WEDNESDAY SEPTEMBER 17 CONTENTS
(1) EDITORIAL: Getting Tough with Russia
(2) EDITORIAL: The Valdai Atrocity
(4) Advice of the Day on Russia: Don’t Drink the Water!
(5) EDITORIAL: The Story of David and Goliaputin
(6) Putin the Wimp
(7) Russians Questioning Putin’s War
NOTE: A plethora of editorials today (three to be exact), two of which (#2 and #5) focus on Russia’s friends. You can tell a lot about a country by the company it keeps — in this case, those it bribes silly and those who are racist lunatics. We also have more good news on how Russia is developing enemies within Russia itself (#7).
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Nato calls EU-Russia pact ‘not acceptable’
The deal brokered by the European Union for the withdrawal of Russian troops from Georgia has been slammed by Nato’s top official as “not acceptable” because it cedes too much ground to Moscow.
“As EU foreign ministers prepare today to discuss the accord brokered last week by Nicolas Sarkozy, the French president, Jaap de Hoop Scheffer, Nato’s secretary-general, warned that the agreement provided no grounds for the revival of the Nato-Russia relationship.”
Kim, did you see that Russia’s stock market tanked again! Ha-ha you losers Russia, only a loser country would see its stock market fall and its top banks going bankrupt. You guys are going down, Russia! Bankrupt losers!
LA RUSSOPHOBE RESPONDS: And the market didn’t feel the hit from the US crash today yet. Just wait for tomorrow!
Well, the two largest banks are unlikely to go bankrupt, because they are essentially owned by the state. However, the Russian state may be forced to pour a lot of cash into those banks which will drain Russia’s reserves. A few hundred billion can be spent pretty quickly in a financial crisis.
The banks that are likely to go bankrupt are the smaller banks that borrowed foreign money to lend to Russian consumers. They will be forced to pay back these loans as it will be close to impossible for them to refinance those loans. It is the Russian version of the subprime mortgage crisis: Russian banks borrowed billions from foreigners to lend money to Russians to buy televisions, washing machines, to pay for trips to Turkey, etc…. There were no credit checks and you needed minimal proof of a job.
Before the global credit crisis, virtually anybody with a job could get a loan. The number of creditors who default on these loans ranged from 20-40% (and that was in the boom years before inflation really picked up). Business was good just as long foreign loans were cheap and you had an ever growing number of clients paying exorbitant interest and fees to cover the costs of those defaulting. Extra cash was made by selling bad loans to collection agencies to get them off the books. What you have in a classic pyramid scheme. And as all other pyramid scheme, this one will fail soon.
When will this all come tumbling down? Likely this fall. As the Financial Times reports, these Russian banks owe billions that are coming due in the coming three months. Because of their poor ratings, they are unlikely to get more loans to pay off their old loans. They do not have the cash on hand to pay, so they either have to default on their loans or the Russian government will have to step in spending billions to shore up hundreds of banks who risk going bankrupt.
Either way, it isn’t going to be pretty for the Russian economy.
Presumably BradT is being sarcastic. I can think of more than one country where the stock market has collapsed and a top bank has collapsed in the last year, thought I don’t think it’s Russia.
News from official russian army newspaper. Deleted from the webpage – found it in Google cache. Soldier admits that they entered Georgia before Georgians attacked Tsinkvali.
Pat, I don’t get what you mean? Please explain.
I just got up and I am looking at the Russian stock market. OH MY GOD! The RTS is down by 11.47% and the MICEX is down by 16.60%! It is now official, the Russian stock market has lost more than half of its value. The RTS is now down close to 55% of its value from its all time high of close of 2500 points in May.
You’re probably right, Pat, but what’s your definition of collapse? Russia’s top stock index plunged over 40% from its May peak BEFORE this latest crisis brought on by Lehman, and just today has dropped 10%. The Dow may not be pretty, but it has dropped 23% from its peak last October (in other words, a proportionately smaller and more gradual drop), and yesterday fell less than 5%. If the old axiom is true that when America sneezes, the world catches a cold, then when applied to Russia, the saying should probably go something like “When America sneezes, Russia develops terminal lung cancer, slashes its wrists with the shards of a broken vodka bottle, and stumbles in front of a speeding truck.”
If Russia had anything other than unrefined commodities to sell abroad, maybe it could weather this storm better, but with a decrepit manufacturing base, a non-existent service sector, and a corrupt and bloated bureaucracy that feasts on capital, the Putin’s Potemkin village of a country looks ready to crumble from a light breeze.
James is right. The problem, though, is that Russia relies on a number of commodities, but does not invest in ensuring stable production of those commodities. GAZPROM is spending billions to build pipelines to spite Ukraine and a few other countries, yet is investing little in developing new oil and gas fields to maintain production. At this rate, in a decade it will have wonderful pipelines that will be sitting empty as they will have no oil or natural gas to export.