USSR dismantled: behavioral spillovers

Currently reading Casino Moscow (memoir of a WSJ correspondent in Russia after the collapse of the Soviet Union), and was struck by the world I was not cognizant of as a teenager during the late 90’s.

On social effects wrought from dismantling a communist regime:

The eXile (…Moscow’s bawdy answer to New York’s Zagat restaurant and nightclub guide…) [wikipedia page] was published in English weekly, biweekly, or monthly depending on the sobriety and finances of its two young American founders… [Moscow nightspots] were judged primarily by twin barometers known as the ‘flathead’ and ‘scoring’ factors. The flathead factor was rated by a little drawing of a scowling goon… On a scale of one to five, a rating of four flatheads signified that a particular club was a serious mafia hangout and your chances of getting shot ranged from fair to excellent. You avoided rated five flatheads as if your life depended on it, which in fact it did.

The other determinant of a bar or disco’s worthiness was the more desirable scoring factor, demoted in the eXile’s columns by eye-catching stick figures coupling doggy-style. Five hunched stick figures next to a club’s name meant that American males needed only a pulse and a billfold to score there. Readers weighed the scoring factor against the flathead factor to calculate whether the game was worth the candle…

On the consequence of reckless optimism:

Now that I had traveled outside of Moscow, the market rallies struck me as more incongruous than ever. Yet the Moscow money-men were pushing into the countryside. And the appetite for Russian debt was so insatiable that Boris Jordan’s Renaissance Capital had just packaged a new type of offering called agro-bonds. These bonds were high-interest loans to collective farms, underwritten by regional government. Supposedly dentists and other self-styled savvy investors in Luxembourg had snapped up, sight unseen, $740 million worth of the notes, which –one could only suspect–would go a long way toward getting farm boss Pechushkin’s bust of Lenin repaired. p.100

…Jordan led a coalition of half a dozen Western investors, including George Soros and the Harvard University Endowment, who had together accumulated a majority stake in NLMK. The problem was that, despite the 51% controlling interest held by Westerners, the Soviet-trained managers of NLMK refused to let foreigners into the factory doors, much less grant them representation on the board of directors

Like so many other Western investors, these owners were beginning to discover that, in their haste to cash in on the Russian bubble, they had bought a great many pieces of paper and not much more, since there was no real legal framework to uphold securities laws. p.170

Fear, like greed, is contagious, and the capital flight from Russian stocks spread to the GKO bond market, where now Russian banks were selling all their GKOs. The Kremlin tried everything to stop the exodus. In mid-June it nearly doubled interest rates to 150 percent…

…But no one wanted Russian paper any more. The $740 million worth of agro-bonds for collective farms that Boris Jordan’s Renaissance Capital had peddled when I first arrived in Moscow had come due, and the surprised and penniless Russian farm regions were proposing to redeem them with birdcages and barber chairs. Not surprisingly, the big monthly federal-bond auctions that the Kremlin had grown to rely on to plug tax-collection shortfalls failed to find any bidders. Yields on the ninety-day benchmark bonds spiked from 30 to 50 percent, then climbed to 80 percent and finally crossed the 110 percent mark. Still there were no takers. The Kremlin gave up and cancelled its debt auctions indefinitely. p.280

As the markets continued to plummet, and the ruble, in late June, started to teeter, the cries for an international bailout rose like a great, urgent tide. They washed over the Journal’s 16th floor office and inundated our phone lines. Why was the IMF not stepping in, demanded the bankers?…Do something! shrieked indignant fund managers, as if we could shame the IMF into action with our copy –and just maybe salvage what was left of their battered portfolios. p.283

A great deal of soul-searching and more than a few careers changes accompanied the crash… Boris Jordan laid off hundreds of workers and was nearly wiped out. George Soros groused that investing in Russia had been the biggest mistake of his 40 yr. Career, while a bond-buyer I knew abandoned his $10,000/mo apartment for an ashram in India. Another acquaintance traded in his Land Rover for a room at his mother-in-law’s house. Then there’s the uplifting story of how one enterprising colleague managed to get around the freeze on all wire transfers out of Russia by using his ATM card…When he deposited the resulting garbage bag full of bills at his home-town bank branch, the manager thought he was a drug dealer. p.312

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