Now for the election. Invading a neighbour makes an unusual election campaign launch but the two coalition partners in the Israeli Government seeking to become Prime Minister — Tzipi Livni and Ehud Barak — can now get on with their more conventional vote getting. With the military retreat from Gaza now almost complete, attention of the politicians will turn to the February 10 election where the Crikey Election Indicator (based on the Intrade prediction market) has former Prime Minister Benjamin Netanyahu of the right-wing Likud party the front-runner.

What makes prediction slightly more difficult than most elections is the complex nature of coalition building that takes place after voting is completed, although the party that that captures the largest number of seats is usually tapped to try to put together a government. The opinion polls suggest that Likud will end up with around 34 seats with the ruling centrist Kadima party led by Foreign Minister Tzipi Livni taking between 23 and 26. The invasion of Gaza appears to have marginally improved the position of Barak’s Labor Party which is on track to win 14 or 15 of the 120 seats in parliament

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In its latest poll the Maagar Mochot Survey Institute asked “Who is the most appropriate candidate today for the position of prime minister?” The result was Barak 14% Livni 21% Netanyahu 36% Other replies 29%.

Effectively insolvent. He’s a cheerful chappie that New York University Professor Nouriel Roubini, who predicted last year’s economic and stock-market meltdowns. At a conference in Dubai yesterday he speculated that U.S. financial losses from the credit crisis may reach $3.6 trillion.

“If that’s true,” the Professor told his audience, “it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

We can all hope Roubini is wrong — after all it is just a prediction by an economist but the news from the US stock market as the new President was proceeding slowly along Pennsylvania Avenue was hardly reassuring. The Dow Jones Industrial Average was having its biggest Inauguration Day decline in history as bank shares tumbled with the S&P Financials index losing 16.7 per cent.

The once mighty Citigroup fell 20 per cent to $US2.80, its lowest level since the 1998 merger that created the company; Wells Fargo lost 24 per cent; and Bank of America plunged 29 per cent. State Street Corp., the largest money manager for institutions, tumbled 59 percent after unrealized bond losses almost doubled.

Meanwhile, back in Australia, Liberal Leader Malcolm Turnbull continues to talk as if there is no such thing as a global financial crisis. He was at it again yesterday trying to convince Australians that there was something terrible about the Labor Government increasing government spending. The man must be mad.

Reduce the members. Perhaps the best way for Kevin Rudd to handle the vexed question of a pay rise for MPs would be to propose to reduce the number of members by the same percentage as any wage increase. It would be fun to watch politicians debate whether to self sacrifice to save a colleague’s job.

Keep short selling ban. Bankers might not be the most popular profession with politicians at the moment but they should still get a good hearing with their plea for a continuation of the ban on short selling of bank shares. The recent convulsions in share prices in Britain and the USA would make it madness to in any way increase the risk of bank shares in Australia being put under pressure.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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