There is more toast

Russia suspends trading with stocks down 17 percent.  There is a financial crisis and much of it is energy-related:

“The fundamental issue is oil. Russian oil companies are not producing more so their earnings are dependent on a rising oil price,” said Daniel Salter, analyst at ING. If the oil price falls, then earnings downgrades are in the pipeline for these stocks, he added.

State-backed bank VTB tumbled 33 per cent to Rbs0.03 and Volga Telecom sank 28 per cent to Rbs37.

Here is a recipe for Russian toast.  The price of oil was down to $91 a barrel last I looked.


I don't think its just oil. I guess there is not enough regulation in the Russian economy either...

Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market.

The finance ministry also placed an additional R150bn ($5.8bn) in one-month deposits into the banking system. Konstantin Korishchenko, central bank deputy, told Russian news agencies that the bank and the finance ministry could provide a total of $117.6bn in liquidity to the banking sector.

... Shares in Russia’s biggest state-controlled banks led the slide with Sberbank, the state-controlled savings bank, closing 21.72 per cent down and VTB losing 29.26 per cent. The bank was suffered on investor fears about its securities portfolio, which makes up about 10 per cent of its assets.

Clearly the answer is more nationalization.

That Russian toast looks good.

Russia could have been investing their huge oil windfalls into infrastructure (including improvements in oil production, refinement, and transportation, but also roads, rail, ports, etc.) or in returning its eduction system to its once very high standards in math and science and improving in other areas, so that it could build on its highly educated population and relatively low wages to become a major industrial center, and so on. But to do that it would have needed leaders other than the band of cooks its had for the last 17 years, including, of course, Putin. One hopes that the Putin cheer-leads (Matt Yeglesies, we're looking at you!) will see this and not be so easily fooled in the future.

Brian Befano,

I think it is obvious (see for example, what I quoted) that nationalization, and not oil price, is the main culprit.

Oo! How is Venezuela doing? I was reading Greenspan last light and happened to be on the section where he laments Venezuela's decaying infastruction due to Chavez's cronyism.

Given the timing, it doesn't seem likely that Russia's invasion of Georgia is the main cause of this stockmarket crash. Even the stockmarket slide started before Aug. 8th. But the war in Georgia surely IS a factor. Even before this, the MICEX had lost 50 percent since its May peak and 30 percent since the invasion of Georgia. Not long before, Putin issued gangsterish threats against Mechel, a major steel producer.

Putin is in a delicate position. He's prime minister now. Prime ministers have traditionally come and gone fast. The Russian constitution is heavily, in fact quite excessively, presidential. Prime minister is not a position from which it's natural to exercise leadership. He would probably like to reshuffle things and find a more comfortable perch from which to be *de facto* ruler of the country. I suspect that's the real explanation of the war in Georgia-- which, contrary to some rumors, seems to have been initiated by Russian tanks on Aug. 7th, not by a Georgian attack on Tskhinvali. Putin wanted to create a crisis in which he could look like a strong leader, and maybe return to the Kremlin, or maybe some other, more shadowy post from which to exercise the real power in the country.

It doesn't seem to have worked. Russia won easily (probably thanks to the advantage of surprise) but Western solidarity with Georgia, and the refusal of even the Shanghai Cooperation Organization to join Russia in recognizing the breakaway provinces, has left Russia in an embarrassing position of international isolation. Russia's moves lately-- pulling troops out of Georgia proper, declining to annex South Ossetia-- look a bit like an attempt to back down. But in a way, it's too late. The specter of Russian tanks invading a democratic neighbor has blackened Russia's image for years. NATO has been galvanized back into life-- and seems more intent than ever on incorporating Georgia.

Now this. Putin's popularity has been based on propaganda-- silencing criticism at home, at least on TV and in newspapers with large circulation-- and prosperity. The latter, though truly impressive-- Russian incomes have doubled, or so, in the past 7-8 years-- is partly rebound, partly the fruit of Yeltsin-era and pre-Yukos reforms, and partly high oil and other commodity prices (natural gas, metals). Since 2004 there has been a swing against reform and property rights, in favor of nationalization and intimidation of business, but it hasn't stopped the recovery. Putin is sort of like Clinton: people give him a vague credit for prosperity, without knowing why.

If the stockmarket crash damages the broader Russian economy, and if the public perceives the Georgia war in particular and, somehow, Putin generally as being responsible, could Putin become politically vulnerable? It's really hard for an outsider to decipher these power plays... but I think it's a possibility.

What's Russian for the "peso problem?" :).

Russia's major problem is that there is no rule of law. The government can obviously steal your company any time Putin and the siloviki feel it is in their interest to do so. If a company is left alone, it is only because Putin desires it to be so, not because he is limited in anyway. Thefts were becoming even more blatant and arbitrary before the invasion of Georgia. All that the invasion proved is that Putin really does not see any limit to his thuggery.

I don't think Putin is in any danger of losing control. His source of power is extra-constitutional. The chain of command on paper does not reflect real power in Russia. Offices are simply a token of favor or respect. Putin could hold no office in Russia, and his network of KGB patronage and influence remains.

Putin in Russia is like Capone in Chicago. It's ruled by gangsters. The only way Putin could lose influence is if another gangster takes him out. That won't happen anytime soon. The siloviki currently see too much value in cooperation.

Im also reading Greenspan. 100 % right

I think there are some wrong with the paper

Very grateful to a bunch of much better skills. I look forward to reading more of the future of the subject. Keep the good work.thanks.

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