Turning Point by John Francis Kinsella
The bad news was coming in fast and furious, the newspapers called it financial Armageddon, as investment banks, mortgage banks and insurance companies bit the dust in quick succession. The nightmare of 1929 was no longer a threat, it was real, poised, about to engulf banks and businesses. The prospect of new consumer credit melted as quickly as an ice cube on a Marbella beachfront bar.
Panicked investors like Babkin abandoned their luxury villas in their rush home to save what they could. The Moscow MICEX stock index was plumbing new depths following its summer fall of fifty percent when Russia embarked on its perilous Georgia adventure. The Kremlin now looked on helplessly as events escaped their control. Revenues fell vertically as crude oil plummeted past the one hundred dollar mark on its long downward spiral. Putin to his diamy discovered the disadvantages of capitalism; markets could not be ordered upward.
The rumour was making the rounds that Sergei Tarasov was in difficulties and was seeking a bridging loan of millions to prop up his UK business, said to be suffering from the liquidities drought. Just six months before Barton had been a guest on Tarasov’s yacht in Aegean watching lavish hospitality ladled out to lords and British political string pullers.
Tarasov, founder of the InterBank Corporation, had commenced in banking after the Russian financial crisis of 1998; hired by a faltering Moscow bank specialized in the oil and gas business. The then called G&N bank had operated out of a run down building owned by the Russian Academy of Science in an unfashionable district of Moscow near the Leningradsky Railway station, beyond the Sadovoye Ring. Things had since changed. The now respectable bank, rebaptized InterBank, boasted a magnificent headquarters housed in a vast classical 19th century building on Tverskaya Ulitsa, just a short walk from the Kremlin, and a spectacular landmark tower was planned in Moscow’s new business district.
Tarasov was forty two years old. He had been a student during the time of Gorbachev, but with the dissolution of the Soviet Union he left Russia to pursue his studies in the USA. At MIT he obtained an MBA in economics and joined Morgan Stanley as an analyst before returning home when business started to boom in the oil and gas sector.
It was at that time he met Demirshian, a Russian- Armenian mafiyosa, who had made a fortune in trafficking everything from drugs to forged one hundred dollar bills, investing his gains in Russia’s vast legal gambling industry, and now needed a respectable, and competent, front man to head his newly acquired bank. Demirshian and his cohorts, overwhelmed by the complexities of running a modern bank legally, hired the promising MIT graduate.
Tarasov, speaking perfect English and understanding the workings of Western banks, recognised the possibilities of making money financing Russian oil and gas exports. He was a man capable of metamorphosing a criminal organisation into a respectable business. Russia was in the difficult process of transforming itself into a modern economy. It needed to shake off its Wild West image to take advantage of the money that could be made from its vast reserves of natural resources as its economy entered a period of rapid growth after emerging from the financial crisis of 1998.
Tarasov quickly rose to become one of Russia’s new business elite, one of the young financiers capable of bringing order to the country’s chaotic banking system that had sprung up after Gorbachev legalized commercial banks in 1988. The then newly created banks had to bide their time until the Soviet Union was disbanded at the end of 1991 before they could grow into the kind of tentacular organisations that now controlled the production of precious metals, copper, nickel, aluminium, oil and gas. Their business was structured around ex-combinats and natural-resources based companies, run by latter-day robber barons who had seized control of huge swaths of the Russian economy, spreading their networks into almost every other profitable sector of the Russian economy.
In exchange for its exports of raw materials Russia was importing billions of dollars of foodstuffs and manufactured goods, creating a nouveau riche class such as Tarasov, whose skills as a banker made him rich beyond his dreams. The bank loaned money at exorbitant rates, guaranteed, whenever necessary, by Demirshian’s methods of extralegal enforcement, an essential element in the absence of a functioning system of commercial law.
InterBank’s influence grew as Russian property and construction experienced an unprecedented boom, lobbying in the corridors of power, where corruption was rife. Favours were exchanged to acquire prime government owned properties for new developments in Moscow and St Petersburg, issuing bonds to finance and consolidate the bank’s growing power and influence.
Demirshian reluctantly withdrew to enjoy his wealth on the French Riviera, his sulphurous reputation and his connections to the underworld had no place in Nova Russia, leaving Tarasov as his heir. Demirshian was safely away from Moscow where the press thrived on reports of corpses linked to frequent criminal and business related vendettas.
Tarasov had become part of the post-Soviet nomenklatura, after reforms made it easier to do business more or less legally and industry was privatized. He had transformed a small murky bank, shunned by mainstream business, into a reputed financial and banking institution listed on the London Stock Exchange handling Russian securities and raising the billions needed to finance and transform the country’s rundown and indebted industries into modern world class industrial conglomerates.
Change came suddenly and it was not just the small world of Russian oligarchs that found itself in deep trouble as the G7 gathered in Rome to ponder the crisis. London staggered under the mounting losses of British banks. In Vienna the Austrian finance minister made a desperate effort to put together a rescue plan for the countries of Eastern Europe. Austria had lent three hundred billion dollars to the region, and the debacle threatened to explode Europe’s banking system. It was like a financial Götterdämmerung, some even likened it to monetary Stalingrad.
The countries of ex-Communist Eastern Europe, which had borrowed some two trillion dollars almost exclusively from Western banks, were in crisis. At the same the Russian rouble went into free fall in one of the greatest currency runs in history that threatened to bleed Russia dry.
Balts, Poles, Czechs and Hungarians had borrowed in Euros and Swiss francs and were now facing insurmountable debt repayments as their own currencies, caught in the tumult of the financial whirlwind, shrivelled. European governments trembled as debts spiralled with the threat of sovereign default in Austria, Sweden, Italy and Greece, as Spanish bankers feared the default of their heavily indebted Latin American clients.
Contagion was everywhere, spreading its tentacles into Asia, as the IMF struggled to cope with the deluge of appeals for help. Japan confirmed it would supply the fund with an extra two hundred billion, the largest loan made in the history of humanity, to stem off disaster.
Guarantees
Panicked investors like Babkin abandoned their luxury villas in their rush home to save what they could. The Moscow MICEX stock index was plumbing new depths following its summer fall of fifty percent when Russia embarked on its perilous Georgia adventure. The Kremlin now looked on helplessly as events escaped their control. Revenues fell vertically as crude oil plummeted past the one hundred dollar mark on its long downward spiral. Putin to his diamy discovered the disadvantages of capitalism; markets could not be ordered upward.
The rumour was making the rounds that Sergei Tarasov was in difficulties and was seeking a bridging loan of millions to prop up his UK business, said to be suffering from the liquidities drought. Just six months before Barton had been a guest on Tarasov’s yacht in Aegean watching lavish hospitality ladled out to lords and British political string pullers.
Tarasov, founder of the InterBank Corporation, had commenced in banking after the Russian financial crisis of 1998; hired by a faltering Moscow bank specialized in the oil and gas business. The then called G&N bank had operated out of a run down building owned by the Russian Academy of Science in an unfashionable district of Moscow near the Leningradsky Railway station, beyond the Sadovoye Ring. Things had since changed. The now respectable bank, rebaptized InterBank, boasted a magnificent headquarters housed in a vast classical 19th century building on Tverskaya Ulitsa, just a short walk from the Kremlin, and a spectacular landmark tower was planned in Moscow’s new business district.
Tarasov was forty two years old. He had been a student during the time of Gorbachev, but with the dissolution of the Soviet Union he left Russia to pursue his studies in the USA. At MIT he obtained an MBA in economics and joined Morgan Stanley as an analyst before returning home when business started to boom in the oil and gas sector.
It was at that time he met Demirshian, a Russian- Armenian mafiyosa, who had made a fortune in trafficking everything from drugs to forged one hundred dollar bills, investing his gains in Russia’s vast legal gambling industry, and now needed a respectable, and competent, front man to head his newly acquired bank. Demirshian and his cohorts, overwhelmed by the complexities of running a modern bank legally, hired the promising MIT graduate.
Tarasov, speaking perfect English and understanding the workings of Western banks, recognised the possibilities of making money financing Russian oil and gas exports. He was a man capable of metamorphosing a criminal organisation into a respectable business. Russia was in the difficult process of transforming itself into a modern economy. It needed to shake off its Wild West image to take advantage of the money that could be made from its vast reserves of natural resources as its economy entered a period of rapid growth after emerging from the financial crisis of 1998.
Tarasov quickly rose to become one of Russia’s new business elite, one of the young financiers capable of bringing order to the country’s chaotic banking system that had sprung up after Gorbachev legalized commercial banks in 1988. The then newly created banks had to bide their time until the Soviet Union was disbanded at the end of 1991 before they could grow into the kind of tentacular organisations that now controlled the production of precious metals, copper, nickel, aluminium, oil and gas. Their business was structured around ex-combinats and natural-resources based companies, run by latter-day robber barons who had seized control of huge swaths of the Russian economy, spreading their networks into almost every other profitable sector of the Russian economy.
In exchange for its exports of raw materials Russia was importing billions of dollars of foodstuffs and manufactured goods, creating a nouveau riche class such as Tarasov, whose skills as a banker made him rich beyond his dreams. The bank loaned money at exorbitant rates, guaranteed, whenever necessary, by Demirshian’s methods of extralegal enforcement, an essential element in the absence of a functioning system of commercial law.
InterBank’s influence grew as Russian property and construction experienced an unprecedented boom, lobbying in the corridors of power, where corruption was rife. Favours were exchanged to acquire prime government owned properties for new developments in Moscow and St Petersburg, issuing bonds to finance and consolidate the bank’s growing power and influence.
Demirshian reluctantly withdrew to enjoy his wealth on the French Riviera, his sulphurous reputation and his connections to the underworld had no place in Nova Russia, leaving Tarasov as his heir. Demirshian was safely away from Moscow where the press thrived on reports of corpses linked to frequent criminal and business related vendettas.
Tarasov had become part of the post-Soviet nomenklatura, after reforms made it easier to do business more or less legally and industry was privatized. He had transformed a small murky bank, shunned by mainstream business, into a reputed financial and banking institution listed on the London Stock Exchange handling Russian securities and raising the billions needed to finance and transform the country’s rundown and indebted industries into modern world class industrial conglomerates.
Change came suddenly and it was not just the small world of Russian oligarchs that found itself in deep trouble as the G7 gathered in Rome to ponder the crisis. London staggered under the mounting losses of British banks. In Vienna the Austrian finance minister made a desperate effort to put together a rescue plan for the countries of Eastern Europe. Austria had lent three hundred billion dollars to the region, and the debacle threatened to explode Europe’s banking system. It was like a financial Götterdämmerung, some even likened it to monetary Stalingrad.
The countries of ex-Communist Eastern Europe, which had borrowed some two trillion dollars almost exclusively from Western banks, were in crisis. At the same the Russian rouble went into free fall in one of the greatest currency runs in history that threatened to bleed Russia dry.
Balts, Poles, Czechs and Hungarians had borrowed in Euros and Swiss francs and were now facing insurmountable debt repayments as their own currencies, caught in the tumult of the financial whirlwind, shrivelled. European governments trembled as debts spiralled with the threat of sovereign default in Austria, Sweden, Italy and Greece, as Spanish bankers feared the default of their heavily indebted Latin American clients.
Contagion was everywhere, spreading its tentacles into Asia, as the IMF struggled to cope with the deluge of appeals for help. Japan confirmed it would supply the fund with an extra two hundred billion, the largest loan made in the history of humanity, to stem off disaster.
Guarantees