Russian Crash Shows Risks of Globalization
washingtonpost.com
<< Dana F. McGinnis was not a Russia expert when he went to Moscow on a trip organized by Morgan Stanley & Co. in fall 1994. He did not speak the language and he had made his first visit to Russia only six months earlier. But the San Antonio-based fund manager had something Morgan Stanley and Russia were interested in: a couple of hundred million dollars from rich and adventuresome individuals and institutions in search of new investment frontiers.
McGinnis and two dozen other managers of big U.S. pension, mutual and private investment funds were given a grand tour: a glitzy dinner at the Kremlin, an enchanting night at the Bolshoi Opera, a stroll through the famous Novodevichy convent gardens, receptions at the elegant Metropol Hotel, and meetings with leading lights in Russian politics and economic policy. Meanwhile, in private meetings with Russian executives, McGinnis plotted major investments in Russian cement, telecommunications and electric power companies.
"There was great optimism that there would be an end to the arms race and that some 250 million people would be brought into the capitalist fold," McGinnis recalled. "There was a buzz in the air. The country was evolving by the hour. You could feel it." It seemed like a historic moment and a historic business opportunity.
McGinnis and many other people bought into that vision. Over three years, tens of billions of dollars of foreign money flooded Russia's tiny new bond and stock markets.
Then just as quickly, the money poured back out in a financial panic this spring and summer, leaving Russia and many banks and investors high and dry. Russia's new market economy collapsed, throwing emerging markets into turmoil worldwide, sharply reducing earnings at several major Western banks, and forcing McGinnis to put his three investment funds into bankruptcy, wiping out about $200 million of his investors' equity. .............. >>
A House of Cards
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