Did you ever hear expert witnesses – reputable professionals – cast doubt on a matter they are so generously paid to advocate? Of course not. Expert witnesses are handsomely rewarded to deliver. Additional lucrative assignments would not materialize should they fail to be totally loyal to their clients’ cases.

So it is hardly surprising that the Promontory Financial Group members – Eugene Ludwig, a former US supervisor of national banks; Alan Blinder, a former vice chairman of the board of the Federal Reserve; Alfred Moses, a top Washington financial lawyer; and Elizabeth McCaul, a former US banking superintendent – hired by Israeli banks to undermine the credibility of the governments’ Financial Reform Plan tried to do what they got paid to do.

“We are hired because we are objective,” the four insisted.

Let’s examine the evidence.

Blinder, the group’s top economist, opened the charge against Finance Minister Binyamin Netanyahu’s courageous reform with what he believed was a clinching argument, that “the separation of provident and mutual funds will end up hurting small creditors. Banks will become less diversified,” he fears, “and as a result less financially stable,” and this will prevent them from lending to small businesses.

This opening salvo reveals all that is wrong with the group’s expert opinions. They are mostly based on vague and questionable generalities and on irrelevant comparisons. They also betray a woeful ignorance of Israeli financial markets.

The fact is that the wide diversification already existing in Israeli banks, which the learned experts would have us perpetuate, has not made Israeli banks “stable.” Nor are they inclined to promote a “free, transparent atmosphere conducive to competition.”

The extreme size of the bank duopoly – which Blinder considers desirable because he fancies that it would enable them to become world players – has actually made them extremely inefficient. They are anything but competitive and transparent. This may explain why they have failed to become world players so far.

While acknowledging that a “disease” inflicts our banking system, Blinder and his colleagues have almost nothing to say about its catastrophic history and present dysfunction.

Could it be ignorance? Moses admitted that much. Indeed, when asked some specifics, the experts failed the test. Instead, they repeatedly referred to what happened in America or to world “trends” without considering how relevant they are to the anomalous Israeli situation – the total absence, for example, of non-banking financial markets.

They drew simplistic, wrong parallels between a competitive American banking system and our banking duopoly that squelches all competition.

In short, they prescribed from theory with little regard to our distorted banking system.

If, as Binder suggests, great size, diversification, and stability would motivate Israeli bankers to lend to small businesses, why did the opposite happen? Why did our banks lend over 70 percent of credit to only 1 percent of borrowers?

Altogether, what makes an excellent economist like Blinder believe that lending to small businesses entails greater risk, when in fact the opposite is true, particularly in Israel where the banks have accumulated NIS 61.4 billion in questionable debts by lending mostly to large, well-connected borrowers?

Our expert witnesses also underestimate the dangerous consequences posed by the conflict of interest that bank ownership of provident and mutual funds promotes. True, their (and the Bachar task force’s) recommendation to have the banks get an even commission on all mutual and provident funds they sell may motivate the banks to sell other banks funds as well. But this does not address the chief problem that bank ownership of funds poses: the bankers’ habit of exploiting the great buying power of the funds they own.

As Bank of Israel studies disclose, banks have exploited their fund ownership and their position as underwriters to sell their own funds’ inferior shares at inflated prices. This has helped cover their huge losses on loans and to finance management’s extraordinary pay and perks, extensive featherbedding, and inflated salaries for bank clerks.

What is worse, however, is that our expert witnesses ignore the terrible consequences of the perverse banking system that they advise us to preserve: the 20 years of non-growth caused by its failure to make productive loans. The incompetence of our bankers has translated into massive unemployment and such low wages that hundreds of thousands of families cannot make ends meet.

Here is what the experts should know:

• Billions of shekels are virtually stolen from savers by rapacious bankers who exploit their duopoly position to pay less than market rates on savings.

• There is collusion between the bankers and the monopolies to which they provide subsidized loans. Hard-working Israelis are forced to cover the bankers’ losses by extortionist bank fees.

• Low-paid, highly taxed Israelis have to sacrifice about half their salaries as “rents” to the banks and their partner monopolies.

“We are not aware of any governments today that are moving in the opposite direction [to universal banking] except Israel,” the experts conclude.

Had they really bothered to study Israel’s economy, they would understand why.

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