcy and end the terror of living under the constant threat of rockets and mortar fire. In fact, an initiated escalation or stepping up targeted killings would only result in an increased barrage of fire from Gaza – at least in the short-term – and more suffering for the South’s residents.

Regardless of the strategy or strategies implemented by the government, it is imperative that the residents of the South know that they have not been abandoned.

Fellow Israeli citizens living in Tel Aviv, Jerusalem, Haifa and other locations that are – for the time being – safely out of range of the mortar shells and rockets shot from Gaza should show their solidarity with the South’s residents.

The cabinet, which on Sunday approved a three-year, NIS 270 million plan for the building of 1,700 bomb shelters in towns and cities located three to seven kilometers from the border with Gaza, should also consider holding one of its upcoming weekly meetings in the South.

Radio and television news programs should make an effort to broadcast from the South. And if, due to the security risk, it is too much to ask for more fortunate Israelis to actually visit the South, schools, youth groups, synagogues and even sports clubs should make an effort to remember the plight of their brothers and sisters.

Above all, we must avoid a situation in which large segments of society go about their business as though all is well. We must not be disconnected from what is happening in the South.

Stability in unity

By JPOST EDITORIAL

10/28/2012 21:15

Large right-of-center list may bring political stability.

Sharp criticism was not long in coming after Prime Minister Binyamin Netanyahu and Foreign Minister Avigdor Liberman’s surprise announcement that the Likud and Yisrael Beytenuwould run on a join list in the elections for the 19th Knesset.

Much of the criticism seemed to emanate more from a desire to defend narrow personal interests than a genuine concern for the greater good of the nation’s political stability.

Some Likud ministers, Knesset members and would-be Knesset members have expressed fear that the joint Likud-Yisrael Beytenu list, rather than producing more seats than the two parties’ current 42 (Likud 27; Yisrael Beytenu 15), will lead to a fall in their Knesset representation.

Likud MKs and ministers fighting for a Knesset seat are afraid that the merger could jeopardize their place on the Likud candidates list. Likud ministers with a strong support base in Likud’s central committee, such as Gideon Sa’ar, Israel Katz and Silvan Shalom, who expected to rank high on the party’s list, are understandably unhappy with the prospect of seeing their places taken by Yisrael Beytenu parliamentarians chosen by an internal committee controlled by Liberman.

Another claim, one that smacks of ethnic chauvinism, is that the merger, which will bring to the joint list a large proportion of voters and politicians who are immigrants from the former Soviet Union, will scare away the Mizrahim – Israelis whose families immigrated to Israel from Muslim countries in the Middle East, who make up a large part of the Likud’s voters.

However, if the deal is analyzed with the interests of the nation’s political system in mind, its pluses clearly outweigh its minuses.

The most obvious benefit is the creation of a single, large right-wing party with the potential to bring more stability to our political system. Parties left-of-center might also form a united list in response to the Likud-Yisrael Beytenu move.

Ideally, two large parties – one on the Left and one on the Right – will represent the two mainstream positions on cardinal issues such as security and socio-economics.

Smaller parties – particularly national-religious and haredi factions – would be less able to take advantage of our splintered political system to exert influence that far exceeds their size.

Over the past few decades, the size of the two largest political parties – traditionally Labor and the Likud – has steadily decreased due to the establishment of various short-lived centrist parties. Until 1996, the two largest parties consistently held a total of more than 70 Knesset seats.

Since 1999, the two largest parties have garnered less than half the Knesset seats. This has hurt what political scientists call governance or governability – the ability of governments to make decisions and to follow through on them.

A 2005 study by Doron Navot and Eli Reches found that 70 percent of government decisions – on subjects ranging from public housing to privatization of the sea ports, from reforms in the Israel Electric Corporation to the construction of a light rail system in Tel Aviv – are left unimplemented.

And as Amnon Rubinstein and Adam Wolfson wrote in their book Absence of Government: How to Rectify the System, sometimes these ignored government decisions result in disaster. Our sorrowfully inadequate firefighting capabilities – shockingly revealed in the 2010 Mount Carmel forest fire disaster – were the direct result of consecutive government decisions calling for the revamping of our firefighting services remaining unimplemented.

Undoubtedly, election reforms such as the raising of the threshold for a political party to get elected to the Knesset from just 2% of the vote and the institution of regional elections for some seats – and perhaps increasing the total number of MKs – would go a long way toward improving political stability and politicians’ accountability.

However, the formation of a large right-of-center list – which might inspire the left-of-center parties to do the same – could bring much-needed political stability and a higher level of governance to our political system.