Jul.12, 2012 | 6:45 AM–What will happen if the big business barons fall? Well, more than 40% of the corporate bonds listed on the Tel Aviv Stock Exchange are junk bonds, according to information from the rating agency S&P Maalot, the Israel Securities Authority and analysts over at Harel.
In other words, the yields on these bonds show investors suspect they’re not going to get repaid. In yet other words, they fear the companies will default, so the bond prices have been plunging and their yields climbing. Among the businessmen that the public fears won’t meet liabilities are household names, men thought of as “economic leaders.”
The public tends to ascribe the collapse of the tycoons’ corporate bonds to slowing economic growth, and to the tycoons’ penchant for taking big risks. Neither is true. The tycoons’ securities collapsed because the ecosystem that allowed the securities’ value to balloon during the good times, and weather the bad times, has changed.
Israel’s tycoons had relied on three main things. One is cozy relations (or ownership of ) financial institutions managing pension funds, which gave them access to the public’s savings, at low cost. The second is the feebleness of Israeli regulation, which enabled the companies to preserve their monopolies and keep profits high, even if the companies were badly managed. The third is economic concentration – tycoons looking out for one another, using the public’s money to help each other out.
There has been fear of economic havoc “if the tycoons collapse.” But in fact their collapse began last summer, when the public started to notice it had been living Keanu Reeves-style in a matrix of fantasy built by the tycoons, using their pet newspapers and marionette decision-makers. Regulators who had run scared of the tycoons for years also began to wake up and take action, or at least talk about it. And thus companies that had been gold mines for their owners suddenly began to look like risky ventures…Read More>>