Sad loss; Good riddance

The collapse of Lehman Brothers was not only a major event in the global financial system. It is also of particular significance to the State of Israel and to Israeli industry, especially the high-tech sector and the venture capital sector that has grown up around it. For many years, never more than in the period 1987-1993, when most of the world wouldn’t touch Israel or Israeli stocks with a ten-foot pole, Lehman Brothers was the only important company on Wall Street to actively seek Israeli business. In those years, it had a virtual monopoly on large deals (by the standards of those times) emerging from Israel. It is hardly an exaggeration to say that without the active help of Lehman, Teva Pharmaceuticals – to take the most prominent example available – would have had a very hard time emerging onto the global stage. Numerous high-tech success stories would never have happened if Lehman had not paved the way for these companies to raise capital on the Nasdaq market in New York.

Of course, it was the drive and determination of one man within Lehman, namely Harvey Krueger, that ensured that Lehman became the dominant US investment bank in Israel in those formative years. Indeed, Krueger’s connection goes back way past the late eighties and way beyond Lehman. He ‘discovered’ Israel in the early sixties and was instrumental then in forging links between Banks Leumi and Israel Discount and his original employer, Kuhn Loeb, which eventually and after many acquisitions and mergers became Lehman. But even Krueger needed the approval and support of his bosses, colleagues and boards or directors over the years, so Lehman must get the institutional credit for doing what no other Wall Street firm, however ‘Jewish’ or not it was perceived to be, had the wit or the guts to do. 

Sadly, too, hardly anyone remembers all this any more. Teva’s chairman Eli Hurvitz certainly does, and was among the few senior members of the Israeli business establishment to make this point. But the new generation which has grown up in an environment where foreign involvement in Israel is taken for granted are unaware that Lehman was special. They find it hard to believe that there was a time when investment banking involved vision, commitment and personal integrity, not greed and short-sighted pursuit of any deal at any price. Harvey Krueger exemplified the positive side of investment banking (professionaly – happily, he’s still around), whilst his erstwhile firm lost its values, its way and ultimately, its existence.

Suggested first headline: Good riddance

Lehman can now be seen to be just one link in the chain of rapid collapses that has eliminated the entire top echelon of large American investment banks. Bear Stearns was forced into the maw of JPMorgan Chase in March, Lehman went down and Merrill sold itself to Bank of America two weeks ago, and last week Morgan Stanley and Goldman Sachs surrendered to the Feds and asked to be granted refugee status as bankholding companies. The investment bank as we have come to know it over the last generation is dead.

Thank God. The air of Manhattan and London is marginally cleaner without these monstrous money machines spewing their financial toxic waste in all directions. Whatever their former contributions to the American and global economies, these companies metastasized in recent years into upper-class hedge funds. They used increasing levels of leverage (borrowing, in plain language) to take increasing levels of risk, albeit with their own money, but using their privileged position within the system to stack the decks in their favour. The result: huge profits, massive returns on equity and, above all, gigantic salaries, bonuses and stock and option allotments to themselves.

The top echelon became mega-wealthy and used their power and influence to peddle their creed about how wonderful free markets, risk-taking and empowerment of entrepeneurs is for the world. But as soon as the dirt hit the fan, they were clammering for bail-outs from the government, on the grounds that they were Too Big To Fail and letting them collapse would lead to a global depression. The public backlash against this greed-driven hypocrisy is now coming to the fore and, hopefully, some of their fortunes will be clawed back by populist politicians pandering to the demands of revenge of an enraged populace.

The many Jews in the investment banking world – including a large contingent of kippa-wearing-, mincha-davening-, daf yomi-learning-in-the-office observant ones – could use the upcoming days of introspection to figure out how and why it all went so wrong and where they might now apply their considerable talents more constructively.

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