Moscow’s stock market soared almost 30 percent on Friday thanks to the Russian government announcement it would dump about $130 billion into the sagging market. Today, it injected more credit into the market just to make sure. About $24 billion worth at 8.75 percent interest. The move was to disperse more capital among banks pushed out of the previous trough. The flood from state coffers attempts to do another thing: isolate the Russian market from the American financial crisis. A staggering 70 percent of the Russian market is made up of speculative foreign money which explains why Russian stocks did such a nosedive. As Vladimir Forlov writes in the Moscow Times,
Medvedev and Prime Minister Vladimir Putin reacted in ways that signal a fundamental shift. The government is now seeking to reduce the stock market’s dependence on foreign portfolio investors and to attract more long-term investment from Russia’s institutional investors, including the National Welfare Fund.
Whether this is merely a band-aid or a suture remains to be seen.
The crisis however might have more political ramifications for Kremlin Inc. As the Financial Times asserts the crisis shook oligarch political loyalty:
There may be another restraint: the oligarchs. Putinism was built on the understanding that if tycoons played by Kremlin rules they would prosper. Recent military adventurism undermined that grand bargain.Oligarchs have been hit hard by the market fall; the rescue package came only after a restive business elite complained to the Kremlin.Vladimir Putin’s entrenched power makes more vigorous opposition highly risky. But, after the recent jolt, oligarch loyalty is no longer a given.
The FT made a similar assertion in another article on Russia’s one day stock boom.
The war in Georgia and the ensuing collapse of Russia’s financial markets has put conservative anti-western forces on a collision course with a clique of western-oriented, relatively liberal opponents. President Dmitry Medvedev and Vladimir Putin, prime minister, both said Russia would not change its course towards integration with the world economy.
But a flurry of competing public denunciations and press leaks from opposite sides of the political spectrum indicate a behind-the-scenes struggle over Russia’s future course and its relationship with the west.
Unfortunately, the FT doesn’t cite any of these “public denunciations” or “press leaks” except for Just Russia calling for Finance Minister Alexei Kudrin’s resignation. Is this wishful thinking on FT‘s part or a sign of something bigger? I’m sorry but empty calls from Just Russia doesn’t cut it. Nor does Russian businessmen putting pressure of Medvedev to do something. In most places this is simply called lobbying, not a political struggle.
Perhaps the FT‘s allusion to some “behind-the-scenes struggle” is based on recent speculation that Russia’s victory over the Georgians has emboldened the siloviki, or “hawks” as they are increasingly being called in the press. Or perhaps the Financial Times is making much of the supposed rift between Putin and Medvedev over the prosecution of the war. Medvedev didn’t want to go further than South Ossetia, the theory goes, while Putin wanted to remove Saakashvili from power. It’s difficult to say. Mostly because these allegations were made in Russia’s liberal press. Everybody knows how much they are susceptible to wild speculation and wishful thinking.
But FT is not alone in thinking that something political is stirring in Russia. The Washington Post also thinks that Russia’s economic crisis might produce a proportional shock to its political system. But in contrast to the FT, the Post doesn’t think much will come of it simply because Putin has tamed the oligarchs with the tried and true method of force and intimidation.
The market turmoil has been felt primarily by Russia’s wealthy because most Russians keep their savings in cash. It is unclear whether the tycoons will present a serious political challenge for Putin, who has cowed most of them into silence.
“Do they have the guts to put pressure on him? I doubt it. They’re hurting, but they’re so scared they won’t open their mouths,” said Alexander Lebedev, a billionaire who owns 30 percent of Aeroflot and part of an independent newspaper. He likened the tycoons in Putin’s circle to members of a royal court too intent on seeking his help with business deals to risk upsetting him by complaining.
If tycoons are too afraid to complain, then where what is FT talking about? Or the Post for that matter?
This ‘oligarchs as agents of change’ meme has really picked up traction…
“Alexander Lebedev, a billionaire who owns 30 percent of Aeroflot and part of an independent newspaper.”
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Did Levedev lost almost 30% of his 30 percent Aeroflot airplanes as result of Russian “socks market” fall?
I think he still have same number of jets…
Will the Russian Economic Crisis Create a Political One?
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The short answer is “No”.
The next natural question: “Will the American Economic Crisis Create a Political One?”
Any takers?
My short answer would be no to the US too. That is unless the views in this article materialize into something. If so then what? Americans are pretty inured to Coke or Pepsi, not that there are any other viable alternatives . . . I don’t think electing Obama counts.
The short answer is “YES”.
In fact it’s there already. But current show – Grand Election Race – shadowed it somewhat.
Bush doesn’t care – he is leaving. For other two guys – they don’t care now (no point to care if you are not in the White House).
And this is huge difference with Russia where Putin and Medvedev just continue doing what they’ve been doing last 8 years. For economy such situation is always better – I mean stability in game rules.
Also there is difference in the way “to rescue” markets. US government just borrowed public money and gave them to private companies. Whether they return them – big question. And if they do – they’ll get them from…public anyway
In Russia this money came from “oil fund” (mainly from “western” public anyway ).
So as soon as “western” public recognizes who pays for “dinner” – the real fun will begin
“Putin has tamed the oligarchs with the tried and true method of force and intimidation.”
And cooptation.
The government is now seeking to reduce the stock market’s dependence on foreign portfolio investors and to attract more long-term investment from Russia’s institutional investors, including the National Welfare Fund.
I don’t know if this is a normal practice in any other country, but it reminds me of Marconi’s practice of investing its pension fund in its own stock. When its share price collapsed from £12.50 to 2p in the space of a few months, employees’ pensions disappeared along with it. Some people had been there 35 years and were 6 months from retirement.
Of course, the CEO – who had a long history of corporate failure – retired with a hefty golden handshake and his pension intact.
Palin will meet Afghanistan President Hamid Karzai and Colombian President Alvaro Uribe, as well as former US Secretary of State Dr. Henry Kissinger. On Wednesday, Palin will meet with Iraq President Jalal Talabani and Pakistan’s newly-elected President Asif Ali Zardari.
Palin will be joined by Sen. John McCain for joint meetings on Wednesday with the presidents of Georgia and the Ukraine, as well as with the prime minister of India.
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Not clear what Indian PM is doing in this circus…
And let’s hope that Saak won’t eat McCain tie
1. Is it just me, or is “behind-the-scenes struggle over Russia’s future course and its relationship with the west” a stock narrative journalists throw out there to explain anything that happens in Russia that they don’t immediately understand. I’m not saying it’s not true, the existence of said struggle, but, it’s so freaking de facto, it’s like reporting that the sky is blue. Wouldn’t the news have to move a smidgen beyond this? It’s just become one of those standard phrases that I have a Pavlovian response to. Up there with “rolling back democracy” and “Russians need a strong leader (read: autocrat) – it’s like in their DNA or something…”
2. How much of the Russia economy’s ills are a result of the collapse of the house of cards which was up until a few days ago the US economy? And how much of it is a result of the infancy of Russia’s economy (which prevents confidence, rightly or wrongly)? I know there are other factors. I’m just curious how these play into their “crisis.”
What’s this? We can edit our own comments? That countdown thingy is unnerving!
Yes, we can edit.
But we can’t quote anymore (or I’m just plain stupid)
PS. OMfG.. IKEA as anti-spam word!
Er…
But I get a black screen of death when I click to edit.
Also there is difference in the way “to rescue” markets. US government just borrowed public money and gave them to private companies. Whether they return them – big question. And if they do – they’ll get them from…public anyway
No – almost all the current financial crisis is tied to loans on real estate, which are real assests. Following the Resolution Trust Corp. model, it is actually conceivable that the government could profit if they take over the bad mortgages and resell the properties.
collapse of the house of cards which was up until a few days ago the US economy?
The US economy is not the problem, it is sub-prime lending, and financing and false profits (false prophets?) built on top of people and businesses that normally would not have been able to secure these mortgages.
A staggering 70 percent of the Russian market is made up of speculative foreign money which explains why Russian stocks did such a nosedive.
And yet I read that Russian Economy Minister Elvira Nabiullina said in her opening remarks at an investment forum in Sochi, that Russia is lacking in investment, and that it is crucial for Russia to attract more investors (presumably foreign) to “develop industry, the social sphere and infrastructure, which will ultimately boost living standards…”
“Is capitalism ANY kind of trading or market? ”
I would say no. … but WAGE LABOR.
Really,
You believe in the the Labor Theory of Value. That has be disproven by Edgeworth and Marshall. Demand is not a function of price. Demand is a function of Utility. (What is that product worth to me personally). That is why beanie babies are still being producted today. The only way for the labor value to work is for Demand to be a function of price, i.e. 1000 ford workers spend x hours building a Expedition, therefore the SUV is worth x dollars. But we know this not to be true. Right now we can’t give Expeditions away. Hybrids are exacting a premium on the market. If the price of gas goes down dramatically, then the reverse might be true.
What determines capitalism is private property and free enterprise.
Try to buy a house/apartment is Russia. Or even a car. Good Luck getting a loan. That is where the pinch will be felt.
When oh when will this Kolchak entity just go away? He/she/it is making Baby Jesus cry.
“A staggering 70 percent of the Russian market is made up of speculative foreign money ”
I betcha that a lot of that “foreign money” is actually Russian money located abroad. Isn’t the no. 1 “foreign investor” Cyprus?
“A staggering 70 percent of the Russian market is made up of speculative foreign money ”
I betcha that a lot of that “foreign money” is actually Russian money located abroad. Isn’t the no. 1 “foreign investor” Cyprus?
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it was the case 8 years ago or so. DM
Try to buy a house/apartment is Russia. Or even a car. Good Luck getting a loan. That is where the pinch will be felt.
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Up until now it was relatively easy to secure a car loan. The Russian auto market has grown into the biggest in Europe. Admittedly, it may change, and not only in Russia – in the US as well. The times of cheap money are over.
Lesser availability of credit is a good thing. This will force people to save more, and in the long run create a far more sustainable rate and structure of economic growth.
I still rather get GM credit than “Beeki” credit at 30% plus one broken leg and your apartment.
On behalf of the entire White movement, I would like to apologize for the sorry showing of Kolchak here. Kolchak, who is my roomate down here in Hell, has been driven mad by the last few decades of torment, and I am afraid that Beelzebub’s decision to grant his request for Internet access has led not to attempts to better himself by browsing fine repositories of wisdom such as Wikipedia and Mike Averko’s Quick Takes.
No, he spends all his time surfing mortal porn sites and wanking off on Sean’s Russia Blog. Has eternal damnation taught you nothing, Kolchak?
PS do the damn dishes once in a while. Sloth is a sin, you know.
Please allow me to second Wrangel’s appraisal of Kolchak. Though we may have been mortal enemies in life, since our respective untimely demises we have made amends and I am often over at Wrangel and Kolchak’s apartment, playing Starcraft with Wrangel over LAN.
It is a fucking pigsty. You’re a White General, for God’s sake!
As regards the US banking collapse and the Paulson plan. it is true that in theory the derivative bonds are backed by property but it seems that there has been a lot of fraud at all levels and that the legal technicalities have not been tied up correctly in many cases. So the assets may or may not entirely exist and the mortgages may not be enforceable in some cases.
As to the Russian financial scene. I did just wonder whether a little destabilisation was going on.
The US is a market based economy with a steadily shrinking manufacturing sector & resource base (same with the UK).
Russia has a rapidly expanding manufacturing sector (& retail sector) as well as the largest resource base in the planet.
The only real effect the market can have in Russia is in financing new projects – a concern but not a big one.
It would take oil falling to to under $60 a barrel for a sustained period to really have an effect on Russia’s economy.
Ken – according to my sources, the current pain threshold for the Kremlin in $80.
But I don’t think there’s real danger of that happening. IF there was such a threat, Iran could be enticed to make some discouraging moves.