Silver lining

A long-time reader complained yesterday morning that for months on end we have greeted him daily with gloomy predictions: on the economy, the foreign currency market, the functioning of the finance minister, Nasdaq, the banking system or the business sector. In the name of variety, we will try in the next few lines to seek out the good in some of the bad financial news we have reported in the past few weeks.

1. Bad news: Lack of confidence in fiscal policy has led in the past few days to a sharp rise in interest rates: the cost of the treasury's Shahar bond issue yesterday rose to 9.2% - 3% higher than its level at the beginning of the year.

Good news: For those who still believe that Bank of Israel and the government are still committed to maintaining price stability ¿ this week's interest rate hike is a golden opportunity to "lock up" savings and investments at high real interest rates that most investment instruments, in Israel or abroad, don't offer for long.

2. Bad news: Downsizing in the business sector isn¿t over. The finance minister¿s emergency economic plan contains no good news for the business sector, which, in the end, creates economic growth. In the coming months, the wave of bankruptcies and lay-offs will broaden after many businesses use up their financial resources and don¿t succeed in raising financing from the banking system.

Good news: During the technology and capital markets boom, excess supply, production capability, human resources and waste were created in many sectors. In the past year, the streamlining process and return to sanity began at many companies. The process hasn¿t exhausted itself but is going full speed ahead. Companies will begin 2003 on much firmer footing.

3. Bad news: The tech sector crisis is far from over. Dozens of entrepreneurs are banging wildly on the doors of venture capital fund after venture capital fund, not finding a soul willing to resuscitate their companies. By the end of the year, another 100-200 startups will close their doors. Also the strong companies, like Comverse, Check Point and Amdocs, are finding it hard to stand up to the falling market. The deterioration of Israel¿s global status is only making it harder for companies to break into markets and raise capital for their activity.

Good news: Despite the collapse of financing for startups and the difficulties of more mature companies ¿ the volume of activity in the Israeli technology sector is still high relative to the pre-bubble era. Companies with strong management and real products that produce results can still raise capital. The low company valuations for the purposes of the fundraising rounds are not the issue.

Silvan Shalom, Ariel Sharon and the Nasdq together didn¿t stop Bigband from raising $27 million from a long line of U.S. venture capital funds led by Charles River Ventures. At the end of the day, investors looked at one thing and one thing alone: the ability of the cable television equipment maker to meet sales targets.

4. Bad news: A gang of thieves managed to steal ¿ from under the noses of Bank of Israel¿s Supervisor of Banks, accountants and directors ¿ about half the deposits in Trade Bank. In this case, ¿under their noses¿ is not just a figure of speech ¿ the Trade Bank headquarters is about 10 yards from Bank of Israel¿s offices in south Tel Aviv. The bank¿s collapse will adversely affect the credibility of the system for auditing and supervising the banks during a period in which investors and depositers are already alarmed.

Good news: If we¿ve been condemned to catch Enronitis anyway, let¿s give thanks that the first Israeli case of the disease broke out at a small, marginal bank. Had it happened at a larger financial institution or company, it could have created a destructive domino effect in the financial system. Maybe the collapse of Trade Bank will constitute a warning sign for all the supervisory bodies, and we won¿t have to deal with a big Israeli Enron.

5. Bad news: It is by now clear to anyone and everyone that the end of the peace process, the second Palestinian uprising and the deterioration of the political and security situation, will carry a heavy economic price that will be paid by every Israeli citizen and regress the economy by several years. The chances for a political solution under the current Middle East leadership look slim, and the chances of economic recovery without a political solution are even slimmer.

Good news: Here we are having a hard time finding the silver lining, the full half of the glass.

All that is left is to adopt Lenin¿s famous saying ¿the worse it gets ¿ the better it will get¿. To be good it must first get terrible, and the more terrible things get, the better they will be later (Certified Leninists claim he never said it, but we¿ll set that aside for the moment).