Weekend Economists Pull the Easter Rabbit Out of the Hat April 18-20, 2014

[Demeter]

39. It's not that Russia is so Strong (although probably more than it's ever been)

It's that the West, sucked bloodless by the Vampire Squid and its cohorts, is so incredibly weak that a couple of good puffs of wind could blow their houses down, for a very long time.

This is what I admire about Putin: he sees the downside, and refuses to go there. He's not going to let Goldman Sachs plunder...that's why the Russians paid off all those Czarist bonds that had been hanging around their necks forever...

Russia To Pay Off Old Bonds
After 78 Years, The Czar's Markers Are Worthless No More
November 28, 1996|By Uli Schmetzer, Tribune Staff Writer.

MOSCOW — For nearly eight decades Russia's Imperial Bonds decorated European bathrooms and children's playrooms as colorful but worthless wallpaper.

Sometimes the bonds surfaced at antique stores or as curios in the flea markets of Europe.

When Vladimir Lenin's Bolsheviks unilaterally declared the debt on the czarist bonds null and void in 1918 they were rendered worthless.

This week, however, French families were rummaging through attics in a frantic search for the once-useless certificates their great-grandparents might have bought, then tossed into a dark corner in disgust.

Russian President Boris Yeltsin agreed Tuesday to repay a nominal value of between $80 and $100 for each of the 4 million czarist bonds believed to remain in circulation in France or to have survived the European wallpaper fad, for a total payout of around $400 million.

The 30 million bonds issued between 1822 and 1917 would have a current market value, with interest, of about $200 billion.

The decision to make good on the bonds was not prompted by Moscow's sudden sense of fair play but out of financial necessity.

"The debt was detrimental to our status as a reliable country and stopped us from obtaining new loans," said Alexander Zhukov, deputy chairman of the Duma's powerful committee on finance.

Yeltsin's repayment decision has not been popular.

Parliament speaker Gennady Seleznyov, a communist, warned that czarist debts now might surface all over the world. He called the agreement to pay French bond owners "immoral" at a time when the government is unable to pay its own people their back wages or compensate them for savings lost when the Soviet Union collapsed.

Many of the original owners committed suicide or suffered mental breakdowns when Lenin's fledgling Soviet Union refused to honor the czarist bonds 78 years ago.

Lenin argued that the world had forfeited the right to collect when a combined U.S., French and British military expedition invaded Russia to overthrow the Bolsheviks.

For decades Soviet leaders staunchly stuck to Lenin's equation: Our cost of repelling the invaders equals the sum of the debt.

Most unhappy with Yeltsin's repayment formula were the French holders of the czarist bonds who had envisioned a financial windfall.

About a century ago the bonds were particularly prominent in Paris, where by 1900 nearly half a million French citizens, ranging from aristocrats to ordinary workers, had bought them as a nest egg for old age and a cushion against inflation.

Pierre de Pontbriand, president of the Association of French Holders of Russian Bonds, described as "derisory" and "scandalous" Russia's offer to pay out, over a period of several years, some $400 million, most of it raised with loans and czarist assets in France.

The French bond holders claim their certificates, with the accumulated interest over the years, are worth $31 billion today.

To which the Russian news agency Interfax replied in a commentary Wednesday: "Who will pay Russia for the blood its sons have shed, among other things for the freedom of France and the freedom of those 300,000 bond holders who are today demanding the money the czarist government borrowed from their great-grandmothers?"

The fiasco prompted the Paris Stock Exchange this week to suspend trading in about 40 types of czarist bonds. The old papers came back onto the market some time ago when it became apparent that Russia would have to liquidate its old debt if it wished to have access to new loans and successfully issue Eurobonds on the international market.

Moscow last week placed a $1 billion parcel of Eurobonds, its first issue and the biggest East European bond issue ever, but the bonds could not go on sale in Paris before the czarist debt issue was resolved.

While many Russians wondered how cash-strapped Moscow could raise $400 million for French bond owners, some officials pointed out that the French government was still holding 47 tons of czarist gold that Paris had frozen after the Bolsheviks came to power and reneged on the imperial loan certificates.

The gold provides a way for Russia to finesse the problem, much as former Soviet President Mikhail Gorbachev pacified czarist bond owners in America, Canada, Britain and Switzerland with what is known as "the zero version" or "the zero variant."

It works like this: By bilateral agreement these countries unfroze Russian assets they had confiscated after the Bolshevik takeover. These assets or their value were used to repay nominal fees to the bond holders.

Paris, once the biggest market for Russian bonds, remained a problem by the sheer number of bond holders who for generations lobbied for restitution.

Moscow not only needs a healthy credit status to get desperately required loans, it also needs the support of the 18 major creditor nations known as the Paris Club to recover the Soviet Union's $134 billion in loans to developing countries and reschedule the $40 billion debt the Soviet Union has left behind.

The funds raised from the bonds financed Russia's Trans Siberian railway, the Moscow to Minsk and the Moscow to Kiev rail lines as well as the oil exploration around Lake Baku.

They paid their blood money, and they aren't going to do it twice. Would that the US govt. were as nationalistic....