Russian economy collapsing

[southsider2k5]

http://www.bloomberg.com/apps/news?pid=206...refer=worldwide

 

Russian Markets Halted as Emergency Funding Fails to Halt Rout

 

By Alex Nicholson and William Mauldin

Enlarge Image/Details

 

Sept. 17 (Bloomberg) -- Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country's debt default and currency devaluation a decade ago.

 

The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.

 

The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.

 

The Finance Ministry attempted to stop the selloff by offering 1.13 trillion rubles ($44 billion) of budget funds to the country's three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, for at least three months. That measure came as KIT Finance, a Russian brokerage, said it's in talks to find a buyer after failing to meet some financial obligations related to repurchase agreements.

 

Bond Market `Closed'

 

``The bond market remains effectively closed and banks are reluctant to lend to one another,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further.''

 

Finance Ministry Minister Alexei Kudrin said on state television that the decision to increase the amount of budget funds available to three state-controlled banks would ``smooth over the shock changes'' in the markets and enable the banks to make loans to smaller competitors.

 

``We must soften such shock changes connected with the market falling,'' Kudrin said. ``With foreign borrowing stopping, we must soften the impact with additional funds, then the situation will stabilize.''

 

Sberbank, eastern Europe's biggest bank, can borrow as much as 754 billion rubles, VTB has a limit of 268.5 billion rubles and Gazprombank can get 103.9 billion rubles. About 400 billion rubles more of unspent budget funds is available to other banks.

 

``These are market-making banks capable of insuring the liquidity of the banking system,'' the Finance Ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.

 

Sberbank dropped 2.1 rubles, or 6.1 percent, to 32.55 rubles. VTB sank 0.44 kopek, or 14 percent, to 2.73 rubles, a record low.

 

``The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. ``Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,'' he said.

 

To contact the reporter on this story: Alex Nicholson in Moscow at [email protected]

[Rex Kickass]

The era of Russian regional dominance appears to be drawing to a quick close. That lasted what, two or three months?

[lostfan]

You know the saying: "When the United States sneezes, the world catches a cold"

[Steve9347]

F*** Russia.

[southsider2k5]

In reality if capital is evaporating that quickly, they won't be able to stay in Georgia much longer. This is exactly how the Soviet Union collapsed. It wasn't politics, it was a complete lack of money to support the state.

[NorthSideSox72]

The era of Russian regional dominance appears to be drawing to a quick close. That lasted what, two or three months?

A few years. But still, yes, HUGE blip for them. Lots of reasons behind it. Russia is a strange market.

 

[lostfan]

In reality if capital is evaporating that quickly, they won't be able to stay in Georgia much longer. This is exactly how the Soviet Union collapsed. It wasn't politics, it was a complete lack of money to support the state.

That goes all the way back to like 1975 or something and I thought the opening of their markets was supposed to rectify that.

[NorthSideSox72]

In reality if capital is evaporating that quickly, they won't be able to stay in Georgia much longer. This is exactly how the Soviet Union collapsed. It wasn't politics, it was a complete lack of money to support the state.

Well, plus a huge military budget, insane costs assocaited with maintaining an empire that large, and the inability to reap the enormous natural resources they had.

 

[NorthSideSox72]

That goes all the way back to like 1975 or something and I thought the opening of their markets was supposed to rectify that.

Their financial markets on MICEX and MISE have been more than open in the last decade - they have been begging for foreign capital. And they've gotten some, but not nearly what they were looking for. Western businesses and financiers have been hesitant to jump in a whole lot because of instability, political unpredictability, and rampant corruption. You just can't do business over there without paying off a lot of people a lot of money, which is costly and in violation of Foreign Corrupt Practices Act (for US businesses).

 

[lostfan]

Their financial markets on MICEX and MISE have been more than open in the last decade - they have been begging for foreign capital. And they've gotten some, but not nearly what they were looking for. Western businesses and financiers have been hesitant to jump in a whole lot because of instability, political unpredictability, and rampant corruption. You just can't do business over there without paying off a lot of people a lot of money, which is costly and in violation of Foreign Corrupt Practices Act (for US businesses).

Sounds like they could have borderline superpower status again if they'd just clean up their act and play nice.

[southsider2k5]

That goes all the way back to like 1975 or something and I thought the opening of their markets was supposed to rectify that.

"open" is a very loose term when it comes to Russia. Putin has pretty much flushed that idea down the toilet.

[Cknolls]

I heard a report that said Putin was the richest person in the world.

[Rex Kickass]

In short-term reality, this could be very problematic for Europe.

[Texsox]

In reality if capital is evaporating that quickly, they won't be able to stay in Georgia much longer. This is exactly how the Soviet Union collapsed. It wasn't politics, it was a complete lack of money to support the state.

 

No it was Reagan

They should have sent out economic stimulus checks.

[southsider2k5]

No it was Reagan

They should have sent out economic stimulus checks.

 

No green needed. Reagan was the central figure in making USSRs biggest assets and income nearly worthless.

[lostfan]

No green needed. Reagan was the central figure in making USSRs biggest assets and income nearly worthless.

IIRC, when Reagan took office, they told him this was already happening, so he decided to accelerate it as much as he could.

[Texsox]

No green needed. Reagan was the central figure in making USSRs biggest assets and income nearly worthless.

 

It makes it seem as if he did that all by himself. That's what I always objected to. I've given Reagan plenty of props, but the single handed disintegration of the USSR is too much of a stretch.

[lostfan]

It makes it seem as if he did that all by himself. That's what I always objected to. I've given Reagan plenty of props, but the single handed disintegration of the USSR is too much of a stretch.

Yeah this is my position as well. To say he "won" the Cold War, which is said quite often, is pretty inaccurate. The Russians would also say that it's like thanking the crow for the sunrise but that's not true either. In reality what happened is somewhere in the middle. They were in a downward spiral, and Reagan's policies had a positive effect (from the American perspective) that may or may not have happened with another president, and this ultimately contributed to them reaching a point they couldn't recover from.

[Rex Kickass]

Yeah this is my position as well. To say he "won" the Cold War, which is said quite often, is pretty inaccurate. The Russians would also say that it's like thanking the crow for the sunrise but that's not true either. In reality what happened is somewhere in the middle. They were in a downward spiral, and Reagan's policies had a positive effect (from the American perspective) that may or may not have happened with another president, and this ultimately contributed to them reaching a point they couldn't recover from.

 

You could make the argument that the detente that Nixon/Ford/Carter attempted to make with the Soviet administration - pre-Afghanistan - might have bought the Soviet Union their last ten years, but I think the real reason for the Soviet Union's fall from grace was partially economic and partially the end of the Old-Guard's effectiveness in its own party. There was a succession of fairly ineffective, old men running the country who were weak on ideas and in physical health as well. It allowed the reform wing that Gorbachev led in the 1980s to grab the reins of the party and Gorbachev's openness policy exposed too much weakness to allow the state to survive, IMO.

[HuskyCaucasian]

Wow! McCain's Cold War II went quick.

[Texsox]

It allowed the reform wing that Gorbachev led in the 1980s to grab the reins of the party and Gorbachev's openness policy exposed too much weakness to allow the state to survive, IMO.

 

When I saw Gorbachev speak last year a question was asked about Reagan's involvement and he made a face and said there were many people involved. He intimated that he, and like minded colleagues, should also be credited. Along with governments around the world.

 

Imagine if one person could bring down the entire USSR, then certainly two people could bring down the US. That's scary.

[southsider2k5]

Then seriously, I had better never hear a word about George W Bush ruining America again.

[Texsox]

Then seriously, I had better never hear a word about George W Bush ruining America again.

 

I've said many times, and believe it, that Presidents receive far too much credit, and far too much blame, for what happens in this country and around the world.

[ChiSox_Sonix]

I've said many times, and believe it, that Presidents receive far too much credit, and far too much blame, for what happens in this country and around the world.

 

 

Agreed 100%

[lostfan]

So what you're really saying is, we should change the title of President to Quarterback?

 

Either Barack Obama or John McCain will be inauguarated as the 43rd Quarterback of the United States in January 2009.