Why The Federal Reserve Power Transfer Resembles A Playpen Compared To The Bank Of Israel

Who says only Americans get to experience the dramedy of a Central Bank turnover?

When people try to tell me American politics is polarized and dysfunctional, I just laugh them off and tell them to check out the Knesset, because when it comes to absurdity in politics, these United States are no match for Israel.

The great Central Bank saga began on January 29 of this year, when financial economics giant Stanley Fischer announced his retirement after seven years as Governor of the Bank of Israel. Fischer isn't just your generic Keynesian mentsch.

He served in the upper echelons of both the World Bank and the IMF, then went on to become Vice Chairman of Citigroup, with a couple stints teaching at MIT in between. Oh, and his graduate students included the world’s two most prominent central bankers: Ben Bernanke and Mario Draghi.

Those are some big loafers to fill.

So, one would assume that Israeli Prime Minister Benjamin Netanyahu and his unnerving Philadelphia-accent would be well-prepared for a smooth leadership transition… said nobody ever.

Option no. 1: Jacob Frenkel. Nominee from June 23-July 29.

Currently: Chairman of JP Morgan Chase International.

Past: Vice Chairman AIG (2004-2009), Chairman of Merrill Lynch International (2000-2004), Governor of the Bank of Israel (1991-2000).

Even before Fischer stepped down from the central bank, Frenkel was announced as his successor—though there still remained the formal approval process by the full Israeli cabinet. He seemed to be cruising to the bank’s top job until revelations surfaced that he may be a bit too fast and furious.

The Israeli newspaper Haaretz reported that Frenkel had been detained in Hong Kong seven years ago when he allegedly left an airport shop with an item he hadn’t paid for. The poorly executed transaction was apparently a “misunderstanding,” but the bad press was enough for Frenkel to withdraw from the process.

Option no. 2: Leonardo Leiderman. Nominee from July 31-August 2.

Currently: Chief Economic Advisor at Bank Hapoalim and Professor of Economics at Tel Aviv University.

Past: Managing Director and Head of Emerging Markets Economics at Deutsche Bank (2000-2002), Senior Manager and Director of the Research Department at the Bank of Israel (1996-2000).

Frenkel’s abrupt departure from the approval process wasn’t a disaster per se, but it certainly was a setback for a Prime Minister who can barely hold his conservative coalition together. Quick and decisive action was required to save face, so Netanyahu turned around and immediately nominated Leonardo Leiderman.

Before Leiderman even got a chance to thank Bibi with a promise to put his face on the shekel, Leiderman was already out the door after “news” leaked that he regularly saw an astrologer. That’s a no-no when you’re only a few miles from Mount Sinai.

Option no. 3: Karnit Flug. Nominee for (insert Netanyahu’s wishful thinking here).

Currently: Acting Governor of the Bank of Israel.

Past: Deputy Governor of the Bank of Israel (2011-2013), Director of the Research Department at the Bank of Israel (2001-2011), Assistant Director of Research Department at the Bank of Israel (1997-2001).

Now, here’s what makes this story a true gem of Israeli politics. Flug, the top deputy to Fischer for the last two years and the one overseeing the smooth transition to the new chief of Israel’s Central Bank, was passed over for the top job not once, but twice. Sure, the first time was probably a hit to her pride, but country first, right? The second time? Screw country, I’m getting the hell out of here.

When Leiderman’s rocket exploded on takeoff, Flug knew she’d be next in line. So, to disabuse the Knesset leadership that she would be their safety net, their sloppy second’s sloppy seconds, she publicly announced her resignation.

We all know international economists love stability and Israel has never really provided them with much of it given it's tenuous geopolitical status quo. However, Israel's economy has long been a beacon in the Middle East, buttressed by its steady handed central bank. With no viable candidate in sight, Netanyahu may have to consider a trip to Mount Sinai for some divine intervention.