Could we be on the verge of another financial catastrophe? I'll admit it: I'm hopeful. First, because I'm poor and spiteful, and secondly, because one of the nice things about financial collapses (like military disasters) is that all the ugly, corrupt realities underpinning a so-called economic boom are revealed, and the worst in humanity is laid bare, and everyone everywhere gets pissed off, cynical, and hopeless. That's the kind of thing that boosts my mood, not to mention my sexual drive. Financial panics are to me what endangered mammal horns are to Chinese men: pure Viagra placebo.
In the wake of the recent panic sell-offs in the Russian markets and abroad, no one is ready yet to compare 2006 to 1998, the year of the financial crisis. The circumstances are so much different -- in today's Russia there's real growth, real wealth, real investment. The economy isn't built on a flimsy IMF-backed Ponzi scheme headed by a corrupt clique of neo-liberals and Russian Reformers. Instead, it's built on high global commodity prices, managed by a corrupt yet soft-authoritarian regime which makes sure that not too much bad news gets out.
But if the circumstances are so different between 98 and today, why am I getting a weird sense of deja vu? Maybe it's the eerie similarity in the choice of words, quotes and excuses. Just consider these two Moscow Times articles, nearly 10 years apart:
November 4, 1997: "Hong Kong crashed, New York plunged and Russia went into a tailspin. The past week's white-knuckle roller-coaster ride on world markets has taken many financial capitals by surprise, but perhaps none more so than Moscow.
"... Predicting an eventual recovery, government officials and market analysts were quick to point out that the week's market stir had little to do with Russia's economic fundamentals.
"'The fundamentals are still there,' said Gavin Rankin, head of research at the Troika Dialog brokerage. 'I don't expect the start of a bear market. This is a checking of the bull.'" ("The Great Hiccup Of '97")
Now fast forward to...
June 14, 2006: "The Russian Trading System index plummeted 9.4 percent Tuesday...The drop was part of a widespread decline in emerging markets, which have been hammered in recent weeks and, on Tuesday, fell to a six-month low on fears of a global downturn.
"'One fundamental point has changed,' said Roland Nash, chief strategist at Renaissance Capital in Moscow. 'That's the fear that there will be a global downturn and that commodity prices will fall.
"'That small change has had enormous consequences for the Russian market. But here nothing has changed, for better or worse. The fundamentals are the same.'" ("Stocks Plummet 9.4 % in 'Overcorrection'")
Creepy? Yes, and the similarity is everywhere you look. Again, read this October 29, 1997 MT editorial: "The exodus has nothing to do with a change in fundamentals in the Russian market. In fact, the boom that saw Russia become the world's best-performing market over the last year was never about fundamentals; it was about sentiment." ("Adding Up The Slide In Russia")
Now read this excerpt from a May 23, 2006 article: "'We're having a massive panic globally after a fabulously strong market,' said Al Breach, chief strategist at UBS. 'This is nothing to do with the fundamentals.'" ("Stock Market Loses 9% of Value")
The words are so similar because the fact is there are a lot of fundamental similarities between 1997-8 and today, not the least of which is the sense of complete surprise (sentiment) and the deluded sense that none of this is Russia's fault, that Russia is somehow a victim to other countries' problems.
When the 1997 sell-off started, then-Central Banker Sergei Dubinin tried to look at the bright side of things by noting, "The Russian economy fully felt itself to be a part of the world economic system." Not surprisingly, Economics and Trade Minister German Gref this week said the recent market collapse was, "the price we pay for integration in world markets."