McClintick David

How Harvard Lost Russia

How Harvard Lost Russia

David McClintick

Anne Williamson

Table of Contents

How Harvard Lost Russia

How Harvard Deep-Sixed Its Russian Scandal

Harvard Mafia, Andrei Shleifer and the Economic Rape of Russia

Chronicles of Harvard University Russian Economic Team Scam and Deep Corruption of Academic Economics

Introduction

Academic Mafiosi as a Social Class

Academic Mafiosi as Byproduct and Simultaneously Enablers of Neoliberalism

Economic rape of post USSR economic space was by design not by accident

Larry Summers was not only defender but also the handler of Andrei Shleifer

Opium for the masses: Neoclassical economics role under neoliberalism as equivalent of the role of Catholic Church under feudalism

MI6 role in economic rape of Russia, Ukraine and other post Soviet republics

Would Harvard Ever Help Russia

INVESTIGATIVE DOCUMENTS - Related articles

Would Harvard Ever Help Russia?

McClintick's Report, Or Silence Breaks Down

National Glasnost via The New York Times

Janine Wedel the Whislte Blower

The Blessing of August 1998 Default

The Open Letter to Bill Clinton

A New Wave of Russophobia?

Privatization of Russian Industry

Anatoli Chubais

Yeltsin’s Privatization Program

First Phase of Privatization in Russia

Russian Privatization Auctions

Politics and the Second Phase of Russia’s Privatization

Privatization and Yeltsin's 1996 Reelection

Rigged Auctions of Russian Privatization

Oligarchs

How the Oligarchs Obtained Their Assets

How the Oligarchs Got Very Rich

Yeltsin and the Oligarchs

Loans for Shares Deals Between Yeltsin and the Oligarchs

Failure of Privatization in Russia

How Clinton & Company & The Bankers Plundered Russia

Contagion can be read on many different levels.

The Third Level

Double Effect

A Look Back: Anne Williamson and the Rape of Russia

Testimony of Anne Williamson

ONE ON ONE with Janine Wedel:

GSPIA scholar reveals how misguided U.S. economic aid hurt post-communist Russia

Kto Kogo?*

The NATO Syndrome, the EU’s Eastern Partnership Program, and the EAU

Who’s Sorry Now?

Stop! Thief! Stop!

The Globalists’ Russia Game

The Many Reinventions of Jeffrey Sachs

How George Soros Got His Mojo Working in Ukraine

Beyond Imagination: Uranium One

5 reasons Ukraine will soon cease to exist

How Harvard Lost Russia

David McClintick

January 13, 2006

https://www.institutionalinvestor.com/article/b150npp3q49x7w/how-harvard-lost-russia

The best and brightest of America's premier university came to Moscow in the 1990s to teach Russians how to be capitalists. This is the inside story of how their efforts led to scandal and disgrace.

Since being named president of Harvard University in 2001, former U.S. Treasury secretary Lawrence Summers has sparked a series of controversies that have grabbed headlines. Summers incurred the wrath of African-Americans when he belittled the work of controversial religion professor Cornel West (who left for Princeton University); last year he infuriated faculty and students alike when he seemed to disparage the innate scientific abilities of women at a Massachusetts economic conference, igniting a national uproar that nearly cost him his job; last fall brought the departure of Jack Meyer, the head of Harvard Management Co., which oversees the school's endowment but had inflamed some in the community because of the multimillion-dollar salaries it pays some of its managers.

Then, in quiet contrast, there is the case of economics professor Andrei Shleifer, who in the mid-1990s led a Harvard advisory program in Russia that collapsed in disgrace. In August, after years of litigation, Harvard, Shleifer and others agreed to pay at least $31 million to settle a lawsuit brought by the U.S. government. Harvard had been charged with breach of contract, Shleifer and an associate, Jonathan Hay, with conspiracy to defraud the U.S. government.

Shleifer remains a faculty member in good standing. Colleagues say that is because he is a close longtime friend and collaborator of Summers.

In the following pages investigative journalist David McClintick, a Harvard alumnus, chronicles Shleifer's role in the university's Russia Project and how his friendship with Summers has protected him from the consequences of that debacle inside America's premier academic institution.

Abbreviations

AEW - AEW Capital Management (Boston)

AID - The State Department's Agency for International Development

CSFB - Credit Suisse First Boston was the investment banking division of Credit Suisse Group, prior to 2006. It was active in investment banking, capital markets and financial services.

FRSD - First Russian Specialized Depository

HIID - Harvard Institute for International Development

RSEC - Russian Securities and Exchange Commission

USAID United States Agency for International Development

Off duty and in swimsuits, the mentor and his protégé strolled the beach at Truro. For years, with their families, they had summered together along this stretch of Massachusetts' famed Cape Cod. Close personally and professionally, the two friends confided in each other the most private matters of family and finance. The topic of the day was the former Soviet Union.

"You've got to be careful," the mentor, Lawrence Summers, warned his protégé, Andrei Shleifer. "There's a lot of corruption in Russia."

It was late August 1996, and Summers, 42, was deputy secretary of the U.S. Treasury. Shleifer, 35, was a rising star in the Harvard University economics department, just as Summers had been 15 years earlier when he had first taken Shleifer under his wing.

Summers' warning rose out of their pivotal roles in a revolution of global consequence -- the attempt to bring the Russian economy out from the ruins of communism into the promise of Western-style capitalism. Summers, as Treasury's second-in-command, was the architect of U.S. efforts to help Russia. Shleifer's involvement was more intimate. Traveling frequently to Moscow, he was directing key elements of the reform effort under the banner of the renowned Harvard Institute for International Development.

Working on contract for the U.S., HIID advised the Russian government on privatizing its economy and creating capital markets and the laws and institutions to regulate them. Shleifer did not report formally to Summers but rather to the State Department's Agency for International Development, or AID, the spearhead of the U.S.'s foreign aid program.

Personal affection as much as official concern prompted Summers' admonition. He had come to know that Shleifer and his wife, Nancy Zimmerman, a noted hedge fund manager, had been investing in Russia. Though he didn't know specifics, he understood just enough to worry that the couple might run afoul of myriad conflict-of-interest regulations that barred American advisers from investing in the countries they were assisting.

Summers did not restrict his warnings to Shleifer.

"There might be a scandal, and you could become embroiled," Summers told Zimmerman. "You should make sure you're clear with everybody. People might want to make Andrei a problem some day. The world's a shitty place."

Summers' warnings proved at once prophetic and ineffectual. Even as Shleifer and his wife strove to reassure their friend, they were maneuvering to make an investment in Russia's first authorized mutual fund company. Within eight months their private Russian dealings, together with those of close associates and relatives, would explode in scandal -- bringing dishonor to them, Harvard University and the U.S. government. The Department of Justice would deploy the Federal Bureau of Investigation and the U.S. Attorney's Office in Boston to launch a criminal investigation that would uncover evidence of fraud and money laundering, as well as the cavalier use of U.S. government funds to support everything from tennis lessons to vacation boondoggles for Harvard employees and their spouses, girlfriends and Russian pals. It would, in the end, be an extraordinary display of an overweening "best and brightest" arrogance toward the laws and rules that the Harvard people were supposed to live by.

Says one banker who was a frequent visitor to Russia in that era, "The Harvard crowd hurt themselves, they hurt Harvard, and they hurt the U.S. government."

Mostly, they hurt Russia and its hopes of establishing a lasting framework for a stable Western-style capitalism, as Summers himself acknowledged when he testified under oath in the U.S. lawsuit in Cambridge in 2002. "The project was of enormous value," said Summers, who by then had been installed as the president of Harvard. "Its cessation was damaging to Russian economic reform and to the U.S.-Russian relationship."

Reinventing Russia was never going to be easy, but Harvard botched a historic opportunity. The failure to reform Russia's legal system, one of the aid program's chief goals, left a vacuum that has yet to be filled and impedes the country's ability to confront economic and financial challenges today (see box, page 77).

Harvard vigorously defended its work in Russia, but in 2004, after protracted legal wranglings, a judge in federal district court in Boston ruled that the university had breached its contract with the U.S. government and that Shleifer and an associate were liable for conspiracy to defraud the U.S. Last August, nine years after Summers and his protégé took their stroll along that Truro beach, Harvard, Shleifer and associates agreed to pay the government $31 million-plus to settle the case. Shleifer and Zimmerman were forced to mortgage their house to secure their part of the settlement.

Russia's struggles today certainly don't result entirely from Harvard's misdeeds or Shleifer's misconduct. There is plenty of blame to share. It is difficult to overstate the challenge of transforming the economic and legal culture, not to mention the ancient pathologies, of a huge, enigmatic nation that once spanned one sixth of the earth's land surface, 150 ethnicities and 11 time zones. The Marshall Plan, by comparison, was simple.

Summers wasn't president of Harvard when Shleifer's mission to Moscow was coming apart. But as a Harvard economics professor in the 1980s, a World Bank and Treasury official in the 1990s and Harvard's president since 2001, Summers was positioned uniquely to influence Shleifer's career path, to shape U.S. aid to Russia and Shleifer's role in it and even to shield Shleifer after the scandal broke. Though Summers, as Harvard president, recused himself from the school's handling of this case, he made a point of taking aside Jeremy Knowles, then the dean of the faculty of arts and sciences, and asking him to protect Shleifer.

Months after Harvard was forced to pay the biggest settlement in its history, largely because of his misdeeds, Shleifer remains on the faculty. No public action has been taken against him, nor is there any sign as this magazine goes to press in late December that any is contemplated.

Throughout the otherwise voluble university community, there has been an odd silence about the entire affair. Discussions mostly have taken place sotto voce in deans' offices or in local Cambridge haunts, such as the one where a well-connected Harvard personage expressed deep concern, telling II: "Larry's handling of the Shleifer matter raises very basic questions about the way he governs Harvard. This is fraught with significance. It couldn't be more fraught."

The silence is now beginning to break, thanks to the leadership of academic worthies like former Harvard College dean Harry Lewis, who is finishing a book about the university to be published in the spring by Perseus Public Affairs. Lewis agreed to show II the manuscript, in which he asserts, "The relativism with which Harvard has dealt with the Shleifer case undermines Harvard's moral authority over its students."

Whether this new questioning will erupt into yet another crisis engulfing Summers and the university remains unclear. What is certain, though, is that the story of Harvard and its representatives' malfeasance, told in full for the first time over the following pages, shows how much damage can be done when the considerable power and resources of the U.S. government are placed in the wrong hands.

THE SEEDS OF RUSSIAN REFORM WERE planted in the late 1980s -- when Russia was the Soviet Union and Harvard hadn't yet arrived. The U.S.S.R.'s seven-decade experiment with Marxist-Leninist totalitarianism lay in shambles. By 1989, even as the Berlin Wall fell in Germany, the Soviet Union and its economy were imploding.

Reform-minded Mikhail Gorbachev, the last general secretary of the Communist Party, strove to introduce limited economic and political change. The first competitive elections for the Congress of People's Deputies were held in March 1989. In May 1990, Gorbachev's populist rival, the maverick Boris Yeltsin, was elected chairman of the Russian Republic's Parliament. A month later Russia declared itself independent of the Soviet Union.

That summer Gorbachev and Yeltsin ordered two economists to draw up a "500 Days" plan for converting the Soviet Union to a market economy based on private property. Gorbachev also sought advice from the West. In October 1990 the then-chairman of the New York Stock Exchange, John Phelan Jr., led a group of U.S. securities lawyers and academics to Moscow to begin showing the Soviets how to form capital markets. The meeting was organized by the Big Board's Russian-speaking legal counsel, Richard Bernard, then 40.

Bernard's collaborator in organizing the meeting was a leading Soviet attorney, Peter Barenboim. Together they formed the Soviet-American Securities Law Working Group, or SASLAW, which began drafting securities laws for the U.S.S.R.

On October 15, 1990, two days after the Americans returned to New York, Gorbachev was awarded the Nobel Peace Prize. The next day, under pressure from the KGB and Kremlin hard-liners, Gorbachev withdrew his support for the 500 Days plan. But it was too late to reverse the tide of change. In December, Yeltsin, from his leadership post in Parliament, pushed through legislation that would allow limited private land ownership in Russia for the first time since the 1917 revolution. In June 1991, Yeltsin was elected president, the first leader of Russia to be popularly elected. Then, in August, after a failed coup attempt by Communist revanchists, Gorbachev resigned as general secretary of the Communist Party, dissolved its central committee and effectively ceded power to Yeltsin.

The new leader treated his victory as a window of opportunity -- one that would slam shut if he didn't show results promptly. Transforming the economy was his first priority. He set a young economist named Yegor Gaidar and a group of planners to work in a dacha outside Moscow in September and October. Gaidar had grown up in the Moscow intelligentsia and had a Ph.D. in economics from Moscow State University. He had been convinced for years that the Soviet Union needed to transform itself into a free-market economy based on Western models.

The Gaidar group formulated a set of principles that they believed must guide the reform. First, all Russian citizens should have the right to own private property. Second, ownership of property, as well as other components of a free economy, such as stock and bond trading, should be governed by codes of law.

On November 1, 1991, Yeltsin named Gaidar deputy prime minister and minister of Economics and Finance. Gaidar summoned St. Petersburgbased economist Anatoly Chubais, then 36, who sped to Moscow. Chubais in turn telephoned an even younger St. Petersburg economist, 29-year-old Dmitri Vasiliev. Could Vasiliev write a two-page program for mass privatization of all of the property and assets in Russia? And could he write it fast? Vasiliev could, and did, and rushed the memorandum to Moscow.

Only a few years earlier, Chubais, a tall strawberry blond who liked fast cars, and Vasiliev, a diminutive, politically savvy, bespectacled intellectual who resembled Woody Allen, had been plotting the privatization of the Soviet economy as part of a group of young dissident economists at the universities of Leningrad and Moscow, hiding their activities out of fear of the KGB. During the final days of Gorbachev, they had advised the government of Leningrad, soon to regain its original name, St. Petersburg, on economic reforms.

In the Moscow of November 1991, the team faced a different fear -- of the dire consequences of failure. "Russia was facing the largest and most complex privatization process in the history of humankind . . . and the absence of any legal base for its development," Gaidar would later write in Days of Defeat and Victory. He dubbed his group "the kamikaze team."

The team did have some models. Though discarded, the 500 Days plan remained a focus of public discourse. And there was the example of Poland, which had been experimenting with capitalism since the late 1980s.

The man who had guided Poland's economic reform, Jeffrey Sachs, an economics professor at Harvard University, was a boyish-looking 35-year-old with explosive energy and little patience. An economic wunderkind, Sachs had passed the general examinations for his Ph.D. and was invited to join the rarefied Harvard Society of Fellows while he was still a Harvard undergraduate. He won tenure in the department of economics at age 29.

Sachs had begun advising the Polish Solidarity Movement before it took control of the government in August 1989. He invited another Harvard-trained economist, David Lipton, to work with him. Lipton, who had been Sachs' student, had spent most of the 1980s at the International Monetary Fund. On January 1, 1990, following Sachs' and Lipton's advice, the Polish government introduced what came to be known as "shock therapy" -- the rapid conversion of all property and assets from public to private ownership. After initial shortages and inflation, goods and services soon were flowing through the economy in unprecedented varieties and quantities; prices stabilized.

Though envious of Poland's success, Russian reformers knew their task would be much more difficult. "When socialism collapsed in Poland, an entire generation of people still remembered what markets, market institutions and private ownership were," Gaidar wrote in State and Evolution: Russia's Search for a Free Market, published in 2003. "In Russia there was no such experience to be had. In 1991 the vast majority of Russian citizens had never seen a normal retail shop."

Still, the Polish experiment was getting worldwide publicity, and it wasn't long before Moscow reached out to Sachs, who began formally advising the Russians in late 1991, simultaneously with the official dissolution of the Soviet Union. In November, Gaidar invited Sachs and Lipton to work with the new economic team.

Moscow by then was crowded with foreigners eager to help Russia and get in on the ground floor of a great social and economic change. Entrepreneurs, consultants, lawyers, bankers and academics with foundation grants, as well as fast-buck artists and swindlers from all over the world, swarmed across Russia looking for a piece of the action. The atmosphere was charged with possibility and fraught with danger. Financial transactions were mostly conducted in cash; cities were awash in rubles. Kidnappings were common, as was gunfire and even bombings. Organized crime darkened the already grim picture.

Russia's leaders felt a near-apocalyptic sense of urgency. They understood that to prevent chaos they had to quickly lay the foundation for a Russian-style capitalism or face a return to authoritarianism couched as a restoration of law and order. Even as Yeltsin's reformers got to work, they faced strong opposition from reactionary former Communists who protested the speed and cost of change.

Sachs wasn't the only Harvard professor in Moscow in the summer and fall of 1991. No fewer than four university affiliates -- the John F. Kennedy School of Government, the Russian Research Center, HIID and the economics department -- were represented. Graham Allison, the founding dean of the Kennedy School, was pushing an updated version of the 500 Days plan with its co-author, liberal economist Grigory Yavlinsky. Marshall Goldman, the director of Harvard's venerable Russian Research Center and a frequent visitor to the Soviet Union for decades, was providing counsel to various parties. Sachs, thanks to his experience in Poland, emerged as the leading figure among these notables. In Moscow he encountered yet another Harvard colleague, Andrei Shleifer. Shleifer had been sent to Moscow by the World Bank, where Summers, on leave from Harvard, was serving as chief economist. Shleifer possessed a distinct advantage over other Westerners: He was a native of Russia and fluent in the language, having been born there in 1961. His parents were engineers, a profession the state chose for them. Shleifer revealed at an early age that he was ambitious; in a photograph taken when he was six, he is dressed as a Soviet Army general. When a friend transferred to one of the best schools in Moscow, Shleifer bicycled there and didn't leave until he had persuaded the principal to admit him as well.

The Shleifers left Russia in 1976 with the help of the Hebrew Immigrant Aid Society and moved to Rochester, New York. Andrei later claimed he learned most of his English by watching the popular television show Charlie's Angels. He excelled in mathematics and was admitted to Harvard College. In his sophomore year he went to see Summers and pointed out errors in a paper the young assistant professor had written. Summers, the nephew of two Nobel laureates in economics, soon took Shleifer under his wing. Like Sachs, Summers was one of the youngest economists ever granted tenure by Harvard -- they had made it the same year. Summers guided Shleifer onto a similar path, and the friends maintained their close relationship after Summers went to the World Bank in 1991.

There was no love lost between Sachs and Summers, who had been rivals as newly tenured prodigies. Each had to be the smartest man in the room; their presence at faculty meetings ensured lively debate tinged with animosity. Shleifer had a similar personality, and when the confident upstart encountered Sachs in Moscow, he didn't get along any better with Sachs than his mentor did.

Nonetheless, Sachs introduced Shleifer around the Russian government. It was decided that Shleifer would work with Chubais and Vasiliev on privatization while Sachs advised Gaidar on macroeconomic issues.

Gaidar appointed Chubais to head a new government agency, the State Committee on the Management of State Property. Known by its Russia acronym, GKI, it had no office or charter, except the vague commission to "privatize" the economy and Vasiliev's two-page outline recommending Polish-style shock therapy.

The daunting task was further complicated by the fact that a portion of the economy -- nobody knew how much -- had already been privatized in a de facto sense: In the confusion of perestroika, Gorbachev's mid-1980s effort to restructure the economy to make communism more efficient, a number of senior government bureaucrats, managers of state-owned factories and farms, had been allowed to quietly transfer public assets to themselves and their families. Some of these transfers verged on "theft and embezzlement," Gaidar acknowledged in State and Evolution, but it was too late to reverse them, and the real problem, he allowed, "has been the system itself; complete ambiguity around property rights, absolute lack of accountability." This would have to be changed with new legal codes.

Left to be privatized at the end of 1991 were approximately 225,000 state companies spread across Russia. Gaidar and Chubais, advised by Shleifer, decided that these enterprises could not be privatized one at a time. That would take "well into the 22nd century," Gaidar figured. Rather, they had to devise a form of the shock therapy that had been used in Poland -- near-simultaneous privatization.

So in 1992 the Russian government began issuing certificates with a face value of 10,000 rubles each to all of the 148 million citizens of the country. The certificates were liquid; they could be traded or used to purchase property. By the end of 1992, 46,000 small enterprises out of the 225,000 were in private hands. Chubais, Vasiliev and Shleifer had privatization off to a good start, and Shleifer was forging strong personal relationships with his Russian advisees.

While helping draft securities laws, Richard Bernard, who moved to Moscow in 1992, fired off letters to thenU.S. secretary of State Lawrence Eagleburger urging that the U.S. government support one of the pivotal movements of history -- the transformation of the Russian economy from communism to capitalism. Though Bernard never heard from Eagleburger, there was action in Washington.

In October 1992, just a few weeks before losing the presidency to Bill Clinton, president George H.W. Bush signed the Freedom for Russia and the Emerging Eurasian Democracies and Open-Market Support Act. It authorized up to $350 million in aid to Russia, to be provided and managed by AID, which already had an advance team working informally in Russia at the government's invitation.

In short order, AID, learning that Sachs and Shleifer were in Moscow, contracted with Harvard to direct and manage the reform program. The agency initially gave $2.1 million to Harvard, which would run the operation out of its Harvard Institute for International Development, a 30-year-old entity located on Eliot Street in Cambridge. With financial support from foundations, international aid agencies, development banks and host governments, HIID operated economic reform programs around the world, concentrating on assisting nations that were changing from government-run to market-driven economic systems. In Indonesia, for example, HIID helped revise the tax system and liberalize financial markets. It also had been active in Colombia, Kenya, Pakistan and Zambia.

The Russia Project would be HIID's largest and most important program by far. The institute had been run since 1980 by Harvard political economy professor Dwight Perkins, who reported directly to Albert Carnesale, Harvard's provost and second-in-command. With Sachs advising Gaidar, the HIID project would be directed by Shleifer, who would retain his professorship in the economics department. Shleifer was charged with hiring staff, setting budgets and priorities and creating and supervising the project from Cambridge and on frequent trips to Russia.

Shleifer's first need was to find someone who could supervise the day-to-day operations of the Russia Project. For this critical post he chose Jonathan Hay, 30, an Idaho native, Rhodes Scholar and newly minted graduate of Harvard Law School.

Fluent in Russian, Hay had moved to Moscow hoping to get in on the excitement of social transformation. Brilliant and intense, with unruly hair, oversize horn-rim glasses and an ethereal academic mien, he dazzled everyone he encountered. Hay had negligible practical experience, but soon, with Shleifer's blessing, he was setting up Harvard's Moscow operations at Chubais's GKI in a drafty government building near Red Square. "We had no heat, no Xerox, no fax, no food," Hay recalled later to the Washington Post's David Hoffman, author of The Oligarchs: Wealth and Power in the New Russia. "The first time I came there, I saw just Dmitri Vasiliev and 30 people sitting in a huge hall, just this small man in big glasses, and they were all around him, in a heated discussion, talking about small-scale privatization."

AID gave the Harvard people wide independence and discretion. HIID relied heavily on Shleifer and Hay, who savored the challenge. The young lawyer had a high tolerance for chaos, which came in handy at the end of 1992. "Don't worry! Be happy!" is the way lawyer Barenboim characterized Hay's approach to reforming Russia.

The country's banking system was barely functional. ATMs were unheard of. There were a few rudimentary stock exchanges spread across the nation, but trading was chaotic. Few laws, regulations or formal procedures had yet taken effect.

Meanwhile, much of the Russian Parliament believed Yeltsin was moving too fast, too soon. The fall of 1993 was marked by turmoil as the president and his opponents struggled for supremacy. When Yeltsin's rivals in Parliament refused to leave the legislative building known as the White House, the president cut off its television service, telephones, electricity and water. Tanks rolled, bullets flew, scores of people died -- and Yeltsin prevailed, with more freedom to proceed with economic reform.

A mile from the Kremlin, however, the people in charge of the Russia Project were becoming seriously distracted. Under their contract with the U.S. government, Shleifer, Hay and their staff were required to submit regular written progress reports, but they were falling behind. "We have reviewed the delinquent . . . reports and found them to be sorely lacking in substance," an AID staffer in Moscow informed Washington.

One reason for Shleifer and Hay's distraction may have been a growing interest in their own opportunities. As advisers on fundamental reform of the Russian economy, HIID staffers were privy to the most-private details of the vast nation's financial future. They were swimming in inside information. They were hemmed in, however, by strict prohibitions against using their positions for personal financial gain. The U.S. government and Harvard -- as well as the contract that Harvard and AID signed in December 1992 -- barred everyone assigned to the project, their families and people acting on their behalf from any investment of their personal funds in Russia and any personal involvement in Russian businesses or financial transactions. Even savings accounts in Russian banks were prohibited.

"We had this test -- how is this going to look on the front page of the New York Times?" Louisa French, HIID's human resources officer, said under oath in the government's lawsuit. "It was our mantra to say, 'If you have to ask, you're too close to the line.'"

As the people running the project, Shleifer and Hay were obliged not only to obey the rules themselves but also to enforce them on their staffs. But by December 1993, less than a year after the Russia Project had ramped up, Alberto Neri, a Moscow-based HIID financial officer, wrote four memorandums warning the institute's deputy director in Cambridge, Rosanne Kumins, that he believed Harvard was complicit in financial irregularities and tax evasion and was condoning dissemination of false data, irregularities in employment contracts and misrepresentation of expenditures, all so that income to the Russian staff could be hidden from the tax authorities.

"I fail to see why Harvard should assume the huge responsibility of abetting tax evasion (which is a criminal offense in Russia -- as it is in the USA . . .)," Neri wrote in one memo. The memos were entered into evidence and cited by the U.S. government in court papers in its lawsuit.

Those memos, Kumins says today, "were received with concern. We never condoned tax evasion. As a result, we changed the way local hires were paid."

In July 1994, Shleifer and Nancy Zimmerman began investing in Russia in direct violation of his contract and the restrictions imposed by AID and Harvard.

Though she called her husband "Boss," Zimmerman, 31, was a hard-charging financial wizard in her own right. She had left a lucrative career at Goldman, Sachs & Co. in New York to start a hedge fund in Cambridge, Farallon Fixed Income Associates, in a joint venture with Farallon Capital Management, a prominent fund group based in San Francisco. Zimmerman earned far more trading bonds than Shleifer did teaching economics: $1.06 million to his $191,000 in 1994. Their combined income supported a comfortable lifestyle, including a spacious home in the affluent Boston suburb of Newton.

In 1994, Shleifer and Zimmerman, with the help and advice of Leonard Blavatnik, a New Yorkbased Russian emigrant and a member of the Forbes 400, placed $200,000 in a Blavatnik vehicle called Renova-Invest, which invested in a group of Russian corporations that were being privatized under Shleifer's guidance. The companies included telephone operator Rostelecom; oil and natural-gas behemoth Gazprom; aluminum smelters in the cities of Irkutsk, Sayansk and Bratsk; Vladimir Tractor; and oil producer Chernogorneft. The U.S. government alleged in its complaint against Harvard, Shleifer and Hay that these companies benefited financially not only from Shleifer's advice on privatization but also from AID-funded assistance, including free legal services. When Blavatnik was merging several aluminum companies in which Shleifer and Zimmerman had invested, Hay and other AID-funded lawyers worked on the merger documents at no cost to Blavatnik or the companies. According to a U.S. statement of "undisputed material facts" submitted with the lawsuit, Hay was aware of some of the private investments of Shleifer and his wife, which were violations of the bars against private investment in Russia.

Also in the summer and fall of 1994, the Shleifers partnered with Farallon Capital Management to invest in Russian oil stocks. "Investing in Russia at that stage was like the Wild West, and we were petrified about getting involved," Farallon partner David Cohen later told a federal grand jury. (Farallon would, in fact, lose money on these oil stock investments.)

Cohen, who had been a Rhodes Scholar at Oxford University with Hay, said: "There was incredible crookery. . . . We wanted to get as much protection as we could . . . and we thought Andrei provided some of those things. People might have been more hesitant to hurt Andrei Shleifer than to hurt Farallon. . . . His relationship to Chubais was definitely one of the factors."

Shleifer began the investment process on August 11, 1994, by wiring $165,000 to a Channel Islands bank account for the purchase of 30,000 shares of Russian oil company Purneftegas. By November 4 a total of more than $4 million was invested, 90 percent by Farallon, 10 percent by Shleifer and Zimmerman. The Shleifers concealed their investment by registering the shares in the name of Zimmerman's father, Howard Zimmerman, a Chicago investor in real estate and racehorses and a director and shareholder of a small institution called Central Illinois Bank.

Shleifer suggested that Hay join his Rhodes Scholar friend Cohen among the investors. Hay chipped in $66,000, but only after directing an AID-funded Harvard staffer in Moscow to research the price and trading activity of Russian oil stocks. Louis O'Neill, a first-year student at Harvard Law School who was working in Moscow for the summer, found that the information -- a mix of pricing and liquidity data on a less-than- transparent market -- was harder to obtain than in Western securities markets. Fluent in Russian, O'Neill posed as the "Russian representative of a foreign investor who was keen to enter the Russian securities market," he stated in a sworn affidavit filed later in the U.S. lawsuit.

"I remember [Hay] telling me to look at oil and gas because they were sort of in the forefront of privatization," O'Neill testified. "He said, 'Get me some answers on what's happening in the market.' [Oil and gas] would be the most valuable assets in the economy, so of course they would be the most desirable things."

Once the stock was purchased, Hay turned to Julia Zagachin, 26, who had been born in Russia and moved to the U.S. when she was 11. After graduating from George Washington University in Washington, D.C., with a degree in international politics, Zagachin had gotten a job with Deloitte & Touche. She would become one of Jonathan Hay's first hires at HIID. In 1994, Hay appointed her to run another AID-funded enterprise, the Depository Clearing Co., which was intended to become Russia's central clearinghouse for securities transactions. After the Shleifer-Farallon stock purchases, Hay instructed Zagachin to make sure the securities were properly registered, because the owner, Hay said, was an "old Oxford friend" (David Cohen of Farallon) who should receive "the best service."

Less than a year later, while still holding oil shares, Shleifer wrote a memorandum to Russian officials advocating the inclusion of oil stocks in a program to distribute Russia's energy assets to rich entrepreneurs in exchange for loans to the government.

The ironies abound. Russia, where secrecy and corruption were ubiquitous, was looking to the U.S. and Harvard as beacons of honesty and transparency in financial affairs. Gaidar, Yeltsin's sometime economic adviser and erstwhile deputy prime minister (he left the government for the second time in early 1994), even invoked Thomas Jefferson and the Declaration of Independence as inspiration for an open and free economic system "fitting for Russia." Gaidar wrote his words in the summer of 1994, at precisely the time that some of America's representatives, while giving lip service to those principles, appeared to be using inside connections to enrich themselves from investments in a Russia still mired in corruption.

JEFFREY SACHS, MEANWHILE, WAS SPENDING less time in Russia and more in Cambridge, where he would eventually become director of HIID. His appointment was not good news to Shleifer, who feared that Sachs would encroach on the Russia Project's turf and who instructed Hay not to speak to Sachs at all. Shleifer needn't have worried. Sachs knew nothing of Shleifer's investments. However, he did warn Shleifer about corruption in Russia, telling him to carefully vet the institute's Russian employees.

Shleifer and his wife could be surprisingly unguarded about their dealings. In October 1994, at a cocktail party at the home of Dale Jorgenson, then-chairman of Harvard's economics department, Shleifer and Zimmerman chatted casually about their Russian investments. The gathering was brimming with economics stars. In 1971, Jorgenson had won the John Bates Clark Medal, which the American Economic Association awards every other year to the person under 40 making the greatest contribution to economics. Another prominent Bates Clark medalist, Harvard economist Martin Feldstein, who had been chairman of the White House Council of Economic Advisers under Ronald Reagan, was also present. Feldstein was intrigued to hear of the Shleifers' investments and phoned Andrei later for a referral to Blavatnik. He ultimately decided against investing in Russia.

Indeed, the chaos had made it clear to the Russian government and its advisers that tighter organization and focus were needed at the Harvard project. In November 1994, Yeltsin issued a decree creating a centralized authority responsible for developing the Russian securities market. Though officially named the Russian Federation Commission on Securities and the Capital Market, the agency was commonly called the Russian Securities and Exchange Commission. This was appropriate: The American SEC was not only the model but was lending technical assistance funded by AID. Charged with running the RSEC were Chubais and Vasiliev, who had launched privatization three years earlier and were ready for a new challenge. Keeping close tabs on the agency were Albert Sokin, a tough lawyer from the St. Petersburg reformers, and Ruslan Orekhov, Yeltsin's chief legal counselor, whose responsibilities included reform of the legal system.

Through HIID, AID funded the Resource Secretariat, a think tank created in late 1994 that coordinated aid flowing to the new Russian securities commission for the creation of stock exchanges, broker-dealer networks, back-office functions and, most fundamentally, codes of law -- securities law, corporate law, tax law and bankruptcy law -- governing the vast new economic activity set in motion by privatization. The crafting of law was based in an entity called the Legal Reform Project, which later created the Institute for Law-Based Economy. The ILBE was staffed by American-guided Russian lawyers.

To run the Resource Secretariat, Shleifer and Hay reached out to Richard Bernard, who had been active in Moscow as a partner for New Yorkbased law firm Milbank, Tweed, Hadley & McCloy since 1990 and a full-time resident since 1992. Shleifer offered Bernard the position of executive director with a two-year contract. Bernard assumed his responsibilities on January 1, 1995, and promptly hired a second-in-command, Holly Nielsen, a Moscow-based, Russian-speaking partner with the Houston law firm of Baker & Botts.

The RSEC was headquartered on the ninth floor of a high-rise Soviet-era office building on Leninski Prospect. Vasiliev had an office there and another, where he spent most of his time, near Bernard and Nielsen at the Resource Secretariat on Gazetni Street, close to the Kremlin. Hay was at the Legal Reform Project, whose offices were about a mile away on Gasheka Street.

Bernard and Nielsen's first months at the Resource Secretariat were frantic. At first, conditions were primitive -- there were few desks and no photocopiers. Hay, Vasiliev and Sokin were desperate for knowledge and insight. Bernard and Nielsen helped them as best they could while supervising a sprawl of people, activities and contractors that included Arthur Andersen, Price Waterhouse and KPMG, which were advising the government on various securities functions. The Resource Secretariat also worked with a growing community of foreign financial institutions, such as Chase Manhattan Bank and Credit Suisse First Boston, that were eager to gain footholds in what promised to be a burgeoning new market.

Coordinating all of this activity wasn't easy. The top management of the Resource Secretariat and the RSEC, while sharing common purposes, comprised diverse and strong personalities.

Vasiliev, Sokin and Hay had been working together for two years and had bonded. Vasiliev, who declined to be interviewed for this article, was a short, garrulous intellectual who loved political intrigue. He was "knowledgeable, committed and not overwhelmingly mature," Larry Summers would say later. Sokin, the crude, rotund, chain-smoking lawyer with many girlfriends, had been dubbed the "pig in the polyester suit" by one American lawyer. Then there was Hay, the brain-on-overdrive academic with a piercing stare, limited business experience and no time for haircuts. The three were joined at the hip, in Bernard's phrase, spending countless hours together, day and night, sometimes behaving like frat boys. "You're as worthless as a dick on a stump," Sokin liked to banter in Russian to Hay, who found the expression endlessly amusing.

They also recognized each other's strengths: Vasiliev and the more politically savvy Sokin had the ears of Chubais and Orekhov, and, through them, Yeltsin. Hay was their direct pipeline to the millions in U.S. government money that the 1992 Freedom Act had earmarked for Russian reform.

The trio's relationship to Bernard proved problematic. After 16 years counseling the New York Stock Exchange and five years helping craft a Russian securities code, he was "one of the best resources Russia ever had, a brilliant lawyer," says Bruce Lawrence, then one of Credit Suisse First Boston's top men in Moscow. Hay, less than three years out of law school, was very green, yet he was Bernard's titular boss and looked for ways to assert his authority. Bernard tried to be diplomatic, always ready with a smile and a quip, at least to Hay's face. Behind their backs he called Hay and Shleifer "the kids from Harvard."

Hay had gone Russian: He was not only Vasiliev's closest adviser; he socialized, drank and vacationed with Vasiliev and Sokin. Hay "wanted to be buried in the Kremlin Wall," Bernard said in a deposition.

"Jonathan was my boss, at least in the HIID hierarchy," Bernard recalled. "[But] I was his vast superior in substantive knowledge of the business we were in -- much more experienced in business, in management, in leadership. Jonathan struggled with that."

Bernard had an easier time with Vasiliev, who valued his superior knowledge of the markets. Bernard, for his part, appreciated Vasiliev's insight into the Russian politics that had to be navigated en route to the desired reforms. Bernard's coaching helped Vasiliev assert himself as head of the RSEC, which he needed to do in waging a critical political struggle, a war with the Russian Central Bank for control of securities trading.

On one level it resulted from a policy dispute: Should the Russian securities industry develop along U.S. lines, where broker-dealers and investment bankers were the main players in the market, or along German lines, where commercial banks dominated securities trading? Vasiliev and the RSEC, under the influence of American advisers, favored the former approach, while the Central Bank, particularly deputy chairman Andre Kozlov, preferred the latter. A deep personal animosity between Vasiliev and Kozlov fueled the dispute. The RSEC attacked the bank for concealing trading information on and limiting participation in the government securities market. Kozlov told the Wall Street Journal in September 1995 that "Mr. Vasiliev wants to control everybody and anything in the market, and he is angry because he cannot do this totally in the government securities market."

Meantime, Bernard discovered irregularities at the Russia Project. He was tipped off that Russian staffers had created no-show jobs for their relatives and friends in the Institute for Law-Based Economy and that employees were using AID-financed cars and drivers to run personal errands around Moscow. For instance, one top aide to Hay took off three to four hours in the middle of each day to play tennis and used ILBE drivers to convey her. Sokin, too, used office transportation to squire his girlfriends around. Hay had hired one of the girlfriends to make a short documentary about the initial public offering of the Red October candy company, the first IPO in the history of Russia. Bernard also learned that an RSEC contractor was paying reporters at Moscow newspapers to write favorable articles about the commission.

Bernard conveyed his concerns to Hay over coffee at the Starlite Diner, an American-style burger-and-shake joint that had just opened off of Garden Ring Road, a mile from the Kremlin. He told Hay that Sokin was corrupt. Hay scoffed at Bernard's concerns, warning him that he wasn't "with the program."

Subsequently, Hay began to reduce Bernard's responsibilities. Vasiliev told his press attaché, Andrea Rutherford, that Bernard was "too Western and inflexible."

In the summer of 1995, just months into his tenure, in a move orchestrated by Hay, Bernard was called in by Yeltsin's chief legal adviser, Orekhov, and told that he would not be retained in his job. The rationale: A Russian would have more credibility. Shleifer sealed Bernard's firing by phone, breaking his promise of at least a two-year tenure.

Bernard, who returned to the U.S. as executive vice president and general counsel of the NYSE, was succeeded on January 1, 1996, by Dmitri Subbotin, a young, Oxford-educated back-office specialist. Subbotin, though able, smart and hardworking, was inexperienced and later acknowledged that he wasn't qualified to succeed Bernard.

In 1995, Shleifer published Privatizing Russia, in which he and his co-authors, Maxim Boycko, a Russian reformer and chief executive of the Russian Privatization Center, and Robert Vishny, a finance professor at the University of Chicago, claimed credit for the success of economic reform to that point. Summers supplied a blurb for the book, noting that "the authors did remarkable things in Russia."

The problems at Harvard's Russia program, however, were mounting. The number of no-show jobs rose as some of Sokin's girlfriends were put on the payroll, and Sokin himself was given a large AID-funded salary increase and housing allowance, with the funds deposited in a foreign bank account so Sokin could avoid Russian taxes. "[Sokin] is really double-dipping," HIID deputy director Kumins warned Shleifer in a memorandum. "I can't imagine that you will do anything about this, but I believe it is not right all around and does not show good faith on anyone's part." Shleifer ignored the warning.

The Harvard crowd was soon to become embroiled in a bigger mess.

IN THE SUMMER OF 1995, YELTSIN DECREED THAT the RSEC would start licensing and registering mutual funds to attract the estimated $40 billion in "mattress money" that skeptical Russians had stashed away. Alarmed by Communist parliamentary gains spurred by persistent financial fraud, Yeltsin made safe investments a major campaign theme as he looked toward the 1996 presidential election. He ordered Sokin and Vasiliev to make mutual funds the highest priority of the RSEC.

In anticipation of the decree, several global securities and investment banking firms -- Credit Suisse First Boston, Robert Fleming & Co., Franklin Templeton Investments and Pioneer Group among them -- had deployed people and resources to Moscow. As the RSEC's chief Harvard adviser, Hay strove to build relationships with the potential mutual fund operators. Fleming's Moscow representative, Elizabeth Hebert, 33, was a tall Ohio native with flowing dark hair. She held master's degrees from Columbia University in business and international affairs. Fluent in Russian, she aspired to start her own company to launch funds specializing in Russian securities. Hay encouraged Hebert and promised to help her. Soon they were close friends.

On November 15, 1995, Shleifer and Zimmerman gave a dinner party at their home in Newton honoring one of Yeltsin's top economic advisers, Alexander Livshits, a prominent Moscow academic. Hay and Hebert flew in for the event, which was attended by a number of Shleifer's Harvard colleagues. Feldstein and his wife, Kate, were there, as was Boston philanthropist Peter Aldrich, then 51, the founder and a principal of one of the oldest and largest real estate investment advisory firms in the U.S., AEW Capital Management. A graduate of Harvard College and Harvard Business School, Aldrich had been active in university affairs for decades, donating a lot of money and counting the Feldsteins, Shleifer and Zimmerman and other professors and their families as friends. Aldrich's interest in business had strong intellectual dimensions. He regularly assembled Harvard professors to discuss economic and political ideas with the chief investment officers of endowment and pension funds. He was especially interested in Russia. Beginning in the early 1990s, Aldrich and his company had made several modest investments in Russia and neighboring countries, converting an apartment house in St. Petersburg into a modern office building, for example, and turning a Moscow warehouse into a Gold's Gym.

By the end of the evening, Shleifer, Zimmerman and Hay had prevailed upon Aldrich to meet the following day with Hebert to learn about her plans for a mutual fund company.

Aldrich received Hebert as a favor to his friends. Despite his interest in Russia, he wasn't impressed and barely remembered the meeting later. "How many times do you remember you swatted the fly?" he said when pressed during his sworn deposition in the U.S. government lawsuit. Ever the polite, patrician Brahmin, however, Aldrich did not rebuff Hebert, and she returned to Moscow optimistic that he might invest in her venture.

To launch her company, Hebert knew she would need back-office expertise. She turned to Julia Zagachin, the Russian-born, U.S.-educated clearing and settlement specialist who had helped Hay make sure the 1994 oil stock deal was properly registered. High-strung and intense, Zagachin had been forced out of her job heading the Depository Clearing Co., having been told, like Bernard, that a Russian was needed. Zagachin had retorted that the real reason was that she was "young, female, American and Jewish." Over Thanksgiving drinks at the Slavyanskaya Hotel, she and Hebert agreed to work together. Zagachin declined to be interviewed for this article.

Hay, meantime, continued to facilitate the relationship between Hebert and the reformers in Yeltsin's circle. That Christmas the Idaho native hosted a weeklong party in his home state to which he invited Hebert; Vasiliev and his wife, Tatiyana; and Sokin and one of his girlfriends. AID funds paid for the festivities, which included snowmobiling and hikes in the woods. Hebert used the time to talk up her mutual fund plans with Sokin and Vasiliev.

A few days later Hay and Hebert flew east to spend New Year's Eve at Shleifer and Zimmerman's home in Newton. Hebert continued to discuss her plans, expanding on her ideas while strolling around Harvard Square with Shleifer on January 1. She then flew to New York and pitched her fund to an array of potential financial backers.

By the early months of 1996, Hay and Hebert's budding romance was a hot gossip item among both the expat community of Moscow and their Russian colleagues, many of whom marveled at the attraction of opposites. Hebert was the kind of person who would arrive at a meeting promptly, wearing a trim suit, carrying a leather portfolio of meticulous notes. Hay would blow in late, hair flying, clothes askew, without a pen.

Hay and Hebert's relationship blurred the line between personal and professional. He let her use his AID-financed car and driver and sank $20,000 into the Fleming Russia Securities Fund, which she managed. As she became friendly with Vasiliev and Sokin, Hebert let the Moscow business community know that she had a close relationship with the people who would be registering and regulating her Russian mutual fund.

IN JANUARY 1996, SHLEIFER AND ZIMMERMAN began to expand their questionable activities. According to the U.S. government's complaint, Zimmerman set up a Russian company, Novyi Mir, or New World Capital. Zimmerman turned to Central Illinois Bank, to arrange a $5 million loan to Novyi Mir. The loan was secured by a certificate of deposit purchased from the bank, the U.S. government said. Zimmerman invested the money in Russian government debt instruments, or GKOs. The U.S. government alleged that profits from the GKO investments were sent to the bank as loan repayments, thus avoiding Russian taxes that would have been due had the funds been declared as profits. The money was then forwarded to Zimmerman's company in Cambridge.

In February, Zimmerman flew to Moscow to confer with Hebert about investing in her mutual fund company -- an investment that was barred by the U.S. government's and Harvard's conflict-of-interest rules, which applied to employees' family members. Hebert and her new partner, Zagachin, gave a full presentation to Hay, Sokin and Zimmerman. Hebert asserted that she had the backing of prominent Russians, including former Finance minister and senior Parliament member Boris Fyodorov and cellist Mstislav Rostropovich. She said she needed to raise upwards of $1 million. Zimmerman tentatively agreed to invest $200,000 and to take the lead in helping her raise the rest of the money.

The Yeltsin decree establishing the rules for a mutual fund industry required that each such company provide for strict back-office controls, such as registration of shares and shareholders, custody of securities, financial recordkeeping and regulatory compliance. It wasn't enough for the fund management company to establish such controls internally. The decree required the company to contract them out. In late February 1996, Hebert contacted Forum Financial Group, a Portland, Mainebased company that specialized in such functions and was already working with mutual fund companies in Poland. Forum's CEO, John Keffer, flew to Moscow, met with Hay, Vasiliev, Hebert and Zagachin and devised a plan for his company to become Hebert's strategic partner. That would be about the only thing that Keffer and the others would later agree on.

FROM THE BEGINNING THE HARVARD RUSSIA Project had failed to make complete, timely reports to AID. By March 1996 these lapses had come to the attention of the House International Relations Committee, which directed the U.S. General Accounting Office to audit the program.

Shleifer and Hay immediately assigned a lawyer to coordinate Harvard's response to the audit: Washington attorney Michael Butler, whom they had used as a troubleshooter in recent months and who became known in HIID circles as "Mr. Fix-it."

In early April, as the audit was beginning, Hay, Hebert and Zagachin flew to Boston. Hebert had been cultivating a relationship with AEW's Aldrich and had scheduled a meeting with him and two of his aides. Aldrich was more receptive than he had been in November. One meeting turned into six spread over two days.

Hebert told the group that she expected to receive one of the first -- if not the first -- registrations to operate a mutual fund company in Russia. "I'm at the head of the queue," she said, noting that she expected Zimmerman and Farallon Fixed Income Associates, as well as Farallon Capital Management in San Francisco, to back her financially.

"Beth said she had a trusting relationship with the Russian SEC," Aldrich recalled later.

On the second day Hay spoke to the AEW group, explaining how strongly RSEC head Vasiliev supported Hebert's venture and how important Yeltsin considered mutual funds to his reelection.

Though Aldrich's people liked Hebert's plan, Hay gave them pause. "Jonathan struck me as someone who was very academically inclined," aide Jeffrey Hammer said later. "I was somewhat bemused that Peter Aldrich introduced him to us. Jonathan did not seem to have, quite frankly, business acumen."

Still, it was clear that Hay had influence with the Russian officials who would award the first mutual fund registration and that he was committed to helping Hebert and Zagachin raise money. He assured Aldrich that nothing he was doing posed a conflict between his public responsibilities and his personal financial interests.

At the end of the second day of meetings, Hay, Hebert and Zagachin returned to the Charles Hotel off Harvard Square, where HIID put up visitors. Now that it appeared likely that the mutual fund enterprise would go forward, Hay told Zagachin that she would have to decide whether to work for HIID or for Hebert.

"You need to choose one way or the other which seat you want to sit in," Hay told Zagachin outside the hotel. "They're a different set of interests." Zagachin chose Hebert but did not resign from HIID for another four weeks.

Although Hebert had approached Aldrich for a single investment, her nascent business had evolved into two companies -- a mutual fund management operation, which would be called Pallada Asset Management, and a separate entity to provide back-office services. Hay, Hebert and Zagachin, as well as Zimmerman, believed that money could be made from both.

Zimmerman, as the potential lead investor, had solicited an investment in the management company from Farallon Capital's founder and senior partner, Tom Steyer. She also asked Hay and Hebert to fax Steyer a memorandum about the back-office company, known as a "specialized depository."

"Our advantage comes from the fact that the regulator wants us to be first . . . ," said the memo, dated May 16. "Our project will be established with the active involvement of the Russian legal team that the [RSEC] entrusted with the drafting of the original mutual fund regulation." The memo emphasized that the Russian legal team was managed by Hay himself. The same memo was faxed to Zimmerman and Shleifer. With the Russian presidential election only two months away, the Yeltsin administration was putting heavy pressure on Sokin and Vasiliev to implement the previous summer's decree promoting regulated mutual funds.

"You're a failure!" Yeltsin's prime minister, Viktor Chernomyrdin, told Vasiliev. If mutual funds weren't registered soon, Sokin said, Vasiliev could be thrown in prison. The RSEC chief was "incredibly nervous," an aide said. He was "basically hysterical," said another.

Sokin and Vasiliev in turn assailed Hay, Hebert and Zagachin for moving too slowly. "If we don't get this thing up and running, I'm going to end up in jail," Zagachin told colleagues. She would explain later that the Russian officials had made it clear to her that failure would carry "very serious repercussions."

Earlier in May the RSEC had awarded Forum Financial Group $2.5 million in World Bank funds to help create a back-office entity to be called First Russian Specialized Depository. Forum Financial CEO Keffer had been glad to get the $2.5 million, but he had been surprised by two pieces of unwelcome news. First, Forum could own a maximum of 49 percent of the FRSD -- the RSEC wanted the majority owned by Russians. Second, the RSEC wanted the FRSD to be run not by a real Russian but by the Russian-born, American-bred Zagachin. The matter-of-fact Keffer and the voluble Zagachin clashed over how to structure the company. Over the summer the animosity between them flared into a feud.

Hay, spurred by Hebert, demanded that Keffer agree to Zagachin's controlling the depository.

In the meantime, the U.S. government audit of HIID proceeded; in correspondence the General Accounting Office protested that the institute was withholding information. Washington attorney Butler, who had gone to Moscow to oversee the audit for HIID, sometimes spoke twice a day with Shleifer in Cambridge. Shleifer and Zimmerman were concerned about the Pallada and FRSD projects. Zimmerman had learned that Farallon's Steyer was lukewarm about investing. And Shleifer was nervous about possible conflicts of interest associated with his wife's involvement.

"The bottom line is, we continue having serious concerns," Shleifer informed Hay on June 9 in a fax marked "strictly confidential."

The Shleifers met with Aldrich at Zimmerman's office two days later to discuss the investment in Hebert's Pallada. Shleifer, who showed up late, appeared "very uncomfortable" and said "he really wasn't supposed to be expressing opinions on the subject," Aldrich recalled later in his deposition in the U.S. case. Zimmerman was frustrated.

"What am I supposed to do -- have a Chinese wall between me and my husband through our bedroom?" she had recently ranted to a young aide.

The secrets of the Shleifer-Zimmerman bedroom in Newton were not a trivial issue. It wasn't unusual for Zimmerman, a recognized expert on global fixed-income securities markets, to receive late-night phone calls from top Treasury officials seeking her counsel, including Summers, now deputy secretary, and David Lipton, Sachs' old Russia colleague, who was now assistant Treasury secretary for international affairs. "Our little world," Summers called the small cluster of government officials and private sector players who were in frequent touch. And it wasn't unusual for Shleifer to get calls at the same hour from Hay and others in Moscow, where it was early morning, wanting to confer about the most sensitive aspects of aid to Russia as well as their personal investments.

Yet as frustrated as they were with Russia, Shleifer and Zimmerman also had another subject to discuss with Aldrich: the education of their four-year-old son. The couple had visited the Shady Hill School, an elite, private elementary school in Cambridge. They were "tremendously impressed" and "desperately wanted" their son to be admitted, Aldrich recalled later, but had been dismayed to learn that "there were very few spaces." Could Aldrich use his contacts to help? He promised to try.

Zimmerman's meeting with Aldrich was a success: An Aldrich aide agreed in principle that AEW would invest $50,000 in Hebert's fund management company against an eventual total of at least $200,000. He prepared a draft deal memo which stated that his firm would invest on the condition that "Nancy Zimmerman and Andrei Shleifer would be invited to participate on favorable terms with the invitation coordinated through AEW Boston."

Hebert, assured that the RSEC would register her company soon, ahead of more-qualified competitors such as CSFB and Pioneer Group, resigned from Fleming at the end of June.

Meantime, Hay and his father, Dr. Robert Hay, decided to invest some of their money in Russia. From Idaho the elder Hay put $150,000, including $50,000 of Jonathan's personal funds, into GKOs. The Hays made the investment through Novyi Mir. Jonathan made sure to inform Shleifer of this latest investment.

THE STAKES FOR HARVARD IN Russia escalated after Boris Yeltsin's reelection on July 3. The Harvard project commanded the attention of top officials of both governments. U.S. vice president Al Gore and Russian prime minister Chernomyrdin held a mid-July summit on economic reform in Moscow attended by Summers and Shleifer. Gore and Chernomyrdin decided to launch a Capital Markets Forum, which twice a year would bring together experts from both nations to foster the growth of the Russian securities markets and financial services industry. The first U.S. delegation would be led by Treasury secretary Robert Rubin and SEC chairman Arthur Levitt Jr., who would choose industry practitioners to counsel their Russian counterparts on subjects like enforcement and transparency. Invitations to serve on the forum panels would be coveted.

Although the Russian government had imposed a September 2 deadline for First Russian Specialized Depository to be funded, the feud between Keffer and Zagachin made that date look impossible. Keffer, who kept notes on his daily activities, wrote of Zagachin: "undercutting, unhelpful, distrusting, incompetent, saboteur of the effort." Zagachin said similarly unflattering things about Keffer.

Hay and Vasiliev tried to mediate, without success. Finally, an angry Sokin took Keffer aside. "Julia is a grain of sand," he told the American, with Hay translating. "You should ignore her as an irritant. We will eliminate her in the future, but you must take her into your company now."

Reassured, Keffer agreed to hire Zagachin for an as-yet-unspecified job. He signed a consulting agreement with the RSEC and deposited $400,000 in a cash custody account at Citibank Moscow as seed capital for FRSD.

Meanwhile, there were tensions at the Harvard project. Hay was getting fed up with Zimmerman, who treated him and his U.S. taxpayerfinanced Moscow colleagues as if they were her employees. "We were frankly trying to get rid of Zimmerman as a client because she was very demanding," Hay testified later.

In August 1996, Hebert got what she had been waiting for: The RSEC granted a license to First Russian Specialized Depository and registered the prospectuses of two of Hebert's mutual funds, a bond fund and a corporate equities fund, allowing Pallada to be the first to open its doors to the public.

The news stunned Moscow's financial community. "It seemed to confirm my fear and concern that special favors were being given," Timothy Frost, Pioneer Group's top man in Moscow, said in later testimony.

Holly Nielsen, the deputy director of the Resource Secretariat, had just returned to Moscow from a four-month maternity leave in the U.S. when she began getting urgent phone calls from colleagues. A savvy, steely lawyer, Nielsen was not naive, especially about the Moscow of 1996. But the activities of Hay and Hebert shocked her.

Nielsen testified under oath in a deposition that her reaction was one of "complete surprise, and also some disbelief, that this would have occurred."

The buzz in Moscow did not faze Hay. In fact, after the registration award, Hay gave Hebert and Pallada free rein to operate out of HIID's offices and to use its computers, phones and faxes, according to the grand jury testimony of David Weiler, who was the Legal Reform Project's chief financial officer in Moscow. Pallada was the only mutual fund company invited to exhibit its marketing material at the Collective Investment Center, a new public facility in the Baumanski district of downtown Moscow where consumers could learn about investment products, said Frost, Nielsen and Rutherford. The mutual fund company was also granted, without a tender, the exclusive and lucrative right to manage millions of dollars of assets for a government fund set up to bail out defrauded investors.

Before Hebert could actually sell mutual fund shares, First Russian Specialized Depository had to be up and running. The RSEC had granted FRSD a license, but the organization was still plagued by intramural rancor. Keffer had offered Zagachin a midlevel management job, far below the position she wanted; when she refused it, he fired her.

On Monday, August 19, before flying back to Washington, Butler spent five hours with Keffer in a conference room at the Tverskaya Hotel. Butler convinced Keffer to find a buyer and recoup his $400,000 deposit. The same day, Zagachin strode into Citibank Moscow, next door to the ILBE, and tried to shift the $400,000 that Keffer had deposited into an FRSD account to which she had access. Only the intervention of an alert Citibank staffer thwarted her maneuver. The staffer informed Keffer, who confronted Hay with the "attempted theft," Keffer said in his deposition. At this point, Keffer testified, he informed Hay about "the fraud that we felt was going on and the misdirection of U.S. funds and the misdirection of the capital markets program in Russia." He threatened to withdraw his $400,000 outright. That would delay the launch of Russia's mutual fund industry for months, unless a buyer for his stake in FRSD could be found quickly. The government's September 2 deadline for the depository to be funded stood fast.

SHLEIFER AND ZIMMERMAN FLEW INTO Moscow that Monday afternoon and found themselves in the midst of the crisis. Over dinner at the ornate National Hotel, Hebert and Hay, flanked by Zagachin and Sokin, briefed the Shleifers on Keffer's "blackmail."

Panic gripped the group. Sokin implored Shleifer to devote himself personally to resolving the problem before the September deadline. Then all heads turned to Zimmerman. Was she still hesitant to invest with Hebert? If not Pallada, would she consider helping with the FRSD? Conflicted, Zimmerman asked a lot of questions. Could it be a loan instead of an equity investment? What would secure the loan? By the end of the dinner, Zimmerman was weighing the notion that she might become the lead investor in FRSD.

The group held a series of urgent conferences -- at Hay's dacha, at the HIID offices, at restaurants around Moscow -- but the issue was still unresolved when Shleifer and Zimmerman left Russia three days later. Zimmerman returned to Boston, and Shleifer flew to Istanbul, where he gave the globally renowned Joseph Schumpeter Lecture at a meeting of the European Economic Association. Shleifer argued in this lecture, "Government in Transition," that Russia's evolution to a market economy was being retarded by a slow and uneven political shift away from a communist dictatorship to a freer form of government.

One week later Shleifer and Zimmerman were back at their vacation house on Cape Cod -- and catching up with Larry Summers. In the lazy days easing toward Labor Day at Truro, the friends had an opportunity to kick back.

As the trio strolled the beach and lounged around their houses, they talked about Russia. Shleifer and Zimmerman were under a lot of stress because of the crisis in Moscow: If Keffer weren't bought out of his investment by the following Monday, the launch of Russia's mutual fund industry would be substantially delayed and might even collapse. They didn't mention any of this to Summers, who asked some general questions about privatization and the like.

Summers also had some questions of a more personal nature: He knew the couple were investing in Russia. He didn't know the specifics, but he understood enough to ask about Zimmerman's GKO investments. She said she had done well. Shleifer and Zimmerman said they were "bullish on Russia." Though he was unaware of Zimmerman's tax-avoidance scheme and the use of her father to conceal the Shleifers' oil investments, Summers had heard enough to caution the couple.

He said that it would be "a good idea for Andrei to make sure he was operating within the rules of whatever legal arrangements he had with Harvard" and that Shleifer should check what his personal contract said. Zimmerman, Summers said, "should just think hard" about what she was doing.

When Zimmerman later consulted with her husband about Summers' advice, Shleifer said, "We can use Michael Butler if we're concerned about specific things."

ZIMMERMAN WAS NOT TO BE DETERRED. FROM Truro, on Thursday, August 29, amid the friendly chats with Summers, she agreed in an e-mail to loan Zagachin $200,000 and to sink an additional $200,000 into an equity investment so that Zagachin could get control of FRSD. But arrangements couldn't be concluded by the deadline -- September 2, Labor Day -- only four days away.

Desperate to avoid missing her big opportunity, Hebert telephoned Hay's father in Idaho and confided her anguish.

"Keffer has created a panic -- he's blackmailing us," she said. "You could help me come up with some bridge financing for Julia. It would be very short term, until we can find someone to make a long-term investment in the project. I'll make sure that it's 100 percent secure."

Dr. Hay immediately withdrew $200,000 of his own funds and $200,000 of Jonathan's and wired the money to Zagachin's bank account in Delaware the same day. Zagachin was the new owner of FRSD.

That evening Hebert and Hay reflected that Dr. Hay's generosity and quick action might have saved the Russian mutual fund industry and his son's career, and kept Vasiliev in office.

The younger Hay e-mailed Zimmerman in Truro: "Everything sounds fine. Call me on the mobile or at Beth's."

While Pallada was setting up shop, other financial institutions were struggling with the Russian bureaucracy. On September 13, 1996, Credit Suisse First Boston submitted an application to the RSEC for authorization to start a depository, requisite for a mutual fund company. The RSEC employees who opened the application found two small travel alarm clocks. The clocks were inexpensive tokens akin to ballpoint pens or key chains. But Vasiliev summoned CSFB's Moscow representative, Bruce Lawrence, a respected back-office specialist, accused him of criminal conduct and returned the clocks. Vasiliev sent a strongly worded letter to the CEO of Credit Suisse in Zurich. He then called in Hay and Butler and suggested that the episode be reported to the Moscow police fraud squad. Though no call was made, Credit Suisse's application was stalled, and word made its way to Washington. "I was aware," said Summers years later, "that there were concerns of impropriety surrounding Credit Suisse . . . "

Separately, Butler counseled Hay to inform Vasiliev of his relationship with Hebert, which he did later in a formal letter. Butler also advised Hay to "work out some arrangement that you won't be involved with matters that affect her company."

A few days later Hay told Butler, "I've worked it out with Vasiliev."

He hadn't.

Butler also demanded that Hay impose order on the disorderly Institute for Law-Based Economy. Not for the first time, Butler took Hay to task for paying employees in cash and for "the out-of-control use of drivers for personal purposes." In a stern memo he wrote: "This system does not have to be perfect, or even very good. But it does need to be good enough to get USAID's approval."

What Butler didn't know was that Hay's headquarters in Moscow had become a virtual branch office of Zimmerman's firm, as evidenced by e-mails cited by the U.S. in its lawsuit. On September 23, for example, Zimmerman e-mailed Hay from Cambridge to say: "zagachin loan ready to go" and "we will make u a 400k loan -- u will pay back 200k asap, and the balance when it is appropriate."

Zimmerman was indicating that she might be ready, either through her firm or personally, to take Hay and his father out of the emergency $400,000 loan they had made to Zagachin at the end of August. But she continued to waver.

In other communications Zimmerman asked Hay to execute certain investment actions.

"please buy some oct 23 gkos and we will take care of everything when the current ones roll off," she e-mailed on October 10.

Less than two hours later: "did u get my last message?"

Less than two hours after that: "Did u do anything in GKO?"

It took Hay another five hours to reply that he had bought the October 23 bonds.

THE ACTIVITIES OF THE HARVARD PROJect were causing alarm among other Americans in Moscow. Holly Nielsen, deputy director of the Resource Secretariat, began to worry about a possible scandal that could embarrass Harvard and the U.S. government. In late October she met with Vasiliev to discuss the awarding of the first mutual fund registration to Hay's girlfriend rather than to a proven global securities firm like CSFB or Pioneer, Nielsen said in her deposition. Vasiliev's aide Andrea Rutherford translated.

"What would your superiors and the Russian government think of these conflicts?" Nielsen asked, according to her deposition.

"My superiors wouldn't care." Vasiliev seemed perplexed.

"People within the industry have certainly voiced concern," Nielsen replied. "It's becoming an increasingly difficult issue to try to defend."

Nielsen decided to confront Shleifer. Because she hardly knew him, she asked Rutherford to introduce her to someone who did, Joseph Blasi, a professor at the Rutgers School of Management and Labor Relations who was working for HIID, advising on employee ownership of businesses, a key aspect of privatization. Nielsen took Blasi to breakfast at the Aerostar Hotel off of Garden Ring Road on Sunday, November 3, just hours before he was to fly to New York.

Talking fast, she poured out the story of the mutual fund registration while Blasi scribbled notes on a napkin. She asked him to arrange for her to see Shleifer in Cambridge. She also asked that the communication be kept confidential: Blasi should use a code when referring to the meeting in a fax or e-mail: "The appointment with your pediatrician is confirmed."

The morning after Blasi arrived in the U.S., he called Shleifer.

"If what Holly Nielsen told me is true," Blasi declared, "Jonathan Hay should be fired immediately." Shleifer agreed to see Nielsen, although they would not meet for more than a month.

Vasiliev and Rutherford flew to New York in mid-November to represent the RSEC at the listing of mobile phone operator VimpelCom Corp. on the New York Stock Exchange, the first Big Board listing of a Russian company. They took the occasion to call on exchange attorney Richard Bernard, who warned them that, based on what he had heard since leaving Moscow, Shleifer and Hay as well as Sokin would eventually bring public embarrassment to Vasiliev.

"Your reputation has already been damaged by the mutual fund talk," Bernard said. "The reputation you have with the SEC and with people here at the exchange is being damaged."

Vasiliev listened but didn't say much. In the town car headed uptown, he asked Rutherford's opinion. She told him she agreed with Bernard.

"I essentially agree with Rich," she said, speaking in Russian. "You've been very successful in building a reputation in the West, not just for competence but honesty, and my impression is that reputation is being damaged by the talk, the rumors, the gossip about how you've treated Pallada, how you've treated Pioneer, how you've treated Credit Suisse."

"We've had too much scandal. Too many people have lost too much money," Vasiliev replied. "The reason we're handling Pallada as we are is that it is very important that there are no scandals or problems connected with the first mutual funds in Russia. The only way we can do that is to ensure tight control over these first new funds -- with somebody we know well, somebody close to us we can trust running Pallada."

RELEASED IN NOVEMBER 1996, the final report of the U.S. General Accounting Office could have been far worse for Harvard. Butler had done an excellent job of containing the auditors. The report's most severe criticism was that AID's management of HIID was "lax." "In particular," the report read, "USAID did not . . . set measurable goals and was not aware of decisions HIID was making that could have resulted in costs to the U.S. government or that could significantly affect U.S. strategy."

The HIID group was relieved. Shleifer arranged for the then-president of Harvard, Neil Rudenstine, to send a handwritten thank you note to Butler.

In Moscow the firms whose mutual fund applications were being thwarted were not taking the obstruction lightly. Pioneer's Frost demanded and got an audience with Hay. They met on Saturday, November 30, at the Starlite Diner but moved to a nearby French pastry shop for privacy.

Frost began by praising Hay for all the good he had done for Russia. It would be tragic, he said, if that record were tainted by scandal.

"There really is a problem here," Frost said. "If it isn't a real conflict of interest, there is a strong perception, an odor of conflict of interest. You need to make sure you are leaning over backwards to guard against this."

Frost later testified in the U.S. government lawsuit that Hay responded with threats, implying that he could make sure that Vasiliev and the RSEC further thwarted Pioneer's entry into the Russian mutual fund business: The application process could drag out and might not be approved. All of Pioneer's financial initiatives in Russia could be delayed.

"Is it fair to say you took Jonathan Hay's comments on November 30, 1996, as a threat?" Frost was asked under oath in his deposition.

"Yes."

"In your view, would any reasonable person in your position sitting at that meeting come away feeling that they had been threatened?"

"Yes. I think they would have felt threatened in terms of business, our ability to conduct business, yes."

Pallada continued to get special treatment from the Russian government and the Harvard project. In December, Hay and Vasiliev recommended to the U.S. Treasury that Pallada, along with such global powers as Citicorp and Salomon Brothers, be included in the coveted Capital Markets Forum. Hebert would sit on two panels alongside people far more prominent than she, including Citi CEO John Reed and Salomon CEO Deryck Maughan.

Despite her interest in committing $400,000 to Pallada and FRSD, Zimmerman still had invested nothing in Hebert's ventures. Then, as the end of the year neared, Butler gave her, Shleifer and Hay advice that made them squirm. He had decided a case could be made that her investment in Pallada was legitimate, but he said investing in the FRSD was "inadvisable." He recommended that the Shleifers disclose their plans to Vasiliev, to the Harvard general counsel's office and to Gregory Poppe, one of Harvard's attorneys.

According to exhibits entered in the lawsuit by the U.S., Zimmerman e-mailed Hay on December 2: "[Butler] would like us to tell Greg Poppe and just do it above board. He thinks . . . it should be done in an upfront way. I talked to Boss about this plan; he seemed less sure. . . ."

Hay replied: "I am just worried about what we do when Greg Poppe says no. I think that the issue must be prepared very carefully to minimize the risk that this happens. I also think we have to have a fallback if Poppe says no."

They decided to tell Poppe nothing.

Nielsen met with Shleifer in Cambridge on December 9. They lunched at the Harvard Faculty Club, speaking first about a range of issues and problems at HIID in Moscow. It wasn't until the next morning in Shleifer's office in the Littauer Center that Nielsen raised the concerns that had brought her to Boston.

"Jonathan and Beth are being stupid and arrogant about the registration issue," she said, according to her deposition in the lawsuit. "If they had quietly gone about getting [registration] No. 3 or 4, no one would even have noticed. But the fact that they felt they had to get No. 1 caused a huge sensation."

"I can't control who Jonathan sleeps with," Shleifer replied.

Nielsen was stunned, but continued. "I believe that Jonathan's direction of public funds to benefit a commercial private organization in which Hebert has an interest is a conflict of interest and an improper use of public funds."

Shleifer was unmoved. As Nielsen was leaving, he said, "I'm naming Jonathan executive director of the Resource Secretariat." Hay would be taking over from Bernard's replacement, Dmitri Subbotin, who was being pushed out because he had objected to the RSEC's registration of Pallada. The change would also make Hay Nielsen's direct boss.

Nearly a year after Hay and Hebert had begun seeing each other and three months after Butler had advised Hay to disclose the relationship to Vasiliev, Hay sent Vasiliev a letter, drafted by Butler, recusing himself from any oversight role concerning Pallada Asset Management. The letter was a formality -- Vasiliev had known of the relationship from the start. Hay's treatment of Pallada didn't change. He did finally move into Hebert's apartment, however, the plumbing at his own flat having long since failed.

When Hay and Hebert flew to Idaho for Christmas with Dr. Hay, they finally got around to documenting the emergency loan he had made to Zagachin in August. Zagachin would repay Hebert, who would repay Dr. Hay. In a promissory note Hebert pledged her personal assets, including a bank account in the Channel Islands and a 1991 blue Volvo 740.

In February, Shleifer wired $200,000 from his and Zimmerman's joint bank account to Pallada. He was implementing a cash advance from his wife to Hebert. The parties labeled the advance a loan, but it was not documented for the time being, leaving the option of structuring it as either debt or equity.

Meanwhile, Zimmerman sent First Russian Specialized Depository's latest business plan to AEW, which had indicated it would invest $50,000 in Pallada against an eventual total of $200,000 and would consider investing in FRSD as well.

AID had been stung by the General Accounting Office's finding that it had been lax in supervising Harvard's Russian Project, but did not take action for several months. In late February, Olga Stankova, a senior Moscow staffer of AID, privately informed Janet Ballantyne, the agency's mission director, that Hay's girlfriend "had been given unfair advantage in the registering of the first mutual fund program," according to Ballantyne's deposition in the lawsuit. Ballantyne, a 20-year AID veteran, was a smart bureaucrat, but she had only been in Moscow for three months and was still catching up with the agency's work in Russia, where 150 employees administered 80 to 90 programs. Though she had met with Hay on half a dozen occasions, she spent no more than 5 percent of her time on the Harvard program.

Upon hearing of the potential problem, Ballantyne summoned her top legal officer, Mark Ward, and then telephoned the agency's inspector general in Washington. The IG is independent of AID, appointed by the president of the U.S. and reporting directly to Congress. The IG immediately dispatched two special agents to Moscow to investigate. Ballantyne briefed the charge d'affaires and the Treasury attaché at the U.S. embassy in Moscow, who alerted ambassador Thomas Pickering.

The two agents conducted a quiet preliminary investigation over six weeks. On April 10, Ballantyne and Ward telephoned Jeffrey Sachs at Harvard; he had become HIID director two years earlier, but he had not been in Moscow since 1994, having been preoccupied with other projects around the world.

"Don't say anything," Ballantyne said. "We have a statement."

She informed him that AID's inspector general was investigating possible improprieties in the Harvard program in Moscow and that the agency was asking his cooperation in interviewing the staff. A stunned Sachs said he would get back to them.

Sachs called the Harvard general counsel's office, then notified the university's second-in-command, provost Albert Carnesale, who had been running Harvard with unusual authority for two years, since illness had sapped president Rudenstine's capacity. Then he called his old rival.

According to Sachs' testimony, Shleifer tried to portray the investigation as a "vendetta" orchestrated by "enemies" of Harvard, competing universities that had bid for the Russia job and lost.

Sachs was furious, later telling a federal grand jury his opinion of Shleifer's illicit investments: "Mr. Shleifer would be doing a disservice and would be entering a conflict of interest to make an investment like this. . . . I would find such investments to be highly inappropriate. . . . It would be damaging to HIID to engage in this kind of behavior while serving as an HIID consultant or employee to Russia."

WHEN HAY LEARNED OF THE investigation, he immediately called Butler. "Something funny is going on," he said. "You may need to get involved." Together they called Poppe at the Harvard general counsel's office. Poppe, who had just been notified of the investigation by Sachs, asked that Butler represent Harvard, HIID, Shleifer and Hay in any contacts with AID investigators.

Hay, Hebert and Zagachin scrambled. There was the matter of the loan that Hebert had arranged for Hay's father to make to Zagachin the previous August. Zagachin telephoned one of Aldrich's aides at AEW and asked if the funds earmarked for FRSD could be transferred immediately -- and if the amount could be doubled, to $400,000, in exchange for a larger piece of the company and better terms. Aldrich authorized the transfer of the funds to Zagachin. She instantly wired the money to Hebert, who passed it on to Dr. Hay in Idaho. A few days later AEW proceeded with its Pallada investment, paying $50,000 for 2 percent of the company.

With his university's reputation at stake, Carnesale demanded that the U.S. government put its charges in writing. On April 17, AID faxed a letter to Sachs stating that a senior HIID official in Moscow had a close relationship with the manager of a Russian mutual fund company and "may have used his or her position to seek preferential treatment for this mutual fund and the fund's specialized depository." The letter also alleged that "some USAID funding may have been used for the personal gain of one or more HIID employees" and insisted that Harvard people submit to interrogation by U.S. agents.

Hay fired back from Moscow. He drafted an angry letter for Vasiliev to send to AID mission director Ballantyne, denouncing the investigation as "deeply insulting," "crude" and "a violation of elementary norms of courtesy." The letter stated that Hay had no financial interest in either Pallada or FRSD.

Vasiliev dispatched another outraged, Hay-written letter to Richard Morningstar, who, as a special ambassador, advised the White House and the State Department on U.S. aid to the states of the former Soviet Union. The letter asserted that FRSD "has received private financing from a well-known trustee for pension funds," meaning Aldrich in Boston. He did not say that the financing had been in place for only a week. He did, however, warn of possible dire consequences to Russian-American relations as a result of the AID investigation.

From Cambridge, Sachs asked all HIID employees in Moscow to cooperate fully with the investigation.

On April 30 special agents Philip Rodonkanakis and Mary O'Mara interrogated Hay for three hours and 20 minutes in the mission director's conference room at the AID offices in Moscow, with Butler at his side.

Over the next few days, Shleifer called around Moscow trying to find out what the HIID staff was telling the investigators. A few people believed the Resource Secretariat's Holly Nielsen had been responsible for sparking the investigation. Shleifer ordered that she be fired. Nielsen informed Sachs, who countermanded the order. Shleifer reinstated it. "I'm running this project, and you'll do what I say," he told Rachel Glennerster, the Cambridge-based administrator in charge of contracts. She informed Sachs, who again reinstated Nielsen.

Nielsen couldn't be fired, but she could be restrained. Vasiliev ordered the security guards to bar her from the offices of the Resource Secretariat.

On May 9, Sachs asked Carnesale to fire Hay and to suspend Shleifer from the Russia Project. Not knowing this, a distraught Shleifer that same day let loose an extraordinary nine-page diatribe to the provost, calling the U.S. investigation "zealous," "outrageous" and "vicious," with the objective of "getting" him, Hay and Harvard.

Shleifer asserted that there was "no evidence of wrongdoing by myself and Hay." He oddly and grandiosely insisted that Carnesale cancel the entire Russia program: "It is a great time for Harvard to send [AID] straight to hell."

On May 19, Anatoly Chubais, who had become first deputy prime minister of Russia, dispatched a letter to AID administrator J. Brian Atwood in Washington demanding that he terminate HIID programs in Russia. The next day AID summarily killed the Russia Project, initiated five years earlier with such hope and intellectual heft. HIID had spent upward of $40 million of U.S. government funds and controlled the spending of an additional $350 million by other contractors.

The official letter, which the agency faxed to Sachs from Moscow, contained strong language unusual for a federal agency. Shleifer and Hay, AID charged, "have abused the trust of the United States Government by using personal relationships . . . for private gain. . . . USAID has been trying to explain to key Russian Government counterparts the value of open and transparent processes, and the importance of avoiding conflicts of interest, as ways to increase investor confidence in the Russian capital markets. . . . The private activities of [Hay and Shleifer], supported by staff and equipment paid for with U.S. Government funds, conveys exactly the wrong message to the Russians." On May 21 the Committee of Fellows of the Harvard Institute for International Development met twice in emergency session and crafted a letter to university president Rudenstine "expressing our dismay and concern," castigating Shleifer and Hay and urging that they be suspended. "Nothing less than HIID's integrity and ability to function effectively in the future is at stake," the letter stated.

In lower Manhattan that morning, Richard Bernard sent a memorandum to his boss, New York Stock Exchange CEO Richard Grasso, commenting on the coverage of Harvard's problems that day in the Wall Street Journal. "On a personal level," Bernard wrote, "it is hard not to rejoice in seeing Shleifer and Hay get their comeuppance. However, I am concerned about the possible ramification of the scandal for the good work that we did manage to accomplish."

Harvard fired Shleifer and Hay from their HIID positions the next day. Shleifer, however, retained his tenured professorship in the department of economics.

THE REVELATIONS FROM MOSCOW shocked no one more than Peter Aldrich, who invited Shleifer to dine at their usual haunt, Henrietta's Table in the Charles Hotel. Shleifer tried to shift the blame. "I've been hung out to dry," he railed. "I was just a consultant. It was Jeffrey's [Sachs] program, and he ran it."

Aldrich later telephoned Vasiliev in Moscow, who defended Hay. "Jonathan has been a tremendously valued adviser," Vasiliev said. "He's the only good money the U.S. government has spent. This is a political vendetta by the Central Bank against me and especially Chubais. The bank wants control of the securities market."

Hay visited Boston in late May in an effort to defend himself. He met with Sachs and Dwight Perkins, the senior professor who had run HIID for 15 years and had approved the hiring of Hay in 1992.

He also met with Aldrich, who called Hay to his office and directed him to a chair so they could face each other.

"Jonathan, I absolutely need to know the truth," Aldrich said, according to his deposition in the U.S. lawsuit.

Hay proclaimed his innocence, furious that he had been "summarily dismissed . . . and . . . prejudicially judged."

"Jonathan, did you or did you not invest in Russian securities?"

"No." Hay looked uncomfortable.

"Is that your truthful answer?"

"Well, I invested for my father. It wasn't much."

"What are we talking about here? How much money was it?"

"Well, $50,000."

"There's nothing else that these people can catch you on, hang you on?"

"Nothing else."

Aldrich wasn't convinced. "Jonathan, this is really important to me. I'm a fiduciary here. I've got money I'm responsible for. Is there anything else that you did that is wrong? Is there something else I should know about?"

"No, no, that's it."

"You're telling me that your father's investment of $50,000 was something that you were perfectly within your rights to do?"

"Yes. I didn't do anything wrong."

On May 30, Chubais and Vasiliev complained directly to Summers at Treasury "with considerable vigor and bitterness," Summers later recalled in his deposition. "They felt the U.S. government's refusal to fund the HIID project . . . constituted a significant interference with their objective of bringing about market and democratic institutions in Russia and seemed to them to be a kind of unconstructive and hostile act by the United States government."

Several days later Zimmerman received a call at home from Leonard Blavatnik, the Forbes 400 billionaire who had arranged the Shleifers' first investment in Russian stocks, back in 1994. Blavatnik was concerned about the public controversy surrounding the Harvard Russia Project.

"It's a witch hunt," Zimmerman said. "A political vendetta."

Blavatnik promptly prepared a backdated document changing the beneficial ownership of the stock purchased in 1994 from Shleifer to Zimmerman. The Shleifers' $200,000 investment through the Blavatnik vehicle Renova at one time had tripled in value -- the Gazprom component had been up fivefold.

The collapse of the Harvard project had an immediate and negative consequence for the Russian reformers with which it was connected. On Friday, May 30, 1997, barely more than a week after first deputy prime minister Chubais pulled the plug on the Harvard project, he summoned Vasiliev to the Kremlin and resolved his conflict with the Central Bank. The Central Bank would be given the right to license commercial banks to trade in the equity market -- in effect opening the door to the German model of heavy bank investment in the stock market, which Vasiliev had opposed so bitterly for so long. Vasiliev resigned in October 1999, citing personal reasons.

By then Harvard had put HIID out of its misery, replacing it with the Center for International Development. Sachs, who stayed around for the launch of the CID, eventually left Harvard for Columbia.

Also by that time, Pallada had been bought by State Street Global Advisors and Farallon Capital had decided to dissolve its joint venture with Zimmerman. In late 1998, according to sources at Farallon, the San Francisco firm gave back to her its passive minority stake on the condition that she change the name of her firm from Farallon Fixed Income Associates; she renamed it Bracebridge Capital. Public records show that in 2001 she also began to use the acronym FFIA for her business; she continued to do so into 2004, when Farallon discovered its use and protested.

WHEN AN AGENCY OF THE U.S. government determines that crimes have been committed, it prepares a "criminal referral" to the Department of Justice, which evaluates the case and decides whether to prosecute. AID made its referral in June 1997. The Justice Department approved the case and assigned it to the U.S. Attorney's Office in Boston and the FBI. On July 10 a meeting of FBI agents and federal prosecutors was convened at the Boston federal courthouse by Assistant U.S. Attorneys Sara Miron Bloom and Stephen Huggard.

Bloom and Huggard gathered evidence for a year and presented witnesses and documents to a federal grand jury for two additional years. Though they wanted a criminal prosecution, the government, in the end, filed civil charges only.

On September 26, 2000, the U.S. government sued Harvard University, Andrei Shleifer, Jonathan Hay, Nancy Zimmerman and Elizabeth Hebert on 11 counts, including fraud, breach of contract and making false claims to the federal government. The suit estimated that the government had been defrauded of at least $40 million and asked treble damages under the False Claims Act.

One month later Forum Financial Group and John Keffer sued Harvard, Shleifer and Hay for fraudulent misrepresentation and other alleged infractions and asked unquantified actual and punitive damages. The defendants denied the alleged wrongdoing in both suits.

On November 12, 2001, U.S. District Court Judge Douglas Woodlock dismissed the charges against Zimmerman and Hebert on the grounds that the government essentially had failed to allege a sufficient number of relevant facts against them. However, he left open the possibility that the government could refile the charges under certain circumstances.

After extensive discovery, including about 60 depositions and the collection of more than 1,000 documentary exhibits, the government and the defendants all moved for summary judgment in their favor. Shleifer insisted he was a "consultant" rather than an employee, was never "assigned" to Russia and was therefore exempt from conflict-of-interest regulations. A key question for the judge was whether Shleifer or Hay had violated the "regulations governing employees."

On June 28, 2004, Judge Woodlock ruled against Shleifer and Hay. He wrote, "I find that the Cooperative Agreements were valid contracts between Harvard and USAID, that they created an obligation to remain free of conflicts of interest, and that actions by Hay and Shleifer breached that duty.

"Shleifer was in charge of the entire Russian Project, and classifying him as a consultant would result in the anomalous circumstance that the head of the project was exempt from the conflicts of interest regulations. . . . I find no genuine dispute of material fact as to Shleifer's status as an employee of HIID."

The judge determined that Shleifer and Hay were subject to the conflict-of-interest rules and had tried to circumvent them; that Shleifer engaged in apparent self-dealing; that Hay attempted to "launder" $400,000 through his father and girlfriend; that Hay knew the claims he caused to be submitted to AID were false; and that Shleifer and Hay conspired to defraud the U.S. government by submitting false claims.

On July 30, 2004, the government announced that Zimmerman had settled with the U.S. Even though the charges against her personally had been dismissed, the U.S. said that her firm had "improperly diverted U.S. taxpayer resources for its own purposes and profit" in AID's Russia program between 1992 and 1997. Zimmerman's firm had to pay $1.5 million to the U.S. government.

That December, Judge Woodlock conducted a jury trial to settle the factual question of whether Shleifer was "assigned to" Russia and thus obliged to obey the relevant conflict-of-interest regulations. The jury concluded that he was.

On August 3, 2005, the parties announced a settlement under which Harvard was required to pay $26.5 million to the U.S. government, Shleifer $2 million and Hay between $1 million and $2 million, depending on his earnings over the next decade. Shleifer was barred from participating in any AID project for two years and Hay for five years. Shleifer and Zimmerman were required by terms of the settlement to take out a $2 million mortgage on their Newton house. None of the defendants acknowledged any liability under the settlement. (Forum Financial also settled its lawsuit against Harvard, Shleifer and Hay under undisclosed terms.)

As the U.S. government's litigation proceeded with deliberate speed, Shleifer was distinguishing himself in the world of economics. He was earning a growing reputation as a theorist in the emerging field of behavioral finance even as he published a series of books and articles analyzing the changes in Russia. (In 1994 the industrious Shleifer had formed with fellow academics -- and behavioral finance specialists -- Josef Lakonishok and Robert Vishny a Chicago-based money management firm known as LSV Asset Management. Today it manages about $50 billion in quantitative value equity portfolios, though, according to the firm's Web site, Shleifer no longer has an ownership stake.)

In 1999, Shleifer cemented his place in the firmament of American economists when he won the John Bates Clark Medal, a ticket to the most-exalted circles of global academic economists. Paul Samuelson, who won it in 1947, and Milton Friedman, who won in 1951, subsequently received Nobel prizes. Summers was awarded the medal in 1993.

Shleifer remained close to his friend and mentor Summers; they talked to and saw each other frequently and continued vacationing together in the summer on the Cape. Then it became known in early 2001 that Summers was on the short list of candidates to succeed Neil Rudenstine as the president of Harvard University. Shleifer and Zimmerman began campaigning for Summers to get the Harvard post, giving meet-and-greet parties for him at their home. Summers stayed with them when he visited Harvard.

In March 2001, Summers was named president of Harvard. Shleifer, who had been courted by New York University's Stern School of Business, decided to stay put.

Having his close friend as his boss would turn out to be quite helpful to Shleifer. Summers asserted in his deposition that he recused himself from any involvement in the university's handling of the Shleifer matter, but the new president stayed involved anyway. Early in his presidency he told the dean of the faculty of arts and sciences, Jeremy Knowles, to keep Shleifer at Harvard.

"I expressed to Dean Knowles," Summers testified in a deposition in 2002, ". . . that I was concerned to make sure that Professor Shleifer remained at Harvard because I felt that he made a great contribution to the economics department . . . and expressed the hope that Dean Knowles would be attentive to that. . . . I think he recognized and shared the concern."

Summers hinted in the deposition that although he didn't know all the facts and wasn't a lawyer, he felt his friend Shleifer might have been unfairly accused -- that there was nothing necessarily wrong with "providing advice on a financial issue in which one had an interest."

Summers said conflict-of-interest "issues," in his Washington experience, were "left to the lawyers." He said he was sensitive to "ethics rules," but testified that "in Washington I wasn't ever smart enough to predict them . . . things that seemed very ethical to me were thought of as problematic and things that seemed quite problematic to me were thought of as perfectly fine. . . ."

Knowles, at least in principle, took a different view. He testified to the federal grand jury investigating Shleifer that he expected faculty to know the regulations prohibiting conflicts and to "understand the spirit, not just try to squeeze past the letter. . . ."

Harvard has disciplinary procedures for dealing with errant professors. The Committee on Professional Conduct, composed of a rotating group of senior faculty, provides guidance on conflict-of-interest questions to professors who seek it in advance of making an investment. It isn't unusual to solicit such counsel. Had Shleifer and his wife approached Knowles before making their investments, Knowles told the grand jury, he probably would have referred them to the committee. They had not come to him.

The committee also gathers facts on alleged misconduct and reports its findings to the dean, who then must decide whether to discipline or sanction the alleged offender. Penalties range from light to severe. Dismissing or forcing the resignation of a tenured professor at Harvard is very rare, but it can be done under the so-called Statutes of Harvard University, the school's venerable governing tenets, originating in 1650, 14 years after Harvard's founding. The Third Statute provides for dismissal for ". . . grave misconduct or neglect of duty . . ." The procedure, which is called "invoking the Third Statute," is so rare that few at Harvard have even heard of it.

When the Shleifer scandal broke, Knowles did not mobilize the committee. As allegations against Shleifer hadn't yet been litigated, Knowles took the position -- and so testified to the grand jury -- that Shleifer was innocent until proven guilty.

Knowles tells Institutional Investor that he does not remember Summers' approaching him about Shleifer. "I don't recall this particular conversation, but the president and I shared the goal of recruiting and retaining the best faculty, so it would have been perfectly natural for us to mention to each other the names of people that we certainly wouldn't want to lose." However, not long after Summers says he intervened on the professor's behalf, Knowles promoted Shleifer from professor of economics to a named chair, the Whipple V.N. Jones professorship.

Knowles left the deanship in 2002 and is currently the Amory Houghton professor of chemistry and biochemistry and a distinguished service professor at Harvard. His successor as dean of the faculty of arts and sciences was William Kirby, a former chairman of the history department and a noted China scholar, who was appointed dean by Summers effective July 1, 2002.

Shleifer's legal position changed on June 28, 2004, when Judge Woodlock ruled that he and Hay had conspired to defraud the U.S. government and had violated conflict-of-interest regulations. Still, there was no indication that the Summers administration had initiated disciplinary proceedings. To the contrary, efforts were seemingly made to divert attention from the growing scandal. The message from the top at Harvard was, "No problem -- Andrei Shleifer is a star," says one senior Harvard figure.

The Summers-Shleifer friendship flourished. They spoke on the phone more than once a day, on average. Two months after the court ruling against Shleifer, he hosted Summers at a break-the-fast dinner on Yom Kippur.

David Cutler, another Summers protégé and professor of economics, whom the Harvard president had elevated to dean of social sciences, hosted a "Social Sciences Colloquium" lecture series in 2004 and designated Shleifer as one of the first speakers. Shleifer spoke on Russia, about which he had penned an article for the March/April 2004 issue of Foreign Affairs; the article, "A Normal Country," grew into a book of that name published in 2005. Later in the year Cutler invited Shleifer to a gathering of prominent Harvard scholars to discuss what the university should be doing to advance research and scholarly work in Russia.

The continuing efforts on Shleifer's behalf, particularly after the court adjudged him liable for conspiracy to defraud the government, offended a number of professors, some of whom quietly approached the chairman of the Committee on Professional Conduct, professor Jeffrey Frieden of the government department. In departments of the university that depend heavily on grants from the U.S. government, conflict-of-interest rules are ubiquitous and strictly observed; some of the professors warned that the university's credibility with federal agencies could be compromised if no action were taken against Shleifer.

Committee chairman Frieden told those who inquired that the committee's function was limited to fact-finding and that as the federal court had already established the facts in the Shleifer case, the matter was more appropriately before Dean Kirby than before the committee. More than one professor felt that Frieden seemed intimidated by Summers.

"I have a vague recollection of having mentioned to a colleague some years ago . . . that whatever the CPC might or might not do, it could not act so long as the case was in the courts," Frieden told II in an e-mail comment. "When there is a prior court decision, the CPC . . . would not normally need to carry out much in the way of fact-finding because presumably the courts would have done this."

With no action forthcoming by the committee after the court's ruling, it's understood that members of the faculty of arts and sciences have taken up the Shleifer case with Dean Kirby on at least half a dozen occasions of varying formality over the past 16 months.

One instance was a meeting early in the academic year that began in September 2004, less than two months after the federal court formally adjudicated Shleifer's liability for conspiring to defraud the U.S. government. A faculty member asked Kirby why Harvard should defend a professor who had been found liable for conspiring to commit fraud. The second confrontation came early in the current academic year when another professor asked Kirby why Harvard should pay a settlement of $26.5 million and legal fees estimated at between $10 million and $15 million for legal violations by a single professor and his employee, about which it was unaware. On both occasions Kirby is said to have turned red in the face and angrily cut off discussion.

On at least one other occasion, Summers himself told members of the faculty of arts and sciences that the millions of dollars that Harvard paid in damages did not come from the budget of the faculty of arts and sciences, but didn't say where the money came from. Those listening inferred he meant that the matter shouldn't be of concern to the faculty and that they shouldn't raise it, a curious notion, given that Shleifer was one of their own.

A spokesman for Summers said he was "unable to schedule" an interview with Summers for II in December, when this article was being prepared. As the lawsuit was against the university, not just the faculty of arts and sciences, the settlement came from "university funds available for these purposes," the spokesman added.

A spokesman for the faculty of arts and sciences told II, "Consistent with its practices the FAS is not in a position to comment on any internal personnel matter involving a member of its faculty." The spokesman added that Dean Kirby "would never flare with anger."

Publicly, Harvard has made only one statement about the affair since the settlement in August. "We welcome having this matter behind us," vice president and general counsel Robert Iuliano declared.

For the most part, the Harvard community -- students, faculty and alumni -- have been silent about the Shleifer case. This stands in clear contrast to the other imbroglios of Summers' tenure, over religion professor Cornel West and women in science. When it came to Shleifer, many professors, though upset, have preferred to stay in the shadows, wary of the close friendship he has with Summers.

Nonetheless, a few of Harvard's most senior professors are beginning to break the silence. One such is Harry Lewis, who has taught mathematics and computer science at Harvard for 32 years. He taught Bill Gates as an undergraduate in the 1970s and was dean of Harvard College from 1995 until 2003, when he was dismissed in a restructuring of the college administration and returned to teaching full-time.

"The University is losing its moral authority over undergraduates . . . by failing to respond to faculty malfeasances with the same high-mindedness with which it treats undergraduates," Lewis writes in his forthcoming Excellence Without a Soul: How a Great University Forgot Education.

Lewis contrasts the Shleifer case with the way Harvard approaches student misconduct, demanding "openness and honesty" of the student, investigating the alleged infraction promptly and imposing sanctions, including expulsion where appropriate. Lewis also invokes recent cases of academic misfeasance by two prominent law professors -- Charles Ogletree and Lawrence Tribe. Both were accused of "misusing the words of others" in books they had written. When the "errors" were discovered, they apologized. The episodes were investigated by panels of Harvard eminences, including former president Derek Bok, now a university professor, who determined that the infractions were "inadvertent." In the case of Tribe, Summers and law school dean Ellen Kagan announced last April that his error was a "significant lapse in proper academic practice." The Summers administration announced no action against Tribe, however, and the Harvard Crimson, the undergraduate daily newspaper started in 1873, took strong exception. "The evident double standard," it editorialized, "sets a poor example for the student body and for the wider community. A student caught committing a similar crime might face the termination of his academic career."

Lewis, in his new book, draws a stark contrast between the Tribe and Ogletree cases, on the one hand, and the Shleifer scandal on the other.

"The Shleifer matter is strikingly different," Lewis writes. Shleifer has never acknowledged doing anything wrong. Summers has said nothing. And so far as is known, there has been no internal investigation or sanction. "An observer trying to make sense of the University's position on Shleifer, Ogletree and Tribe is driven to an unhappy conclusion. Defiance seems to be a better way to escape institutional opprobrium than confession and apology. . . . And most of all being a close personal friend of the president probably does one no harm."

Greek and Latin professor Richard Thomas, the chairman of the classics department and a member of three key committees of the faculty of arts and sciences, agrees with Lewis's last point at least: "If I had been found liable for conspiracy to defraud the U.S. government, with the result that Harvard had to pay a substantial settlement, I can't imagine there would have been no consequences for me," Thomas tells II.

Although Lewis does not declare Summers unfit to be president of Harvard, he comes close. The faculty vote of no confidence in Summers last spring indicates they believe he does not "meet the Harvard standard," Lewis writes. Summers doesn't offer "leadership they could respect. The Harvard faculty would rather mind its own business than vote down the president; they did not do so for sport." Summers, the computer scientist says, has "failed to bring honor to the institution."

For the record

This article broadly reflects facts as determined by Judge Douglas Woodlock of the U.S. District Court in Boston in his Memorandum and Order of June 28, 2004, in the case of United States of America v. The President and Fellows of Harvard College, Andrei Shleifer, Jonathan Hay, et al. After reviewing the parties' court papers as well as nearly 60 depositions and more than 1,000 documentary exhibits in the lawsuit, Judge Woodlock found that, while running the Harvard Institute for International Development's advisory program in Russia in the early 1990s, Harvard economics professor Shleifer and attorney Hay had conspired to defraud the U.S. government, engaged in self-dealing and violated conflict-of-interest regulations. The judge earlier dismissed the case against Shleifer's wife, Nancy Zimmerman, a hedge fund manager, and Hay's wife, Elizabeth Hebert, a mutual fund company executive, because, he found, the government essentially had failed to state sufficient relevant facts upon which to base a judgment.

However, later in 2004 the government announced that Zimmerman's firm had agreed to pay $1.5 million in a settlement. A year later Harvard agreed to pay the largest amount in its history to settle a lawsuit -- $26.5 million. Shleifer agreed to pay $2 million, Hay between $1 million and $2 million. All four of the original individual defendants testified extensively under oath, defending their roles in the Russian aid program. None acknowledged liability. In his settlement Hay said he disputes "certain of the contentions" against him. In a statement at the time, Shleifer said: "An individual can fight the unlimited resources of the government for only so long. After eight long years, I have decided to end this now -- without any admission of liability on my part. I strongly believe I would have prevailed in the end, but my lawyers told me my legal fees would exceed the amount that I will be paying the government."

Shleifer and Zimmerman declined through their lawyer to be interviewed directly. The magazine was unable to reach Hay. Hebert, responding in an e-mail, asked that the author not contact her in the future.

The reformers' report card

How much did the scandal involving the Harvard Institute for International Development harm Russia?

It's easy to exaggerate the extent of U.S. influence. A glance at Iraq underscores how difficult it is for Washington to effect fundamental change in other countries: One can make the case that reforming Russia was more critical to the world -- and more challenging. Sowing the seeds of shareholder capitalism in a country with an authoritarian history and no experience of free markets for seven decades was going to be an uphill task even for the elite of the premier U.S. academic institution.

Notwithstanding those constraints, however, Harvard University was in a unique position to exert a powerful influence. Post-Soviet Russia turned to the West for help in rebuilding its economy and filling the vacuum left by communism's fall. In running Harvard's Russia Project, Andrei Shleifer and Jonathan Hay had an opportunity to preach the importance of integrity, transparency and fairness in shaping a business culture, and to work to enshrine those values in the country's legal and financial infrastructure. Instead, their personal dealings sent a very different message.

"The defendants' actions undercut the fundamental purpose of the United States' program in Russia -- the creation of trust and confidence in the emerging Russian financial markets and the promotion of openness, transparency, the rule of law, and fair play in the development of the Russian economy and laws," the Justice Department asserted in its initial complaint in U.S. v. Harvard, Shleifer, Hay, et al. on September 26, 2000.

Janet Ballantyne, a veteran officer for the U.S. Agency for International Development, who headed AID's Moscow office when the scandal broke, echoed that view in her testimony in the lawsuit brought by the U.S government.

The Harvard advisers "had access to the highest levels of government," she said. "What should have happened . . . as Russians become acquainted with the way American institutions work, [was] that they [would] learn the transparency and the conflict of interest values that we also expect of our own officials. I think that the damage to the United States' relations with Russia was very great."

The collapse of the Harvard project arrested work on a number of vital reform projects. At the Institute for Law-Based Economy, some planned legislation was never finished. The Resource Secretariat's effort to design a central clearinghouse was halted, and Russia to this day lacks a fully realized central clearing facility capable of handling both securities and cash, a gap that has hampered the development of the domestic securities market.

"This scandal hobbled the development of the Russian capital market infrastructure for a substantial period of time," says Bruce Lawrence, a Credit Suisse First Boston executive in Moscow at the time. In A Normal Country: Russia after Communism, his 2005 book on Russia, even Shleifer acknowledged that "[i]nvestor protection and corporate governance in Russia remain weak."

The Harvard scandal also undermined Dmitri Vasiliev and the fledgling Russian Securities and Exchange Commission that he headed. The commission was one of the few executive agencies fully controlled by free-market reformers, and Vasiliev waged a lonely battle against communist-era factory managers known as "Red directors," budding oligarchs and conservative government bureaucrats in trying to establish rules for a modern financial market. The scandal tarnished Vasiliev's reputation, weakening him politically. Eventually, the RSEC was demoted from an independent agency to a department of the prime minister's office.

"It was the start of what we call the dark times," says Igor Moryakov, president of the Depository Clearing Co. "People who really understood . . . how to operate the market were dismissed. New people, without any experience, without any understanding of how markets work, came to power. It was an absolutely huge disappointment."

Vasiliev had been virtually the only senior official to oppose the Yeltsin government's overreliance on the domestic bond market, calling it effectively a pyramid scheme. Russia defaulted on more than $40 billion worth of domestic debt in August 1998, triggering a financial tremor felt around the globe.

"The scandal caused an extreme decline in the Russian SEC's influence as a regulator," says economist Alexander Abramov, head of development at the Moscow-based Russian Trading System, the country's principal stock exchange, and the author of a new book on Russia's securities markets. "It made the financial crisis of 1998 more likely. And I think it destroyed the trust and relationships between Russian authorities and American advisers."

The Harvard program can claim some successes. HIID advisers did help create Russia's main stock exchange, the RTS, and worked with the RSEC to establish a Web site and public information service, the first of its kind set up by a Russian agency. -- D.McC.

Where are they now?

Richard Bernard is the executive vice president and general counsel of the New York Stock Exchange;

Anatoly Chubais is CEO of UES of Russia, the country's biggest power company. He survived an assassination attempt on the streets of Moscow in April 2005;

Yegor Gaidar runs the Institute for the Economy in Transition, a prominent Moscow think tank;

Jonathan Hay married Elizabeth Hebert following the end of the Harvard Russia Project; he is an associate in the London office of Cleary Gottlieb Steen & Hamilton and is currently on leave;

Elizabeth Hebert left Pallada Asset Management in the fall of 2005. The firm was sold to State Street Global Advisors in 1998; in 2005, according to Russian media reports, State Street sold Pallada to a Moscow entity called Russian Funds Investment Group;

Holly Nielsen is international counsel and co-head of the Russian practice at Debevoise & Plimpton in Moscow;

Andrea Rutherford lives in Massachusetts, where she moved in 2004 after five years as a managing director at Brunswick UBS in Moscow;

Jeffrey Sachs directs the Earth Institute at Columbia University and is a special adviser to United Nations Secretary General Kofi Annan;

Andrei Shleifer teaches economics as a tenured professor at Harvard. He is on leave for the current academic year. He travels the world, publishes voluminously and is widely cited as an expert in a variety of economic specialties;

Dmitri Vasiliev is first deputy general director for strategy and corporate policy at the Russian power conglomerate Mosenergo;

Julia Zagachin runs the First Specialized Depository (formerly the First Russian Specialized Depository) in Moscow. She was a cooperating witness in the case of U.S. v. Harvard, Shleifer, Hay, et al, having invoked the Fifth Amendment and been granted immunity from prosecution before her grand jury testimony;

Nancy Zimmerman runs Bracebridge Capital, in Cambridge, across Massachusetts Avenue from Harvard Yard. -- D.McC.

How Harvard Deep-Sixed Its Russian Scandal

by David Warsh

March 4, 2011

https://www.counterpunch.org/2011/03/04/how-harvard-deep-sixed-its-russian-scandal/

I’m always interested to see a new book on the transition of the Russian economy from central planning to the oil-based siloviki-dominated oligarchy of today. No Precedent, No Plan, by Martin Gilman, stakes a claim to being the definitive word on some of those events. The impact of the crash of August 1998 needs to be appreciated in order to understand contemporary Russia, he says. The English edition is a slimmed-down version of a longer Russian book.

Gilman should know.  He was named a senior member of the International Monetary Fund’s Russia team in 1993, just after the Clinton administration took office.  He moved to Moscow in November 1996 and remained until 2002.  Along the way he married a prominent Russian political columnist, Tatiana Malkina, gaining thereby unusual access to the Russian government at its highest levels, and, as well, “a special insight into the way that Russians really see their world.”

Today he is a professor at Moscow’s State University’s Higher School of Economics. And it is from this vantage point that Gillman seeks to set straight various “dangerous stereotypes” and to put to rest a lingering “suspicion of corruption that accompanied the discussion of Russian financial matters” in the second half of the 1990s.

No Precedent, No Plan ascribes the various scandals of 1999 to fabrications designed to discredit opponents, a familiar enough tactic in Russian political campaigns. So it is strange that the book contains no mention of the well-documented Moscow scandal that set the scene for various perceptions that followed the IMF-supervised restructuring of Russia’s external debt in August 1998.

It was in 1997 that the US Agency for International Development fired the Harvard University team that it had assigned four years before to advise the government of Boris Yeltsin.  Evidence had surfaced that the team leader, Harvard professor Andrei Shleifer, his wife, his deputy and the deputy’s girlfriend, had, in the office of their Russians advisees, muscled aside legitimate firms in order to obtain for themselves the first license to distribute mutual fund shares in a vast impending privatization.

Shleifer’s good friend and mentor, Harvard economist Lawrence Summers, who as a member of the department had been involved in assembling the team in the first place, remained at the Treasury Department, where, as deputy secretary, he oversaw the US response to the Russian crisis in 1998. In 1999 he became Treasury Secretary himself, replacing Robert Rubin.  In 2000, the US government sued Harvard and the others for fraud and, after the matter was extensively litigated, recovered its fee. Summers, meanwhile, was named Harvard’s president and, not long after, recruited Rubin to Harvard’s seven-member governing Corporation. Five years later, Summers’ handling of the Russia project over the years was deemed by The New York Times to have been a significant factor in his dismissal.

When Summers returned to Washington in 2009 as chief economic adviser to President Barack Obama, Shleifer’s wife, hedge fund operator Nancy Zimmerman, was noted by the Times to be among his inner circle of informal advisers, along with Laurence Fink, chief executive of BlackRock, the large money management firm, and H. Rodgin Cohen, chairman of the Sullivan and Cromwell law firm, and several others.  .

Yet not even Shleifer’s name makes the cut in No Precedent, No Plan when Gilman writes, “The World Bank Staff members and those of other international agencies, some western think tank and academic advisers such as [Anders] Aslund, [Richard] Layard and [Jeffrey] Sachs, and the G-7 financial attaches based in Moscow also had privileged access, but none were able to have such a comprehensive overview of the macroeconomic situation on a continuing basis as the IMF.”

So when Gilman recently spoke at Harvard’s Russian Research Center about his book, I stopped by to hear him. Towards the end of his talk, I asked about the Harvard project, and he gave what seemed to me a genuinely forthcoming answer.

“I’m going to say something very politically incorrect. I think it was a tempest in a teapot, a teacup. I thought the whole things overblown and exploited. I’m not saying that there weren’t elements of poor judgment involved. I think that in terms of foreign technical assistance to the Russians, I think they actually made a valuable contribution, compared to some other institutions that were involved there. I think it was a sad outcome, sloppy, as I say, poor judgment, but I just don’t think it should have been exaggerated the way it was. There were a lot of enemies out there….  I don’t really know enough about the details and I don’t like to get involved in that kind of stuff.”

“The collapse of the Harvard mission, amid widespread publicity in Russia, caused no discomfiture to the IMF?”

“No.  No. Because if every time there was some impropriety, or accusation – we’re not judges – if every time there was an impropriety, we could have never done anything. You raise a good point, because later, we were not able to overlook improprieties, not in 1997 or ’98, but when scandals that I mention [in the book] started…  then minor charges of these kinds… the IMF could [no longer] ignore.”

But, in fact, I noted, the Harvard charges were not minor. They had been brought, not by Russian disinformation specialists, but by American whistleblowers.  Harvard’s Institute for International Development itself had fired its team leaders, and the US Agency for International Development in turn had fired HIID, for inadequate supervision.

The case had been investigated extensively and tried in US District Court in Boston. Harvard and Shleifer’s defense had been curtly rejected by both a judge and a jury.  Both were found to have committed fraud. The dismal end of “the so-called Harvard Boys,” as Gilman described them in passing in his book, was, in other words, a proven case.

So why wasn’t the episode worth mentioning in the book?  In conversation after the talk, Gilman at first thought he must have included it. Then, he speculated, perhaps it had been left on the cutting-room floor when the Russian original was translated into English.  He promised to look to see what he had said. But he didn’t reply to an email.

Alas, No Precedent, No Plan is another book about Russia in the ’90s to enter the world with an asterisk firmly affixed – the typographical device that in sports history indicates a record tainted by circumstances. It could be, I suppose, that Gilman has accurately reflected what a broad swathe of Russian public opinion thinks about US-led interventions in those years, but I doubt it. Certainly he doesn’t know much about the deeper currents of American opinion.

On the other hand, at so late a date the omission is not really very much Gilman’s fault. Harvard’s strategy, to deny everything almost from the beginning, has for the most part succeeded in the dozen years since then, for the story has not become a well-established social fact.  Sachs left Harvard for Columbia.  The Harvard Institute for International Development, which he headed, was disbanded instead of beefed up. And when the case was finally lost, after eight years of wrangling, the university administered a wrist-slap to Shleifer and sealed its faculty committee’s investigation of his conduct. Summers has remained aloof from the case for the most part, at least in the world outside Cambridge.

Harvard may have behaved badly by stonewalling, but major newspapers and magazines performed even worse – with the honorable exception of The Wall Street Journal, where reporters Steve Liesman and Carla Anne Robbins broke the story in 1997 (and Robbins updated it in 2004); and of Institutional Investor, where investigative reporter David McClintick wrote the saga to a broad conclusion in January 2006.

Three veteran Moscow bureau chiefs published accounts of the roaring  ’90s in Russia without mentioning the Harvard embarrassment – David Hoffman, formerly of The Washington Post (now writing for Foreign Policy), Chrystia Freeland, formerly of the Financial Times (now writing for Reuters), and Strobe Talbott, formerly of Time magazine.  All three wrote before the trial firmly established the facts of the matter, but none bothered to keep readers up to date. Talbott, who served seven years as deputy secretary of state in the ’90s, published The Russia Hand: A Memoir of Presidential Diplomacy (with Michael Beschloss) after becoming president of the Brookings Institution.

The brazening-out of the Harvard scandal might not have succeeded so nearly completely if ordinary checks and balances of  competition in the news business had obtained, but by the early ’00s newspapers had begun their barely-controlled financial descent.  I should mention, however, the most surprising disappointment. David Remnick, himself a former Washington Post Moscow bureau chief, author of two books about the Russian transition, failed as editor of The New Yorker to assign a story, though, in John Cassidy, he had one of the liveliest financial reporters in the business.

Why were so many blind eyes turned to such an interesting and important story? My guess is a combination of access-hunger on the part of the reporters and institutional loyalties of various sorts among the bureaucrats. The authorities who framed the initial Harvard response presumably consulted with Deputy Treasury Secretary Summers, carefully, via back channels. Nor did the economics profession respond by reining in Shleifer’s position of power in any way. He edited the influential Journal of Economic Perspectives for five years, throughout the period of his greatest embarrassment.

What hope that the story will eventually get a proper airing?  McClintick, one of the most gifted investigative reporters of his generation (Swordfish, Indecent Exposure and Stealing from the Rich), seems to have given up on it, after marrying his best source, Andrea Rutherford, secretary for many years to Dimitri Vasiliev, head of the Russian Securities and Exchange Commission.

USAID, a semi-independent arm of the State Department, is preparing a history of its last twenty years. Perhaps its historians will tackle the subject.  USAID personnel know the inside story; and, practically without exception, its officers behaved well.

There is even a chance that the Harvard faculty will demand the release of the report of its Committee on Professional Responsibility. The late Jeremy Knowles, dean of the Faculty of Arts and Sciences, decreed that it  remain secret not long before he died.

Inside Job won its Oscar last Sunday for best documentary.  Sure, I have plenty of reservations about Charles Ferguson’s film.  The Wall Street madam who insists that Everybody Did It is scarcely credible; she seems there mainly to exculpate star witness Eliot Spitzer. His narrators (Nouriel Roubini, Raghuram Rajan, Gillian Tett) tell no coherent story except “greed” (Ferguson was trained as a political scientist, not an economist, at the Massachusetts Institute of Technology.)

Yet thanks to the sheer rhetorical force of his film, many research universities are rethinking their conflict of interest and disclosure policies. Even the American Economic Association has formed a committee to consider whether it has responsibilities in the matter. Ferguson deserves that Oscar.

Those committees, in their deliberations, would do well to consider the Harvard matter, too. Yes, it was in a foreign country, and besides the wench is dead.  But the subtle suborning of the scholarship of the community of students of the American involvement in the Russian transition, and of the journalists who cover them, by the little foursome that was chosen to represent the government of the United States to the government and the citizens of Russia, was, to my mind, a more serious matter than any single thing that has yet surface on Wall Street. Martin Gilman deserves his asterisk – and so do all the rest named here, including, especially, Harvard University.

DAVID WARSH covered economics for The Boston Globe for  22 years and, earlier, reported on business for The Wall Street Journal and Forbes. He publishes Economic Principals.com, an  independent weekly commentary on the production and distribution of economic ideas, where this article first appeared. He can be reached at warsh@economicprincipals.com

Harvard Mafia, Andrei Shleifer and the Economic Rape of Russia

Chronicles of Harvard University Russian Economic Team Scam and Deep Corruption of Academic Economics

http://www.softpanorama.org/Skeptics/Pseudoscience/harvard_mafia.shtml

I liked it when he said, "These cases are complicated and difficult to prosecute, but if you're serious about doing them, you can." Doesn't that describe the situation perfectly? It can be done if we set our minds to it. We need to get started and make that happen.

Comment to 'inside job' (Yahoo! Finance)

Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.

Napoleon Bonaparte

The modern power elites thrive by forgetting any regrettable past. This amnesia is easy at Harvard, where the legal fiduciaries operate in secret and need not answer for their acts. They are the antipodes of the selfless institutional servants who built Harvard and other great American enterprises, and they bear close watching.

(Harry R. Lewis Larry Summers, Robert Rubin Will The Harvard Shadow Elite Bankrupt The University And The Country)

"It's a mafia," he says quietly...

Hip Heterodoxy by Christopher Hayes

Introduction

A interesting rogues’ gallery of international financial criminals with high academic degrees who got their education in Harvard (Harvard mafia in a broad sense) owes its existence to the dissolution of the USSR and subsequent financial crisis. The level of corruption and rent seeking behaviors of those individuals is really breathtaking. The term "mafia" is not rhetorical overshoot: they are mafia in a very precise meaning of this word: the mafia at its core is about one thing -- money (see also Russian board game Mafia). Like in a typical Mafioso family there is an ethnic core and a hierarchy, with higher-ranking members making decisions that trickle down to the other members of the family. And its policies are always about oppression, arrogance, greed, self-enrichment, power and hegemony above and against all others.

The story of Andrei Shleifer in Russia is a classic story of "academic extortion": betrayal of trust and academic principles by Harvard professor of economics (probably not without the influence of his wife, hedge fund manager Nancy Zimmerman, longtime friend of Larry Summers). While the guy was just a pawn in a big game, the issues of criminality of economists (and some universities economics departments ;-) and relevance of RICO statute against such offences is a much bigger issue.

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $25,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of "racketeering activity." RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

... ... ...

On March 29, 1989, financier Michael Milken was indicted on 98 counts of racketeering and fraud relating to an investigation into insider trading and other offenses. Milken was accused of using a wide-ranging network of contacts to manipulate stock and bond prices. It was one of the first occasions that a RICO indictment was brought against an individual with no ties to organized crime. Milken pled guilty to six lesser offenses rather than face spending the rest of his life in prison.

There is a disturbingly deep analogy between Harvard University (which had been benevolently charged with just breach of contract by the US government) and Michel Milken activities. Separately Shleifer and an associate, Jonathan Hay, were charged with conspiracy to defraud the U.S. government. Later he was stripped of honorary title "Whipple V.N. Jones Professor of Economics" due to ethics violation, but he managed to preserve his position at the university due to Summers protection (Larry Summers A Suicidal Choice - Mark Ames).

How close were Larry Summers and Andrei Schleifer? According to former Boston Globe economics correspondent David Warsh, Summers and Schleifer “were among each other’s best friends,” and Summers taught Schleifer “as an undergraduate, sent him on to MIT for his PhD, took him along on an advisory mission to Lithuania in 1990, and in 1991, shepherded his return to Harvard as full professor, where he was regarded, after Martin Feldstein and Summers, as the leader of the next generation.”

The furor about Andrei Shleifer shadow dealings in Russia contributed to the ouster of Summers from the Harvard presidency. It also exposed sad fact that neoclassic economics represents a dangerous sect which if not exactly mafia is pretty much borderline phenomenon. Somewhat similar with Lysenkoism

Academic Mafiosi as a Social Class

The cynical view is that "Rape of Russia" was a Mafiosi style operation, which was conducted using s Trojan horses special class of Mafiosi, academic economics. This might well have been the intent (in best "disaster capitalism" style of thinking). Instead of helping post-Soviet nations develop self-reliant economies, writes Marshall Auerback,

“the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells.”

Corruption and local oligarchy were natural allies of this process which was, in essence, the process of Latin-Americanization of post Soviet space. And off-shore safe heavens were the tool. They partially failed in Russia as some of the most notorious deals of this periods (especially in mineral recourses and oil areas) were reversed in 2000-2008, but were quite successful in Ukraine, Georgia, Latvia and several other post Soviet republics. The external debt of those is just staggering. As Professor Michael Hudson noted:

It may be time to look once again at what Larry Summers and his Rubinomics gang did in Russia in the mid-1990s and to Third World countries during his tenure as World Bank economist to see what kind of future is being planned for the U.S. economy over the next few years.

Throughout the Soviet Union the neoliberal model established “equilibrium” in a way that involved demographic collapse: shortening life spans, lower birth rates, alcoholism and drug abuse, psychological depression, suicides, bad health, unemployment and homelessness for the elderly (the neoliberal mode of Social Security reform).

Here is one apt comment about the real nature of economic professors from Harvard and other nice places from the comments to post Economists Fall Back Into Neoclassical Stupor …( naked capitalism. January 18, 2011):

Hugh:

I echo lambert’s and scraping by’s sentiments. The economics profession is not about an analysis of our economy that can make reasonable predictions about it. Economics and economists are enablers of the con and validators of kleptocracy. They say the many must make do with less and do not say that the result of this policy will be the few will have more.

These are not innocent, unworldly types tied to outdated and obsolete ideas. They are abettors and apologists for the greatest economic crimes in human history. We should call and treat them for what they are: criminals. Kleptocracy is not a some time thing. It is not a label you apply occasionally. Kleptocracy is a system. The looters can’t function without corrupt politicians, a complacent propagandizing media, or complicit enabling academics. With kleptocracy, there is no middle ground. You either stand with the looters or their victims. I think this is the critical choice we all must make.

Another pretty telling quote ( from brilliant satire Blacklisted Economics Professor Found Dead NC Publishes His Last Letter « naked capitalism):

Q: Is it really plausible that economists threaten top banks that in the absence of some kind of payoff, they will change the theories they teach in a direction that is less favorable to the banks?

A: There are certainly cases in history of the following sequence:

a. Economist E espouses views that are less favorable to certain special interest groups S. Doing so threatens the ability of S to extract rent from the public.

b. Later, E changes his view, thereby withdrawing the prior threat.

c. Still later, E is paid large amounts of money by representatives of S in exchange for services that do not appear particularly onerous.

For example, let E = Larry Summers and let S = the financial services industry. In 1989 E was (a) a supporter of the Tobin tax, which threatened to reduce the rent extracted by S. This threat was apparently later withdrawn (b), and in 2008 E was paid $5.2 million (c) in exchange for working at the hedge fund D. E. Shaw (an element of S) for one day a week.

However, it is naturally more difficult to witness the negotiations in which specific threats were appeased with specific future payouts. This is a problem that also bedevils Public Choice theory, in which it is likewise difficult to show exactly how a particular politician is remunerated in exchange for threatening businesses with anti-business legislation. The theory assures us that such negotiations occur, although they are difficult to observe directly. Perhaps further theoretical advances will help us to close this gap.

Q: Isn’t it offensive to assume that economists, for motives of personal gain, shade their theoretical allegiances in the directions preferred by powerful interest groups?

A: How could it ever be offensive to assume that a person acts rationally in pursuit of maximizing his or her own utility? I’m afraid I don’t understand this question.

Academic Mafiosi as Byproduct and Simultaneously Enablers of Neoliberalism

Disappearance of a formidable opponent of unrestricted looting of developing countries that USSR formally represented on the the world scene essentially released all moral stops and considerations both inside the USA and outside. The triumph of neoliberalism

And former USSR republics were the first victims of new super-aggressive neoliberal "new normal". Despite crocodile tears about corruption, our world is being reshaped, in sinister fashion, by wide open capital markets and an international banking network that exists to launder hundreds of billions of dollars in ill-gotten gains stolen by government officials and oligarchs in "weaker" countries. In other words, corruption is an immanent feature and principal tool of neoliberalism in developing countries and xUSSR area.

In a broad sense the term Harvard mafia means corrupt (mostly neoclassical and supply side) academic economists which enjoy revolving door with government and get most of the income from the financial services industry. There are multiple documented examples when their activity was pretty close to activities regulated by RICO statute. Recent film of Charles Ferguson Inside Job is nice illustration of behavior of those predators in academic clothing

In a narrow sense Harvard mafia is the team of (mainly) neoclassical economists and "experts" who disastrously advised the Russian government on conversion of centrally managed "command economy" to more Western model in the 1990s. While Harvard mafia is probably the most notorious in its like to the economic rape of Russia, Chicago University economic school probably played a similar role for the USA. In this sense we can speak about Chicago economists mafia as well (what a surprise ;-)

Under pretext of showing the Russians how to convert command type economy to neoliberal model, and how to controls corruption, the gang-style rape of the country was inflicted on its unsuspecting citizens with poverty raising from 2% to 40% of the population. World have witnessed Russia losing half of its total output, plunging it into a depression deeper than the U.S. Great Depression. Please read Anne Williamson’s testimony. Here is one quote:

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others’ scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity – not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people – their abilities, efforts and dreams – which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet – on the Russian people – and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

The collapse of the USSR was by-and-large caused by internal problems and betrayal of nomenklatura which quickly understood that new neoliberal regime is more profitable for them that command-style economy (although role of financed by West wave of nationalism and West imposed technological isolation should not be underestimated). BTW this myth that Reagan administration won the Cold War is still current.

Economic rape of post USSR economic space was by design not by accident

After the dissolution of the USA, there was a vacuum of ideology in Russia and it was successfully filled with Harvard promoted neoliberalism and associated neo-classical economics. This was a powerful fifths column, oriented on helping the West to extract as much wealth from Russia as possible was created. The USA essentially forced Russians into so called shock therapy using Harvard academic mafia (plan was authored by Jeffrey Sachs who was lecturer at Harvard and implemented by Larry Summers protégé, Russian émigré Shleifer and several other Harvard academic brats with a couple of British poodles to make the gang international) and internal compradors in Yelstin government as fifth column. As a result poverty level jumped from 2% to 40%. Everything that can be stolen, was stolen by implementation of rapid privatization policy. During the heydays of corrupt Yeltsin regime implementation of shock therapy GDP dropped 50%. Suicide rate doubled, life expectancy for males dropped below 60 years (12,8% death rate increase), homeless children which were unknown in the USSR became mass feature of new social order.

The key seller of shock therapy was about Harvard Mafiosi, Professor Jeffrey Sachs who was a prominent neoliberal who because his role in destruction of Russian economics, contributed to immense sufferings in Bolivia, Chili, Poland and several other countries.

Instead of something like Marshall plan, a merciless ands unlawful grab of capital and national resources was successfully implemented in less then five year period after the dissolution. This was an amazingly greedy and short-sited policy by Clinton administration. To rephrase Talleyrand, it was worse then a crime, it was a blunder. As Otto von Bismarck advised long ago:

Do not expect that once taken advantage of Russia's weakness, you will receive dividends forever. Russian always come for their money. And when they come - do not rely on the Jesuit agreement you signed, you are supposed to justify. They are not worth the paper it is written. Therefore, with the Russian stands or play fair, or no play.

Let's hope that the USA will be protected by Providence from the consequences of this blunder because as Otto von Bismarck suggested "There is a providence to that protects idiots, drunkards, children and the United States of America". Otherwise, the level of anger felt by wide strata of Russian people (almost everybody outside of fifth column) can materialize into something really tragic. In Russian history, a generation that has taken a beating is often followed by a generation that deals one. In a way Putin is already a certain punishment, but the possibility of coming to power a real Russian nationalist instead of "resource nationalist" is not out the realm of possibilities ;-)

There is a Providence that protects idiots, drunkards, children and the United States of America.

Read more at http://www.brainyquote.com/quotes/authors/o/otto_von_bismarck.html#qr2ARypLke5VpwQb.99

Now Professor Jeffrey Sachs repainted himself from a sharky promoted of "shock therapy" into the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University. Here is an apt comment about this member of Harvard mafia ( NYT, 2009)

Arsen Azizyan

I grew up cold and hungry in the former Soviet republic of Armenia during the shock therapy years of the 90′s; my grandfather was one of the 3 million who died prematurely during those days (incorrect medication and power outages did him in).

I would very much like to tie Mr. Jeffrey Sachs to a chair and slowly force-feed him every worthless page of every idiotic policy paper he’s ever written. I believe that would justly mirror the diet that I had to subsist on for a number of years during my childhood and adolescence.

He still insists that Yeltsin, rather than his American advisors, was responsible for the fact that the privatization policy amounted in practice to the theft by a handful of favored apparatchiks of the industries previously ran – in its own inimitably corrupt fashion – by the state. As former World Bank economist David Ellerman noted it was the speed of the privatization which made such an outcome inevitable stating that

“Only the mixture of American triumphalism and academic arrogance could have produced such a lethal dose of gall.”

Janine R. Wedel in The Harvard Boys Do Russia (The Nation, May 14, 1998) wrote the following about extremely damaging for the USA (in a long run) and Russia (forever) policies Harvard mafia pursued:

"After seven years of economic "reform" financed by billions of dollars in U.S. and other Western aid, subsidized loans and rescheduled debt, the majority of Russian people find themselves worse off economically. The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth. The architect of privatization was former First Deputy Prime Minister Anatoly Chubais, a darling of the U.S. and Western financial establishments. Chubais's drastic and corrupt stewardship made him extremely unpopular. According to The New York Times, he "may be the most despised man in Russia." Essential to the implementation of Chubais's policies was the enthusiastic support of the Clinton Administration and its key representative for economic assistance in Moscow, the Harvard Institute for International Development. Using the prestige of Harvard's name and connections in the Administration, H.I.I.D. officials acquired virtual carte blanche over the U.S. economic aid program to Russia, with minimal oversight by the government agencies involved. With this access and their close alliance with Chubais and his circle, they allegedly profited on the side. Yet few Americans are aware of H.I.I.D.'s role in Russian privatization, and its suspected misuse of taxpayers' funds.

At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might have seemed to many an impolite reference to his hosts. After castigating Chubais and his monetarist policies, Luzhkov, according to a report of the event, "singled out Harvard for the harm inflicted on the Russian economy by its advisers, who encouraged Chubais's misguided approach to privatization and monetarism." Luzhkov was referring to H.I.I.D. Chubais, who was delegated vast powers over the economy by Boris Yeltsin, was ousted in Yeltsin's March purge, but in May he was given an immensely lucrative post as head of Unified Energy System, the country's electricity monopoly.

Some of the main actors with Harvard's Russia project have yet to face a reckoning, but this may change if a current investigation by the U.S. government results in prosecutions. The activities of H.I.I.D. in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance and on the entire policy of support for a single Russian group of so-called reformers. The H.I.I.D. story is a familiar one in the ongoing saga of U.S. foreign policy disasters created by those said to be our "best and brightest." Through the late summer and fall of 1991, as the Soviet state fell apart, Harvard Professor Jeffrey Sachs and other Western economists participated in meetings at a dacha outside Moscow where young, pro-Yeltsin reformers planned Russia's economic and political future. Sachs teamed up with Yegor Gaidar, Yeltsin's first architect of economic reform, to promote a plan of "shock therapy" to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades. Shock therapy produced more shock--not least, hyperinflation that hit 2,500 percent--than therapy.

One result was the evaporation of much potential investment capital: the substantial savings of Russians. By November 1992, Gaidar was under attack for his failed policies and was soon pushed aside ...

I.I.D. had supporters high in the Administration. One was Lawrence Summers, himself a former Harvard economics professor, whom Clinton named Under Secretary of the Treasury for International Affairs in 1993. Summers, now Deputy Treasury Secretary, had longstanding ties to the principals of Harvard's project in Russia and its later project in Ukraine. Summers hired a Harvard Ph.D., David Lipton (who had been vice president of Jeffrey D. Sachs and Associates, a consulting firm), to be Deputy Assistant Treasury Secretary for Eastern Europe and the Former Soviet Union. After Summers was promoted to Deputy Secretary, Lipton moved into Summers's old job, assuming "broad responsibility" for all aspects of international economic policy development. Lipton co-wrote numerous papers with Sachs and served with him on consulting missions in Poland and Russia. "Jeff and David always came [to Russia] together," said a Russian representative at the International Monetary Fund. "They were like an inseparable couple." Sachs, who was named director of H.I.I.D. in 1995, lobbied for and received U.S.A.I.D. grants for the institute to work in Ukraine in 1996 and 1997 ...

Andrei Shleifer, a Russian-born emigre and already a tenured professor of economics at Harvard in his early 30s, became director of H.I.I.D.'s Russia project. Shleifer was also a protege of Summers, with whom he received at least one foundation grant ...

Another Harvard player was a former World Bank consultant named Jonathan Hay, a Rhodes scholar who had attended Moscow's Pushkin Institute for Russian Language. In 1991, while still at Harvard Law School, he had become a senior legal adviser to the G.K.I., the Russian state's new privatization committee; the following year he was made H.I.I.D.'s general director in Moscow. The youthful Hay assumed vast powers over contractors, policies and program specifics; he not only controlled access to the Chubais circle but served as its mouthpiece ...

With help from his H.I.I.D. advisers and other Westerners, Chubais and his cronies set up a network of aid-funded "private" organizations that enabled them to bypass legitimate government agencies and circumvent the new parliament of the Russian Federation, the Duma.

Through this network, two of Chubais's associates, Maxim Boycko (who co-wrote Privatizing Russia with Shleifer) and Dmitry Vasiliev, oversaw almost a third of a billion dollars in aid money and millions more in loans from international financial institutions ...

The device of setting up private organizations backed by the power of the Yeltsin government and maintaining close ties to H.I.I.D. was a way of insuring deniability. Shleifer, Hay and other Harvard principals, all U.S. citizens, were "Russian" when convenient. Hay, for example, served alternately and sometimes simultaneously as aid contractor, manager of other contractors and representative of the Russian government ... Against the backdrop of Russia's Klondike capitalism, which they were helping create and Chubais and his team were supposedly regulating, the H.I.I.D. advisers exploited their intimate ties with Chubais and the government and were allegedly able to conduct business activities for their own enrichment. According to sources close to the U.S. government's investigation, Hay used his influence, as well as U.S.A.I.D.-financed resources, to help his girlfriend, Elizabeth Hebert, set up a mutual fund, Pallada Asset Management, in Russia ... After Pallada was set up, Hebert, Hay, Shleifer and Vasiliev looked for ways to continue their activities as aid funds dwindled. Using I.L.B.E. resources and funding, they established a private consulting firm with taxpayer money. One of the firm's first clients was Shleifer's wife, Nancy Zimmerman, who operated a Boston-based hedge fund that traded heavily in Russian bonds.

According to Russian registration documents, Zimmerman's company set up a Russian firm with Sergei Shishkin, the I.L.B.E. chief, as general director. Corporate documents on file in Moscow showed that the address and phone number of the company and the I.L.B.E. were the same. Then there is the First Russian Specialized Depository, which holds the records and assets of mutual fund investors. This institution, funded by a World Bank loan, also worked to the benefit of Hay, Vasiliev, Hebert and another associate, Julia Zagachin. According to sources close to the U.S. government's investigation, Zagachin, an American married to a Russian, was selected to run the depository even though she lacked the required capital ...

Anne Williamson, a journalist who specializes in Soviet and Russian affairs, details these and other conflicts of interest between H.I.I.D.'s advisers and their supposed clients--the Russian people--in her forthcoming book, How America Built the New Russian Oligarchy. For example, in 1995, in Chubais-organized insider auctions of prime national properties, known as loans-for-shares, the Harvard Management Company (H.M.C.), which invests the university's endowment, and billionaire speculator George Soros were the only foreign entities allowed to participate. H.M.C. and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil. H.M.C. and Soros also invested in Russia's high-yielding, I.M.F.-subsidized domestic bond market.

Even more dubious, according to Williamson, was Soros's July 1997 purchase of 24 percent of Sviazinvest, the telecommunications giant, in partnership with Uneximbank's Vladimir Potanin. It was later learned that shortly before this purchase Soros had tided over Yeltsin's government with a backdoor loan of hundreds of millions of dollars while the government was awaiting proceeds of a Eurobond issue; the loan now appears to have been used by Uneximbank to purchase Norilsk Nickel in August 1997. According to Williamson, the U.S. assistance program in Russia was rife with such conflicts of interest involving H.I.I.D. advisers and their U.S.A.I.D.-funded Chubais allies, H.M.C. managers, favored Russian bankers, Soros and insider expatriates working in Russia's nascent markets ...

Despite exposure of this corruption in the Russian media (and, far more hesitantly, in the U.S. media), the H.I.I.D.-Chubais clique remained until recently the major instrument of U.S. economic aid policy to Russia. It even used the high-level Gore-Chernomyrdin Commission, which helped orchestrate the cooperation of U.S.-Russian oil deals and the Mir space station. The commission's now-defunct Capital Markets Forum was chaired on the Russian side by Chubais and Vasiliev, and on the U.S. side by S.E.C. chairman Arthur Levitt Jr. and Treasury Secretary Robert Rubin.

Andrei Shleifer was named special coordinator to all four of the Capital Markets Forum's working subgroups. Hebert, Hay's girlfriend, served on two of the subgroups, as did the C.E.O.s of Salomon Brothers, Merrill Lynch and other powerful Wall Street investment houses. When The Nation contacted the S.E.C. for information about Capital Markets, we were told to call Shleifer for comment. Shleifer, who is under investigation by U.S.A.I.D.'s inspector general for misuse of funds, declined to be interviewed for this article. A U.S. Treasury spokesman said Shleifer and Hebert were appointed to Capital Markets by the Chubais group--specifically, according to other sources, by Dmitry Vasiliev."

Several problems with Harvard academic advisors behavior during Russian privatization program were outlined by Adil Rustomjee (Yale University) in the letter to Johnson’s Russia List :

From: Arustomjee@aol.com (Adil Rustomjee)

Date: Thu, 6 Aug 1998 13:18:14 EDT

Subject: Role of foreign advisers in the Russian Privatization Program.

From: Adil Rustomjee, Yale University, 135 Prospect Street, New Haven, CT 06511

Email: adil.rustomjee@yale.edu

Dear David,

Many thanks for your superb news service. Johnson's Russia List is fast becoming an excellent resource for those who work, who have worked on, or who just share a fascination with that disturbing country. I am writing this letter to humbly suggest a research topic that should be of great interest to JRLs readers. It is a subject that deserves better treatment than that received to date. The topic itself is the exact role of foreign advisers in the Russian Privatization Program.

It is a marvelous tale waiting to be plainly told. The Russian Privatization Program, despite its subsequent vilification, ranks as one of the great experiments at social engineering in the twentieth century. It attempted an authoritative allocation of property rights - and consequently of power - within society on a scale never attempted before. It is therefore a very significant historical process, more significant in the long reach of events than even Stalin's collectivization campaigns of the 1930s. It deserves its own Robert Conquest.

The process itself went through two distinct phases - the voucher phase, and what for want of a better word, we call the "loans for shares" phase. It is the "loans for shares" phase of the program that has attracted the most attention, primarily because of its spectacular abuse by Russia's oligarchs. The real story is in the first voucher stage of the process and the dubious principles it was based on.

The entire voucher program was a product of foreign economic advice. Consider the basic timeline. The Soviet Union itself was dissolved in December 1991. In June 1992, the crucial document governing the voucher privatization effort came out - the State Privatization Program. This seminal document outlined the basic concepts behind the voucher phase of the program. It also rationalized what became a state sponsored giveaway of Russia's national patrimony to the country's managers. The implementation of the State Privatization Program document took a little over two years. By June 1994, Anatoly Chubias , Russia's privatization chief, was announcing the end of the voucher program. In a scant two years, Russia had gone from a communist country with no private sector, to a country with a private sector - that on paper at least - was larger than Italy's !!! Such progress could never have been possible without substantial foreign economic advice. It is a commonplace that privatization is essentially a "learning by doing" process.

Russia could never have gone through a learning curve in such a short time span. Its reformers basically rubberstamped a scheme conceived by Western economists in the crucial 6 month period between December 1991 and June 1992.

Yet despite this, the precise story of the economists behind the entire effort has not been told. Good attempts have been made by Janine Wedel and Anne Williamson - and I will discuss them later - but from a technical standpoint, the story has yet to be told well.

Who were these advisors and what did they achieve? Three groups of actors may be identified - academic economists, bureaucrats from the World Bank, and Western consulting firms. A close examination of the interaction between these three groups itself will offer interesting insights into the birth and dissemination of ideas. For the major ideas behind the Russian program came from a group of academics - many associated with Harvard. These ideas were picked up in the early years and became established "transition economics" orthodoxy at the World Bank. The substantial implementation of the basic ideas was carried out by consulting firms like the Big Six working (often) on USAID contracts.

This is as it should be. Academia is usually the source of the most original thinking on economics. International bureaucrats - particularly those associated with the World Bank - are surprisingly timid and cautious people. They are institutionally incapable of boldness - and great audacity was called for in the Russia of 1992.

Was this boldness misplaced? I believe it was. A rational examination of the process will, I suspect, lead to a damning indictment of Russia's foreign advisors. They created desolation and called it reform. The defining feature of the program was based on remarkably dubious ideas. Foremost among these was the belief that privatization was a series of payoffs - or bribes, as one of its leading advocates, Harvard's Andrei Shleifer, called it - to various " stakeholders" in the program. Given an uncertain legal environment and some

appropriation of state assets by these stakeholders, - euphemistically referred to as "spontaneous privatization" - , better to legalize what was believed to be a trough feeding frenzy. This was the program's dominant idea.

There is little empirical evidence from the early years about the exact extent of " spontaneous privatization". Anecdotal evidence abounds, especially from many near - hysterical accounts of the early 90s but the actual empirical evidence is slender. The decisions to sell a great nation's patrimony - a one shot historical phenomenon with irreversible long range implications - were basically conceived within a six month time frame by a bunch of frightened foreigners, using dubious assumptions, with little basis in empirical understanding. Astonishing.

The actual privatization was accomplished through basically giving away large segments of Russian assets - and consequently cash flows - to these stakeholders. The most notable insider stakeholders - the managers - ended up the biggest winners. They ended up owning most of Russian industry. This august group, more often than not, makes the Marx Brothers seem like models of German efficiency. For a variety of reasons, insider-owned firms are very inefficient, and indeed a long list of papers from the Bank - Fund complex testifies to this. Consequently, Russia is today reaping the whirlwind of its privatization policy. The long delayed supply-side response of the economy, that is supposed to be led by these insider-owned firms, simply refuses to happen.

To round out this stupidity ( and to make it theoretically neater), the advisors had to deal with the problem of insider ownership. They dealt with it in time honored economist fashion - they assumed it away. This was done by trotting out that most venerable of economic propositions - something called the Coase Theorem. In a series of seminal papers written at Chicago in the thirties, Ronald Coase reached a blindingly obvious conclusion on property rights. He proved that the initial allocation - or misallocation - of property rights would not matter as long as those rights could be traded till they found their highest valued end use. In other words, the advisors told the Russians, "Sure, we're making second-best or third-best policy choices on privatization , but hey guys, it doesn't matter. Through the magic of Coase, even if we misallocated the rights, they'll trade up to their highest valued end user, and we'll all live happily ever after ". Consequently, nothing mattered except getting the assets away from the government (depoliticization) and into the "private sector", thereby allowing

the Coase Theorem to work its magic.

The Russians believed this nonsense. The problems with using Coase as a rationale were commonsensical : too much monopoly power in the Russian economy and the fact that Coase himself never had anything remotely resembling Russia in mind, when he formulated the theorem. More crucially, capital markets which would be needed to trade property rights to their highest valued end use, were nonexistent or nascent, and continue to be so. One marvels at the Russians' own capacity for advice of this nature. My comfort is philosophical : It has often been said of the Russians, that they exhibit in extreme form, certain universal characteristics of the human condition.

Perhaps this tendency to extremes applies to their propensity for social engineering too.

In response to critiques of their advice, the foreign advisors resort to a "burden of proof " defense. In other words, they say, " What a pity it's a mess and had to be this way, but you'll have to prove it could have been otherwise". It is this "proving otherwise" that is a key issue. " Proving otherwise" would require a person with substantial economic expertise. Unfortunately most of the critiques of the advisors in Russia have come from people outside the economics community, which on Russia is quite tight knit.

Janine Wedel and Anne Williamson have made good first attempts . But given the enormity of the catastrophe in Russia that the advice has wrought, the definitive account will have to be from a person with some economic stature.

Who were these people anyway ? They include, Wedel and Williamson point out, Andrei Shleifer a Harvard economics professor, Jonathan Hay a freshly minted Harvard Law graduate, and Makim Boycko who was their man in Moscow. Shleifer, a Russian emigrant who remains a tenured professor at Harvard, must have possessed the great advantage of speaking native Russian. In December 1991, Shleifer on a World Bank consultancy authored a paper titled Privatization in Russia - First Steps. It is, I believe, the first systematic attempt at outlining the program's defining feature - privatization as a series of payoffs (or bribes as he called it) to key stakeholders in the process.

Later explications of the basic idea may be found in articles he co-authored with Robert Vishny on the process. Both the unpublished document and later articles remarkably parallel the basic philosophy of the State Privatization Program of June 1992.

A sense of moral outrage over the effects of their policies - while a great temptation - has to be avoided at all costs. This is especially difficult when one considers that the principal protagonists - Andrei Shleifer and Jonathan Hay - are under investigation for alleged insider trading and conflicts of interest in Russia. [ GAO and USAID having found that they "abused the trust of the US government " etc ]. The temptation might therefore be to focus on that entire shabby episode as Wedel and Williamson have done ( in part, but only in part). There is no need for this. The charges are unproven. Besides the amounts Shleifer and Hay are accused of improperly dealing in, are a pittance, compared to the wholesale thievery their ideas sanctioned. The real story is in the voucher scheme they designed and implemented. Told coldly, rationally, and solely concerned with the truth, it will still be a great story. Behind the story after all, loom the long shadows of the millions of Russians whose lives were effected by these disastrous policies. They deserve the truth.

Will the story be told with integrity. I am afraid not. There are too many reputations and too much credibility at stake. The usual candidate would be someone of stature in academia. This is not really an option. The old Kremlinologists have been largely rendered irrelevant by the pace of events and are struggling to retool themselves. The younger economists who work on Russia, who have access to the data and hands-on experience, are the least likely candidates given the devastating outcomes of the policies they advocated. Self serving rationalizations with little intellectual integrity are all that can be expected from this group. Witness for example, Anders Aslunds' comic absurdity "How Russia became a Market Economy". If Russia is a market economy, then I, sir, am a monkey's uncle -- Finally it would be too much to expect the protagonists themselves - Shleifer and his collaborators - to say " We were wrong, terribly wrong". An old man named Robert McNamara looking back on his life, said that about a war that ended twenty five years back, and look at the condemnation that brought him. It would be too much to expect Shleifer and the others - all reportedly in their late thirties and early forties - to make such an admission.

The World Bank is another candidate, but they will distort the tale. The Bank's division that does such studies - the Operations Evaluation Department - will use the standard bureaucratic boiler plate it excels at. Besides the Bank itself picked up the substantial ideas and policies from the Harvard group, and has its own credibility at stake. While some hand wringing can be expected, so can a less than zealous concern for the truth. Besides, even if it is honest, the drama of the story will be lost in the telling.

... ... ...

The reasons of such a behavior by Andrei Shleifer and other players "on the ground" probably run deeper. As Stefan Lemieszewski noted in his letter to Johnson's Russia List:

The failure of these IMF/World Bank/State/Treasury programs should not come as a surprise. Economists such as Michel Chossudovsky (University of Ottawa) go further and suggest that they are by design. In his book, "The Globalization of Poverty: Impacts of IMF and World Bank Reforms" Chossudovsky writes:

"The IMF-Yeltsin reforms constitute an instrument of "Thirdworldisation"; they are a carbon copy of the structural adjustment programme imposed on debtor countries in Latin America and sub-Saharan Africa. Harvard economist Jeffrey Sachs, advisor to the Russian government, had applied in Russia the same 'macro-economic surgery' as in Bolivia where he was economic advisor to the MNR government in 1985.

The IMF-World Bank programme adopted in the name of democracy constitutes a coherent programme of impoverishment of large sectors of the population.

It was designed (in theory) to 'stabilize' the economy, yet consumer prices in 1992 increased by more than one hundred times (9,900 per cent) as a direct result of the "anti-inflationary programme". As in Third World 'stabilization programme', the inflationary process was largely engineered through the 'dollarization' of domestic prices and the collapse of the national currency. The 'price liberalization programme' did not, however, resolve (as proposed by the IMF) the distorted structure of relative prices which existed under the Soviet system."

In Ukraine and some other republics the magnitude of collapse was even greater and all middle class was essentially wiped out. Many emigrated. Also a lot of assets were simply stolen by western companies for cents on the dollar (disaster capitalism in action; some of most blatant cases were reversed under Putin, but not much). Bush II administration was busy with reelections and Clinton administration never viewed Russia as a partner only as a body on the ground to kick with a boot with impunity. As President Richard Nixon pointed out a major aid package could stop the economic free fall and help anchor Russia in the West for years to come.

In this respect the Clinton administration’s greatest failure was its decision to take advantage of Russia’s weakness. And the fact that they used puppets like Jeffrey Sachs to take advantage of the Russia situation produced a long term damage to the US strategic interests in the region. Here is a relevant quote from Foreign Affairs article “Losing Russia”:

BEHIND THE facade of friendship, Clinton administration officials expected the Kremlin to accept the United States’ definition of Russia’s national interests. They believed that Moscow’s preferences could be safely ignored if they did not align with Washington’s goals. Russia had a ruined economy and a collapsing military, and it acted like a defeated country in many ways. Unlike other European colonial empires that had withdrawn from former possessions, Moscow made no effort to negotiate for the protection of its economic and security interests in Eastern Europe or the former Soviet states on its way out. Inside Russia, meanwhile, Yeltsin’s radical reformers often welcomed IMF and U.S. pressure as justification for the harsh and hugely unpopular monetary policies they had advocated on their own.

Soon, however, even Russian Foreign Minister Andrei Kozyrev–known in Russia as Mr. Yes for accommodating the West–became frustrated with the Clinton administration’s tough love. As he told Talbott, who served as ambassador at large to the newly independent states from 1993 to 1994, “It’s bad enough having you people tell us what you’re going to do whether we like it or not. Don’t add insult to injury by also telling us that it’s in our interests to obey your orders.”

But such pleas fell on deaf ears in Washington, where this arrogant approach was becoming increasingly popular. Talbott and his aides referred to it as the spinach treatment: a paternalistic Uncle Sam fed Russian leaders policies that Washington deemed healthy, no matter how unappetizing these policies seemed in Moscow.

As Talbott adviser Victoria Nuland put it, “The more you tell them it’s good for them, the more they gag.” By sending the message that Russia should not have an independent foreign policy — or even an independent domestic one — the Clinton administration generated much resentment. This neocolonial approach went hand in hand with IMF recommendations that most economists now agree were ill suited to Russia and so painful for the population that they could never have been implemented democratically. However, Yeltsin’s radical reformers were only too happy to impose them without popular consent.

Here is the Shleifer part of the story although it is important to realize that he was just a puppet, low level criminal (No. 6 card or "shesterka" : lowest member of a gang in Russian slang) in the biggest looting of the century, looting that exceeds performed by Hitler armies in 40th. (Harry R. Lewis Larry Summers, Robert Rubin Will The Harvard Shadow Elite Bankrupt The University And The Country):

In 1992, Andrei Shleifer, a Harvard professor and a close friend of Summers since Shleifer's college days at Harvard, became head of a Harvard project that directed U.S. government money for the development of the Russian economy. Tens of millions of dollars in noncompetitive U.S. contracts flowed to Harvard for Shleifer's Russian work, and his team directed the distribution of hundreds of millions more. Through the mid-1990s, complaints accumulated in Washington about self-dealing and improper investing by the Harvard team, and by mid-1997, the Harvard contracts had been canceled and the FBI had taken up the case. For two years it was before a federal grand jury.

In September, 2000, the government sued Harvard, Shleifer, and others, claiming that Shleifer was lining his own pockets and those of his wife, hedge fund manager Nancy Zimmerman -- formerly a vice president at Goldman Sachs under Rubin.

Soon after, when Summers became a candidate for the Harvard presidency, Shleifer lobbied hard for him in Cambridge. Rubin assured the Fellows that the abrasiveness Summers had exhibited at Treasury was a thing of the past. They named him president--in spite of what was already known about his enabling role in the malodorous Russian affair, and the implausibility of a personality metamorphosis.

Summers did not recluse himself from the lawsuit until more than three months after his selection as president, and even then used his influence to protect Shleifer. The Fellows--including Rubin, whom Summers added to the Corporation--fought the case for years, spending upwards of $10M on lawyers. But in 2005 a federal judge found Shleifer to have conspired to defraud the government and held Harvard liable as well. To settle the civil claims, Shleifer paid the government $2M and Harvard paid $26.5M; Zimmerman's company had already paid $1.5M. Shleifer denied all wrongdoing, and Harvard disclosed nothing about any response of its own--a departure from its handling of misconduct by faculty farther from the center of power.

Summers remained close to Shleifer, yet claimed in a February 2006 faculty meeting to know too little about the scandal to have formed an opinion about it. This prevarication brought a gasp from the assembled faculty and solidified faculty opposition to the Summers presidency.

Rubin is now gone from his leadership role and his board membership at Citigroup, hauling away $126M from a firm that was $65B poorer than when he joined it, with 75,000 fewer jobs. But he remains on the Harvard board, in spite of the financial meltdowns at both Citigroup and Harvard and his poor oversight of the problematic president he persuaded Harvard to hire.

The Rubin network remains alive and well in the White House, including not just Summers but several other Rubin protégés. Among the strangest of these power loops is that the well-connected Nancy Zimmerman has turned up as a member of Summers's economic policy brain trust.

It's pretty funny that in 1993 Andrei Shleifer co-authored a paper about corruption":

Abstract

This paper presents two propositions about corruption. First, the structure of government institutions and of the political process are very important determinants of the level of corruption. In particular, weak governments that do not control their agencies experience very high corruption levels. Second, the illegality of corruption and the need for secrecy make it much more distortionary and costly than its sister activity, taxation. These results may explain why, in some less developed countries, corruption is so high and so costly to development.

Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Compare this paper with the assessment of his own behavior in the article "On Post-Modern Corruption"(Economic Principals):

It is against this background that a seemingly unrelated matter, the Andrei Shleifer case, should be considered. Readers are all too familiar with the details of how a 31-year-old Russian expatriate, swiftly risen to eminence as a Harvard University economics professor, was put in charge in 1992 of a huge US government-financed, Harvard-administered mission to advise the Russian government of Boris Yeltsin on how to establish a market economy of their own -- until he was discovered in 1996 to be lining his own pockets, and those of his wife, his deputy and the deputy's girlfriend. At that point the mission collapsed.

Four years later, the US Attorney in Boston sued. Four years after that, Shleifer was found to have committed fraud and Harvard University to have breached its contract. Each was ordered to repay the government.

Perhaps the Shleifer story is no big deal, and not the symbol of post-modern corruption having spread to universities that I think it is. Yet there are similarities to the Congressional situation, I believe. The case against Shleifer case was a civil complaint, not a criminal charge. Cunningham was elected, Shleifer was hired. Each helped himself to some good old-fashioned graft, and each was found by a court to have done (in the words of the San Diego prosecutor) "the worst thing an Éofficial can do -- he enriched himself through his position and violated the trust of those who put him there."

And just as the tactics of the House leadership are more alarming than the conduct of the lowly Cunningham, so the determination of Harvard's administrators to defend Shleifer for nine long years is more astounding than what Shleifer actually did. He was young and inexperienced. They had all the advice and time in the world. His culpability has been established. Theirs has barely been addressed.

Here is some information about the events form Wikipedia article Andrei Shleifer:

Controversy

Under the False Claims Act, the US government sued Harvard, Shleifer, Shleifer's wife, Shleifer's assistant Jonathan Hay, and Hay's girlfriend (now his wife) Elizabeth Hebert, because these individuals bought Russian stocks and GKOs while they were working on the country's privatization, which potentially contravened Harvard's contract with USAID. In 2001, a federal judge dismissed all charges against Zimmerman and Hebert.[4] In June 2004, a federal judge ruled that Harvard had violated the contract but was not liable for treble damages, but that Shleifer and Hay might be held liable for treble damages (up to $105 million) if found guilty by a jury [2].

In June 2005, Harvard and Shleifer announced that they had reached a tentative settlement with the US government. On August 3 of the same year, Harvard University, Shleifer and the Justice department reached an agreement under which the university paid $26.5 million to settle the five-year-old lawsuit. Shleifer was also responsible for paying $2 million dollars worth of damages, though he did not admit any wrong doing. A firm owned by his wife previously had paid $1.5 million in an out of court settlement.

Because Harvard University paid most of the damages and allowed Shleifer to retain his faculty position, the settlement provoked allegations of favoritism on the part of Harvard's outgoing president Lawrence Summers, who is Shleifer's close friend and mentor. Shleifer's conduct was reviewed by Harvard's internal ethics committee. In October 2006, at the close of that review, Shleifer released a statement making it clear that he remains on Harvard's faculty. However, according to the Boston Globe, he has been stripped of his honorary title of Whipple V. N. Jones Professor of Economics[3].

Shleifer's involvement in Russia was investigated by David McClintick, a Harvard alumnus and journalist for Institutional Investor Magazine. His 30-page January 2006 article claims to show that "economics professor Andrei Shleifer, in the mid-1990s, led a Harvard advisory program in Russia that collapsed in disgrace." The article drew considerable criticism among Shleifer's colleagues, collaborators, close friends, and students. According to the Harvard Crimson[4], the university's daily newspaper, Shleifer's colleague and economics professor Edward Glaeser said that the Institutional Investor article "is a potent piece of hate creation—not quite 'The Protocols of the Elders of Zion,' but it's in that camp." But Glaeser later apologized for his statement[5].

Larry Summers was not only defender but also the handler of Andrei Shleifer

Prominent role of Larry Summers in Andrei Shleifer affair shed very negative light on this very controversial figure. Positioning him as a key figured in Clinton administration intended to destroy the xUSSR republic economies, especially economics of Russia. And that role perfectly alight with his general political role in Clinton administration and after that. The role of enforcer of neoliberal social order. Role of Larry Summers in adopting "shock therapy" and Yeltsin privatization of state assets still needs to be investigated. But it is perfectly consistent with his track record. Among key "mis-achievements" of Bubble Boy Larry:

A prominent role in repealing of Glass-Steagall

The bill that ultimately repealed the Act was introduced in the Senate by Phil Gramm (Republican of Texas) and in the House of Representatives by Iowa) in 1999. The bills were passed by Republican majorities on party lines by a 54-44 vote in the Senate[12] and by a 343-86 vote in the House of Representatives[13]. After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90-8 (1 not voting) and in the House: 362-57 (15 not voting). [These margins of passage, if repeated, would have been well over the two-thirds needed to overcome any veto, had the President returned the bill to Congress without his signature.] The legislation was signed into law by President Bill Clinton on November 12, 1999. [14]

The banking industry had been seeking the repeal of Glass-Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the case for preserving Glass-Steagall and the case against preserving the act.[7]

A prominent role in killing attempt of derivatives regulation by Brooksley Born. Summers "led the opposition" against Brooksley Born, a Clinton appointee became the head of the CFTC in 1996 and refused to accept the industry's stance. "In late 1997 and early 1998, she said the emperor has no clothes," says Greenberger. "She said that derivatives are futures contracts and that the CFTC had jurisdiction." In the 2003 interview, Ms. Born reveals that it was Wendy Gramm who single handedly made OTC derivatives possible by adopting a regulatory exemption as "virtually the last act as CFTC chair." This article from Stanford Magazine details the dirty tricks used by Three Marketers (Summers, Rubin and Greenspan) in blocking her regulatory efforts of the derivatives market whatsoever on a very simple ground that the financial industry and its lobbyists were objecting:

As chairperson of the CFTC, Born advocated reining in the huge and growing market for financial derivatives. . . . One type of derivative—known as a credit-default swap—has been a key contributor to the economy’s recent unraveling. . .

Back in the 1990s, however, Born’s proposal stirred an almost visceral response from other regulators in the Clinton administration, as well as members of Congress and lobbyists. . . . But even the modest proposal got a vituperative response. The dozen or so large banks that wrote most of the OTC derivative contracts saw the move as a threat to a major profit center. Greenspan and his deregulation-minded brain trust saw no need to upset the status quo. The sheer act of contemplating regulation, they maintained, would cause widespread chaos in markets around the world.

Born recalls taking a phone call from Lawrence Summers, then Rubin’s top deputy at the Treasury Department, complaining about the proposal, and mentioning that he was taking heat from industry lobbyists. . . . The debate came to a head April 21, 1998. In a Treasury Department meeting of a presidential working group that included Born and the other top regulators, Greenspan and Rubin took turns attempting to change her mind. Rubin took the lead, she recalls.

“I was told by the secretary of the treasury that the CFTC had no jurisdiction, and for that reason and that reason alone, we should not go forward,” Born says. . . . “It seemed totally inexplicable to me,” Born says of the seeming disinterest her counterparts showed in how the markets were operating. “It was as though the other financial regulators were saying, ‘We don’t want to know.’”

She formally launched the proposal on May 7, and within hours, Greenspan, Rubin and Levitt issued a joint statement condemning Born and the CFTC, expressing “grave concern about this action and its possible consequences.” They announced a plan to ask for legislation to stop the CFTC in its tracks.

As Bob C noted in his comment to As Obama Taps Larry Summers, Recalling Summer's Days as a Regulation Foe Mother Jones "One thing to keep in mind about Summers and Rubin's position on regulating derivatives is the timing: in July of 1998 when Summers testified, the hedge fund Long Term Capital Management, had not yet failed. That would happen 3 months later, when it became clear that a substantial part of LTCM's problem was that it had massive side bets in derivative instruments that when it could not cover these bets, caused massive dislocations and threats to the global banking system (which had invested heavily in LTCM, thinking it was run by "geniuses"--see Roger Lowenstein's great book, "When Genius Failed".) I think Summers and Rubin might have had a different view on the regulation of derivatives after the LTCM catastrophe."

Serving as a lobbyist of hedge funds with "former government official" statute.

The NY Times claimed that Summers was doing consulting work for Taconic Capital while president of Harvard which does seems problematic

He continued cashing in his former government official status in DE Shaw.

"Money for Influence" The Washington Post, April 4, 2009:

Lawrence H. Summers, one of President Obama's top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. . . . Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form.

Attempt to shield from prosecution his friend from Harvard Mafia, professor Andrei Shleifer

Summers also flopped on Enron. As Alex Gibney has recently noted elsewhere he was a "Technocrat surfer boy, thrilled with freedom, getting a good ride."

Pushing for capital gains tax cuts during is stint in the Clinton administration...

Using his political influence for revenge:

The Most Misunderstood Man in America, by Michael Hirsh, Newsweek:

...Even in the contentious world of economics, [Joe Stiglitz] is considered somewhat prickly. And while he may be a Nobel laureate, in Washington he's seen as just another economic critic—and not always a welcome one. Few Americans recognize his name... Yet Stiglitz's work is cited by more economists than anyone else's in the world... And when he goes abroad—to Europe, Asia, and Latin America—he is received like a superstar, a modern-day oracle. ...

... ... ...

... Stiglitz's defenders say one possible explanation for his outsider status in Washington is his ongoing rivalry with Summers. ... Since the early '90s, when Summers was a senior Treasury official and Stiglitz was on the Council of Economic Advisers, the two have engaged in fierce policy debates. The first fight was over the Clinton administration's efforts to pry open emerging financial markets, such as South Korea's. Stiglitz argued there wasn't good evidence that liberalizing poorly regulated Third World markets would make any one more prosperous; Summers wanted them open to U.S. firms.

The differences between them grew bitter in the late 1990s, when Stiglitz was chief economist for the World Bank and took issue with the way Treasury Secretary Robert Rubin, and Summers, who was then deputy secretary, were handling the Asian "contagion" financial collapse. After World Bank president James Wolfensohn declined to reappoint him in 1999, Stiglitz became convinced that Summers was behind the slight. Summers denies this...

Opium for the masses: Neoclassical economics role under neoliberalism as equivalent of the role of Catholic Church under feudalism

Some use the term “neo-feudalism” to characterize operation of the USA and "friends" in xUSSR space but they are essentially neocolonialism. When open brutal used of military force for conquering nations was substitutes by financial instruments. But neoliberalism definitely use neo-feudal methods, and that includes usage of neoclassic economics in the USA. Here I mean use of neoclassic economic as a new religion that justify and "bless" neoliberal social order. Essentially the same role that Catholic church played for classic feudalism. It serves as "An opium for the masses", if we use slightly overdone Marx quote ;-)

While related to economic rape of Russia, Shleifer's story has a wider meaning as an apt symbol of "post-modern" corruption at universities and especially in Harvard where students were actively indoctrinated in pseudoscientific theories which constitute a theoretical framework of casino capitalism serving simultaneously as the role of ideology which is not that far from the role of Marxism in the USSR. Here is Anna Willamson view (The Rape of Russia, Testimony of Anne Williamson Before the House Banking Committee)

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity - not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people - their abilities, efforts and dreams - which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet - on the Russian people - and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

Russia is a fabled land, home to a unique and provocative thousand year-old culture, and a country rich in the resources the world needs whose people had the courage and resilience to defeat this century’s greatest war machine, Hitler’s invading Wehrmacht. Yet, thanks to Boris Yeltsin’s thirst for power and megalomaniacal inadequacy, Russia has become the latest victim of American expediency and of a culturally hollow and economically predatory globalism. Consequently, Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed.

The worst of it was that some pretty good ideas - private property, sound money, minimal government, the inviolability of contract and public accountability - that have delivered to the West’s citizenry the most prosperity and the most liberty in world history, and might have done the same for the Russians, were twisted into perverse constructions and only then exported via a Harvard-connected cabal of Clinton administration appointees who funded - without competition - their allies at Harvard University courtesy the public purse. Joining the US-directed effort were the usual legions of overpaid IMF/World Bank advisers whose lending terror continues to encircle the globe.

As reader with nickname DownSouth commented on Naked Capitalism blog (Obama Administration “Nothing to See Here” on Foreclosure Crisis « naked capitalism), historically one of the most powerful forces that supported feudalism in Europe were Catholic and Orthodox churches: the feudal order was upheld by the Church’s priestly class allied with European royalty.

In the modern USA something similar can be said about the relations of the neoclassical economists and bankers. It wasn’t meant to be this way, either with the priests of old or the priests of new. As Robert H. Nelson points out in Economics as Religion,

…Samuelson followed the Roman Catholic model. The members of the economics profession, and other scientific and professional elites, would be motivated by the higher considerations of a priesthood, as compared with businesspeople and other ordinary citizens in the commercial realm. There would be no popular votes held for the scientific leaders of society. Samuelson acknowledged the practical necessity to allow wide rein for the pursuit of self-interest in the marketplace. However, the professional economists and other scientific managers of the progressive state would function according to the ethical standard of the Roman Catholic priesthood. They would reject the commercial motive of self-interest and instead act in their professional and public capacity to serve the common good—-“the public interest”—-of all of society.

In Darwin’s Cathedral David Sloan Wilson made the observation that all major churches seem to have a “life cycle.”

Religious denominations range from huge established churches that encompass most of the population to tiny sects that reject the larger churches as corrupt and regard themselves as keepers of the original faith. The huge established churches begin as sects, grow into churches, give rise to offspring sects, and then mysteriously fall into senility, to be replaced by their own offspring sects. I would just add that it seems like theology follows function in this life cycle.

For instance, as Wilson points out, the early Christian church, while it was still a small sect, had “a policy of extreme altruism and forgiveness toward the downtrodden” and “a policy of unyielding opposition” toward the main Jewish religious institutions, which it perceived to be in league with the Roman Empire. As the Christian church matured and became the established church, however, it became part and parcel of the power structure, championing it and defending it against the downtrodden. What began as a small sect with a theology based upon knowledge and moral authority morphed into a church whose theology was all about defending wealth and power.

Eventually a new sect rose to challenge this priestly class. As Nelson explains:

Indeed, it was this strong distinction between ordinary people and the church priesthood that, among a number of other tenets of Catholic doctrine, incurred the wrath of Martin Luther. Luther saw the Roman Catholic Church as selling ordinary people short and thus declared a new Protestant “priesthood of all believers.” The ministry of the Protestant churches would stand on an equal plane with the faithful—-both, for example, would marry. The leadership of Protestant parishes would be elected by the ordinary members of the church, while the Roman Catholic Church would continue to select its own leaders in a hierarchal fashion, as when the pope designates the cardinals of the church.

What Luther had to say about the priestly class of the Medieval Catholic Church rings true about modern-day high priests of "casino capitalism", the neoclassical economists of "Harvard Mafia". As Luther wrote the Pope in letter in 1520:

But they See, which is called the Roman Curia, and of which neither thou nor any man can deny that is more corrupt than any Babylon or Sodom ever was, and which is, as far as I can see, characterized by a totally depraved, hopeless, and notorious wickedness—-that See I have truly despised… The Roman Church has become the most licentious den of thieves, the most shameless of all brothels, the kingdom of sin, death, and hell… They err who ascribe to thee the right of interpreting the Scripture, for under cover of thy name they seek to set up their own wickedness in the Church, and, alas, through them Satan has already made much headway under thy predecessors. In short, believe none who exalt thee, believe those who humble thee.

MI6 role in economic rape of Russia, Ukraine and other post Soviet republics

Now there is an indirect evidence of participation of of British intelligence agencies such as MI6 in Russia privatization scam. And the point man for such investigation is William Brower, who recently got nine years of jail (in absentia) from Russian court.

William Browder controversy which emerged after Putin mentioned him during  Trump-Putin summit in Helsinky in July 2017 shed some light on MI6 role in economic rape of Russia and other post Soviet republics.  Especially interesting is the following video EXCLUSIVE Russian TV Bill Browder is CIA agent, recruited Navalny. Browder furious! Navalny sues! - YouTube

Browder was one of financial sharks (or as one Amazon reviewer of his book called him "financial crack cocaine seller" -- the term applicable to the whole Harvard mafia) who somehow was extracted for Solonon brothers and went to Russia. He voluntarily put himself in substantial danger getting into environment which he completely did not understand and with very little many from a dubious source. Which might be explainable if he  was assigned a specific task by MI6. After all according to some  sources Bill Browder’ grandma, Raissa Berkman, was an agent for the KGB ( http://spartacus-educational.com/USAbrowder.htm ).

The Vortex, July 27, 2018 at 8:32 am GMT • 100 Words

Dear Mister/Miss Robin G.,

...The following is a PASTE from an electronic mail message REPLY to me from a friend in the know whom I can’t reveal all of his name but just John, which I believe you shall find interesting:

Browder could be CIA or Mossad or NSA or Naval Intel or something we don’t even know or a combination of all of the above. Or, just a no-good slimy person.

Plus, Fletcher Prouty said that many times people are working for intelligence and don’t even know it. Entire military units are under CIA command and don’t know it.

Another Amazon reviewer of his book described one of the criminal scheme Brower used (he used several)

A Self-Congratulatory Book with a Mission

By Patricia5115 on March 22, 2015

Format: Hardcover

The book was fun to read, like a Marvel comic book. Truly Bill Browder is, according to Bill Browder, a brilliant man willing to take daring risks where he sees an opportunity for personal gain. And I have to agree with him. With his inherited genetic intelligence, and some of the best education money can buy, he made himself enormously rich profiting from financial transactions that produced nothing of real value. I found this book to be quite self-congratulatory, written with no embarrassment for taking advantage of a whole population.

As Browder writes, “I found that to transition from communism to capitalism, the Russian government had decided to give away most of the state’s property to the people. The government was going about this in a number of ways, but the most interesting was something called voucher privatization. The government granted one privatization certificate to every Russian citizen---roughly 150 million people in total—and taken together these were exchangeable for 30 % of nearly all Russian companies.“ “The market price of the vouchers equaled 3 billion…this meant that the valuation of the entire Russian economy was only 10 billion! That was one-sixth the value of Wal-Mart!” “Russia had 24% of the word’s natural gas, 9% of the world’s oil, and produced 6.6 % of the world’s steel, among many other things. Yet this incredible trove of resources [owned by ordinary Russian citizens] was trading for a mere 10 billion! Even more astonishing was that there were no restrictions on who could purchase these vouchers. I could buy them, anyone could buy them.” He recounts, “The Russian people had no idea what to do with the vouchers when they received them for free from the state and, in most cases, were happy to trade them for a $7 bottle of vodka or a few slabs of pork.” Mr. Browder took advantage of their ignorance and brought millions of vouchers from the Russian people for a pittance of their true value. This is something to brag about? It is not laudable to buy something for a pittance of its real worth, from owners who have no idea of its true value. It is reprehensible. It was disturbing to me to see no introspection on the rightness or wrongness of beating someone out of his or her money.

Mr. Browder describes in his Sidanco deal the feeling he has when an opportunity for ungodly gains presents itself, “I had that tingling, greedy tension in my gut, similar to when I saw my $2,000 Polish investment multiply by nearly ten times, or when I unearthed the Russian voucher scheme.”

Greed is not a virtue, Mr. Browder. It is a vice.

Reviewer Ian Kaplan wrote:

The second half of the book is about how Putin's gang tried to crush Hermitage Capital and everyone associated with it.”

And, I would add, how Browder’s gang is trying to crush Putin. It makes me think that a large part of Mr. Browder’s dogged determination in pushing the Maginsky Act through Congress, and signed into law, was not so much a humanitarian turn of the leaf for him, but a strategy to enlist the whole backing of the United States into his personal war with Putin, who put him out of a lucrative business in Russia.

And there there is Necrasov's documentary which Brower successfully blocked from distribution in EU and the USA. Could he done so without the support of intelligence services?

Skeptikal says:

July 23, 2018 at 11:21 am GMT • 200 Words

@Peasant

'No freedom of speech for his enemies!'

Quelle suprise

'His hacks re-wrote his Wikipedia entry'

That's dedication

'More to a point, Browder is the man who contributed most to the new cold war between the West and Russia'

Yes you really do read it correct we are going to war so some tax dodging Jew s*yst*r can recover his ill gotten gains

'Browder, a grandson of the US Communist leader'

You just couldn't make it up could you? If it was in a Tom Wolfe novel it would be deemed over the top

'came to Russia at its weakest point after the Soviet collapse, and grabbed an enormous fortune by opaque financial transactions'

Him and countless others of his kind

'As you’d expect, huge tax evasion was discovered. Browder thought that as long as he sucked up to Putin, he’d get away with bloody murder, let alone tax evasion'

Along came a Pharaoh who knew not Joseph...

'Foreigners had to pay much more. Browder bought many such shares via Russian frontmen, and he was close to getting control over Russian oil and gas. Putin suspected that he had acted in the interests of big foreign oil companies, trying to repeat the feat of Mr Khodorkovsky'

Who's shares in Yukos reverted to Jacob Rothschild FYI

'His second mistake was being too greedy. Russian taxation is very low; but Browder did not want to pay even this low tax'

No comment

'Mr Browder does not deny these accusations; he says there is nothing criminal in trying to avoid taxes'

Well that's alright then

'For this reason alone, Browder can be counted as a part of the power which eternally wills evil and eternally works good'

And for other ethnic reasons of course.

'Nobody listened to them, until they demanded that Browder testify under oath. He refused.'

Mala fides anyone?

'The New Republic wondered: if Browder was indeed the victim of persecution in Russia and had enlisted the U.S. justice system to right the balance, why was he so reluctant to offer his sworn testimony in an American courtroom?'

You know when you are a Jewish financial criminal and even The New Republic is against you you may have gone too far...

'It turned out Browder tried to bribe the journalist who made the interview to have these words expunged'

Well I never. But Jews never conspire to tell everyone what to think...that's just crazy tawk

'This is probably a uniquely Jewish quality: Jews outspend everybody in contributions to political figures'

Yup

'Much bigger sums were transferred via good services of Brothers Ziff, mega-rich Jewish American businessmen'

Didn't I see this on an episode of the Simpsons?

'Almost all involved figures appear to be Jewish, not only Browder'

Stereotype threat

'Even his enemy, the beneficiary of the scam that (according to Browder) took over his Russian assets is another Jewish businessman Dennis Katsiv'

You just couldn't make it up could you? 'Maxwell stole a few million dollars from his company pension fund before dying in mysterious circumstances on board of his yacht in the Atlantic'

He stole hundreds of millions after breaking the back of the print unions and then stealing the pensions of the workers who remained. Amongst other things he used the money to float Mossad and bankroll the victory parade after the first gulf war. His children and wife were never required to make restitution even though they received considerable inheritances.

'He was given a code name Solomon, as he worked for Salomon Brothers' Jesus wept where's Evelyn Waugh when you need him

These people are walking caricatures aren't they? We are basically beyond parody now aren't we?

Absolutely.

I re-watched that section where he threatens Nekrasov. Because, after Browder stood up, he was partly blocking the camera view and it was a bit unclear.

So, who are Browder’s enforcers? Who can ensure that Krainer’s book and Nekrasov’s film are “disappeared”? That screenings of the film are suddenly canceled?

Is there any way to approach this legally? For instance, who canceled the showing of the film in NYC? Can that be established? Was someone threatened in the same vein the Browder threatens Nekrasov? After showing, in the docudrama segments of the film, the unpleasant deaths of the three guys who (I think) were the recipients of Browder’s company’s assets, I do hope that Nekrasov is watching hiw own back.

Browder has reinvented himself as an advocate for “human rights” in Russia. So, in our upside-down world, Putin in a thug, Russia is a kleptocracy, and Browder is a “human rights advocate.” What a sick joke. the soon this guy and his story can be blown, the better.

Maybe we can “exchange” Browder for Assange. Browder gets to stay here in the West, and Assange is transferred to Russia.

Which also raised the question why Browder duped the US congress so easily. Was the US congress ready to be duped because Browder served as a pawn in a large operation "Containing Russia"?

istt says:

July 27, 2018 at 4:00 am GMT • 100 Words

Mr. Nekrasov’s documentary makes it crystal clear Browder has duped the fawning US Congress. Browder is both a liar and, more importantly, a murderer. It seems everyone who was involved with hiding his assets for him have died. How convenient for Mr. Browder in that they cannot testify against him.

Magnitsky, as it turns out, was never a “brilliant lawyer” hired to look into lost taxes paid, but instead was a long-time accountant for Browder’s Hermitage Fund. Browder has used his death as a way to exonerate him from paying taxes owed to the Russian government.

Browder should spend the rest of his life in a Russian prison, not be hailed as a human rights hero.

Would Harvard Ever Help Russia

INVESTIGATIVE DOCUMENTS - Related articles

Would Harvard Ever Help Russia?

Literaturnaya Gazeta, June 7-13, 2006.

http://janinewedel.info/harvardinvestigative_LitGazeta.html

From: Would Harvard Ever Help Russia?

By W. George Krasnow

(authorized translation from Russian)

On February 21, 2006, Dr. Lawrence Summers resigned as President of Harvard University. Facing a certain no confidence faculty vote, he was forced to. The initial reports indicated that his high-handedness in dealing with the Afro-American and women communities sealed his fate.

Now it has transpired that a cozy relationship between Summers and economics professor and Russian expert Andrei Shleifer was definitely a contributing factor. Head of the Russian Reform project of Harvard Institute of International Development (HIID) in 1992-1997, Shleifer and his associates were accused of using federal money for personal gain. In 2000, the U.S. government sued both the university and Shleifer team for fraud, breach of contracts and making false claims. Defrauded of at least $40 million, the government asked treble damages.

After a long litigation, a settlement was reached on August 3, 2005. U.S. District judge Douglas Woodlock ruled that, while being paid by USAID, Shleifer and Jonathan Hay, a graduate of Harvard Law School, whom Shleifer hired to manage Moscow office, engaged in prohibited investments and businesses in Russia. Although the defendants disputed charges, they agreed to repay the U.S. government: Shleifer $2 million; his wife, Nancy Zimmerman, $1.5 million, and Hay up to $2 million. Clearing Harvard of the charge of "knowingly defrauding the government," which would have required repayment of $120 million, the judge found the university liable only for breach of contract and ordered it to repay $26.5 million.

Never before was the venerable university so disgraced. Still, damaging as it was for the reputation and the purse of Harvard, the settlement caused no disciplinary action against Shleifer. Just as remarkably, it attracted little attention in the mass media. Was it not a sign of cover-up in high places?

David Warsh, Boston Globe financial writer, seems to think so. In his website article (See www.economicprincipals.com), Warsh notes that Summers is "Shleifer's mentor and old friend, who taught him as an undergraduate; sent him to the Massachusetts Institute of technology to train; took him to Lithuania to practice country-doctoring; brought him back from the University of Chicago to teach at Harvard; helped put him in the Russia job; oversaw, as an increasingly senior Treasury Department official, Shleifer's efforts in Moscow; and, once he returned to Harvard as president, defended his protégé." Clearly, such description shows why Summers would have preferred a silence.

McClintick's Report, Or Silence Breaks Down

However, early in the year the matter became national news. In the January 2006 issue, Institutional Investor magazine published a detailed investigative report, "How Harvard Lost Russia," by David McClintick. The author painstakingly traces shady activities of Shleifer and his team in Moscow. He also describes Shleifer's close personal relationship with Summers since early1990s when Summers was chief economist at the World Bank and later when he became Deputy to the Treasury Secretary Robert Rubin under Bill Clinton. As Summers was the chief architect of U.S. efforts to "help" Russia, he stayed in close contact with Shleifer.

But who is Andrei Shleifer? Andrei emigrated from the USSR in 1976 when he was 15. He was among more than half a million former Soviet citizens who since 1971 were allowed to immigrate to Israel but instead chose the United States. Enrolling in Harvard College, he became a student of Summers who was then economics professor. Impressed with Shleifer's academic talents, Summers took him under his wing. Soon Shleifer became professor himself. According to McClintick, after Summers went to the World Bank in 1991, the two were already close friends and remained so thereafter.

In October 1992 President George H.W. Bush signed the Freedom to Russia Open-Market Support Act, authorizing up to $350 million in aid to Russia. Fluent in Russian, Shleifer was put in charge of the Russian Project when the USAID gave its contract to HIID. He was also made Board member of HIID-funded Russian Privatization Center (RPC). Not only did he direct the spending of $40 million of the Russian Project but also controlled an additional $350 million over which HIID had influence. With the help of Jeffrey Sachs, another Harvard economics professor and the author of "shock therapy," Shleifer was introduced around the Russian government. "It was decided," says McClintick, "that Shleifer would work with Chubais and [Dmitry] Vasiliev on privatization while Sachs advised Gaidar on macroeconomic issues."

Since Shleifer wanted to retain his professorship, he hired Jonahan Hay, a graduate of Harvard Law School who was also fluent in Russian, to manage the day-to-day operations in Moscow. However, Shleifer continued to supervise the project from Harvard and during his visits to Russia. Shleifer also hired his wife Nancy Zimmerman, who had her own hedge fund company in Cambridge, and Hay's then girlfriend, Elizabeth Hebert, from the investment firm Robert Fleming & Co., who later became Hay's wife. Hebert aspired to start her own investment company specializing in Russian securities. To help Hebert, Hay hired Julia Zagachin, a Russian-born, U.S.-educated clearing specialist who allegedly helped register Shleifer's illegal purchase of 30,000 shares of Russian oil company Purneftegaz for $165,000 in August 1994.

There is no need to go into details of Shleifer and his team's shady dealings that McClintick describes. More interesting is the period since 2001, when Summers became a candidate for Harvard's presidency. It was Shleifer, even while being sued, says McClintick, who eagerly campaigned for Summers to get the post. As copies of McClintick's report were made available to some faculty members, Summers' protective attitude toward his friend Shleifer antagonized a number of them. McClintick quotes Harry Lewis, former Harvard College dean: "The relativism with which Harvard has dealt with the Shleifer case undermines Harvard's moral authority over its students."

National Glasnost via The New York Times

Summers tried to keep the Shleifer affair under tight wraps. First he recused himself and downplayed the degree of closeness to Shleifer. McClintick's report broke that wall of intramural silence and opened the Shleifer-Summers connection a scrutiny via national glasnost. On February 27, The New York Times, with readership much larger than that of Institutional Investor, ran Sara Ivry's article, in which she attempted to measure the impact of McClintick's expose on Harvard faculty. The article was titled, "Did [McClintick's] Expose Help Sink Harvard's President?" Ivry posed that question to a number of Harvard watchers.

Richard Bradley, the author of Harvard Rules: Lawrence Summers and the Battle for World's Most Powerful University, opined: "Suddenly, you couldn't just say this was an arcane legal dispute [but] a really unattractive and deliberate pattern of behavior and cover-up that quite dramatically pointed an arrow at Larry Summers." (See his blog richardbradley.net)

Summers' recusal drew strong rebuke from Robert D. Putnam, a former dean of the John Kennedy School of Government at Harvard. "When the president responded in a manifestly untruthful way to questions about the Shleifer case," said Putnam, "it had a devastating effect on the views of people who were to that point uncommitted, people who, like me, were strong supporters of his agenda."

Dean Harry Lewis told Ivry that many prominent faculty members had not even heard of the Shleifer case until they read McClintick's report. Calling Lewis because he had been quoted in the report, several wondered: 'Wow, I never knew this story.' Soon, McClintick informs us, they will know a lot more in Lewis' forthcoming book, Excellence Without a Soul: How a Great University Forgot Education.Michael Carroll, the editor of Institutional Investor, said that McClintick's expose, warranted close attention. "Russia was going to go the way of the West, so in come the best and brightest of Harvard [and] do things the old Russia way." Carroll probably meant "the old Soviet way," but either way is commonly understood as utterly corrupt.

Finally, Ivry interviewed McClintick himself. A Harvard graduate and the author of award-winning Indecent Exposure, McClintick explained his involvement in the Shleifer case: "I was drawn to it [because] you had this very small group of exceptionally brilliant people, very young people, basically trying to save Russia and then an even smaller group corrupting the enterprise." The latter reference was to Shleifer and his gang. Bright as they may have been, "intelligence does not equal wisdom," McClintick added.

Ivry's article left no doubt that McClintick's expose did indeed help sink Harvard's president.

Janine Wedel the Whislte Blower

Surprising as they were to some Harvard people, McClintick's revelations were not new. In a 1998 book, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe, 1989-1998, Janine Wedel took a hard, behind-the-scene look at aid efforts not only in Central Europe, but also in Russia and Ukraine. Long before McClintick, Wedel exposed "how Harvard's best and brightest, entrusted with millions of aid dollars, colluded with a Russian clan to create a system of tycoon capitalism that will plague the Russian people for decades."

How McClintick's could have missed Wedel's well-documented book while doing investigation is a mystery to me. After all, the book covers much of the same ground. In fact, Wedel devotes a whole chapter to "The Chubais Clan, Harvard, and 'Economic' Aid," in which the Shleifer affair occupies the center stage. Moreover, she examines Shleifer's activities as part of a collusion between the "young Russian reformers" (Anatoly Chubais, Yegor Gaidar, et al.), on the one hand, and the Harvard's "best and the brightest," that is not only Shleifer and Hay, but also Jeffrey Sachs, David Lipton, and Larry Summers. In spite of internal divisions (Sachs and Shleifer were no friends), the Harvard "clique" was united by their excusive reliance on the Chubais clan as the conduit for delivering Sachs' "shock therapy" reform prescription to Russia.

Wedel lets the Russian sociologist Olga Krystanovskaya assess the situation: "Chubais has what no other elite group has, which is the support of the top political quarters in the West, above all the USA, the World Bank and the IMF, and consequently, control over the money flow from the West to Russia)." Concludes Wedel: "By largely putting their eggs in one basket and allowing much aid to be used as the tool of one group, aid planners and politicians alienated non-Western-oriented reformers and opened themselves to suspicion and cynicism about aid program, capitalism, and the West."

There is no need to dwell on Wedel's book, especially since it is now available in a new edition. But Wedel should be credited with blowing a whistle not just on the Shleifer case, but also on the entire U.S. post-Cold war policy. Suffice it to say that she describes the entire U.S. approach to reforming Russia as exhibiting strong anti-democratic, anti-free-market, and elitist features. To give an example, HIID's Russian reform project got most of its $57.7 million without competitive bidding. Why? Perhaps, no other American university could match the "brightness" of "shock-therapy" prescription to Russia? In any case, it was not for a lack of bright and honest people elsewhere. According to Wedel, "foreign policy" considerations--that is, the national security of the United States, were cited as the reason for the waiver of competitive bidding in favor of Harvard.

I do not know what those considerations might have been, but they certainly make many an inquisitive Russian suspect U.S. motives in promoting Russian reforms: Was it just to advance a free-market in Russia, or to gain advantage for U.S. companies? To promote democracy, or to create chaos in which oligarchs can thrive? To assist in privatizing state enterprises into the hands of most qualified through open tender-or to the hands of would-be oligarchs through insider trading and fire sale? To create a viable free-market economy with strong anti-monopoly provisions, similar to those in the U.S., or a dictatorship of a dozen oligarchs controlling both the president and the media?

I have no doubt that the majority of Americans involved in the effort to assist Russia's transition to a free-market economy were honest and well-intentioned people. However, even granting that U.S. policy was guided by the best of goals, the way it was executed in Russia-almost exclusively through the collusion of Harvard's "best and brightest" with the Chubais clan-guaranteed a disastrous outcome for the people of Russia. It also put U.S.- Russia relations on a collision course. The results of U.S. meddling-that's what our assistance in reality amounted to - were certainly extremely painful to Russia.

With all the voting precincts the oligarchs' money could buy, the Chubais clan managed to secure Yeltsin's re-election in 1996 as Russian president. They clearly counted on maintaining monopoly on his ear. Meanwhile, Russia lay in shambles. Its treasury indebted to foreign powers and native oligarchs, its "reformed" economy bleeding from incessant capital flight and brain drain to overseas, the country was barely functioning. The overwhelming majority were impoverished, workers unemployed, underemployed, underpaid or not paid at all. There was democracy, countless elections, and freedom of the media. But the Russians now hated the very words, "democracy," "free-market," and "reforms". Alas, they also now hated America, the country they had so admired just few years ago. Sapped of its vital resources, torn by regional interests, and threatened by inter-ethnic strife, the country was on the brink of disaster.

The Blessing of August 1998 Default

The disaster came in the form of August 1998 default. The situation turned from bad to worse. Says the U.S. News and World Report, "Death is one business that flourishes in the catastrophe that has overtaken Russia. Elderly pensioners dying of starvation no longer make news…the question for the country now is whether it can survive at all as a coherent state, still less as a civilized society. The statistics are staggering. At least 70 percent of Russians live near or below the subsistence level...The decline of Russia in the 1990s is deeper than even the Great Depression in the United States. From 1929 to 1935, American national incomes and gross domestic product fell by a third; in Russia, real per capita incomes are down by as much as 80 percent."

Only then did Yeltsin turn away from the Chubais clan. Only then did he begin to listen to those who argued that Russia needed law and order more urgently than it needed reforms. Only then did he realize that no reform could be beneficial for the country when undertaken in the condition of a weak state, breakdown of social order, and dependence on advice and money from overseas. He removed Chubais from power, and, after experimenting with a couple of other "young reformers," chose Yevgeny Primakov as Prime Minister. Thus, by pushing Russia away from Harvard-inspired reforms, the August default became a blessing in disguise.

An old Soviet bureaucrat and former FSB chief, Primakov was not averse to reforms. However, unlike his young predecessors, he was pragmatic and patriotic enough to understand that to implement reforms, one needed to mobilize domestic resources and talents. In doing so, he began the process of consolidating central state powers, a process that President Vladimir Putin later put in higher gear.

It's quite understandable that the Clinton Administration's reaction to Primakov was rather hostile. There were even threats, coming from both U.S. government and the avatars of so called "Washington consensus" for "shock therapy," to cancel all Russian assistance programs and otherwise make Primakov's life miserable. Those threats amounted to high-handed attempts to meddle in Russian affairs.

The Open Letter to Bill Clinton

As president of Russia & America Goodwill Association (RAGA), an organization of Americans for friendship with the new Russia, I wrote then an "Open Letter" to President Bill Clinton demanding that U.S. meddling in Russian affairs be stopped and its policy toward Russian reform thoroughly revised. The Letter reads: "Unfortunately, the U. S. government has shown no willingness to acknowledge the obvious failure of its Russia policy. Secretary of State Madeleine Albright continues to nudge Russian Prime Minister Yevgeny Primakov to the same course of 'reforms' that, under his predecessors, brought Russia to the brink of disaster. Treasury Secretary Robert Rubin continues to cajole the Russians to accept the dictates of the IMF--or else. Both the IMF and the U.S. government have remained deaf to any other proposals for economic reforms in Russia, including those advocated by prominent Nobel Prize winning American economists."

Arguing that "The financial crash of August 17, 1998, was a collapse… of the peculiar course of reforms that the 'young reformers' imposed on Russia, with America's advice and encouragement," the Letter called on U.S. government to stop supporting the failed course and "let Russians, not our State and Treasury Departments, decide what constitutes reform in Russia."

I also argued that the weakening of the Russian via ill-conceived reforms reached a level that not only endangers Russia's existence, but also is contrary to U.S. national interests as it destabilizes the entire North Eurasian rim from the Baltic to the Sea of Japan.

More than one hundred American scholars, businessmen, and Russia specialists signed the Open Letter. On March 23, I mailed to Clinton and other high officials. As the Kosovo conflict was heating up, in an accompanying note I reiterated, "In spite of the cancellation of Russian Prime Minister Yevgeny Primakov's visit to Washington, a constructive dialogue must go on. "

President Clinton responded with a brief, but warm letter to "Dear George." Thanking me for writing the Letter, he asked me to "remain involved" and promised: "I will certainly keep your thoughts in mind as my Administration continues working to address the challenges our nation faces as we approach the 21st century."

Madeleine Albright thanked me for "sharing your thoughts and concerns" and assured that "President Clinton and I are committed to making the world a better place for all Americans and all people."

Carlos Pascual, Special Assistant to the President and Senior Director for Russian, Ukrainian and Eurasian Affairs, responding on behalf of National Security Adviser "Sandy" Burger, wrote "we are committed to provide support where it is in both the Russian and U.S. national interest."

I am not in the position to assess whether the Letter had any real impact on Clinton's Russian policy. However, since the presidential candidate George W. Bush promised a more hands-off policy toward Russia, it must have put some pressure on Clinton. If the Letter helped even a little to adjust U.S. Russia policy so that "it is in both the Russian and U.S. national interest," as Pascual promised, I feel that my effort was not in vain.

Soon, the growth of global terrorism put Russia on a back burner in Washington. Meanwhile, with passing of Russian premiership to Vladimir Putin, the war in Chechnia, Yeltsyn's resignation and Putin's election as President, Russia was definitely on the mend. That was good for Russia. And that was good for America. Had Putin not strengthened the state against the encroachment of oligarchs, put order in the process of reform, and overcome centrifugal tendencies in the regions, it is very doubtful that Bush would have found a reliable friend and strong partner when America needed it most, in the aftermath of the 9-11 shock.

A New Wave of Russophobia?

Ironically, today when Russia's economic growth has been one of the highest in the world for the past five years, when the living standards of its people have greatly improved, and Putin's popularity rating is near 70 per cent (while Bush's is down to 34), there are some U.S. pundits who feel unhappy about it. They accuse Putin of "backsliding" on democracy, opposing U.S. foreign policy, and otherwise misbehaving. One of those pundits is history professor emeritus Richard Pipes of Harvard, as it happens.

Writing in the March 1, 2006 issue of Wall Street Journal, in the article titled, "Why Bear Growls," Pipes asks rhetorically: "Why do the Russians still give us trouble even though the Cold War has long ended? Why do they invite the terrorist Hamas leaders to Moscow? Why do they cut off natural gas to Ukraine and thereby reduce its flow to Western Europe? Why do they harass foreign non-governmental organizations, accusing them of espionage and incitement to revolution? Why do they carry out joint military exercises with the Chinese, clearly aimed at Taiwan?"

His own answer is two-fold: "One is Russia's inability to find for itself a proper place in the international community," inability he ascribes to the fact that Russia's Orthodox Christianity isolated it from the Catholic and Protestant West. The second factor that reinforces Russia's alleged hostility to the outside world is its "antidemocratic, authoritarian tradition," so that even Soviet regime had more in common with the autocracy of a Nicholas I and Alexander III than with Marxism-Leninism. Concludes Pipes: "These factors portend lasting trouble in Russia's relations with the outside world. Neither the Russian government nor the population at large is able to establish a modus vivendi with the international community."

Pipes clearly pushes the reader to the conclusion that as long as Russia retains its national identity and remains Russia, it is bound to misbehave and deserves to be treated as a rogue state.

I leave it to the Russians to respond in detail. My own answer need not be long. Before giving it, I want the readers to know that way back, in 1979, when I was professor and director of Russian Studies at the Monterey Institute of International Studies, I challenged Pipes, then aspiring to become National Security Adviser, to a debate on the issue that does not seem to go away.

In my article, "Richard Pipes's Foreign Strategy: Anti-Soviet or Anti-Russian?," published in The Russian Review (Stanford University), I pointed out that in his voluminous books Pipes had consistently ignored Marxist-Leninist ideology as the main source of the oppressiveness of Soviet regime at home and expansionism abroad. Instead, he attributed the evils of Soviet regime to the perfidy of Russian national character. Since many Soviet leaders "descended from peasantry," argued Pipes, they possess such repulsive features of Russian mentality as "slyness, self-interest, reliance on force, skill in exploiting others, and contempt for those unable to fend for themselves." If you want to understand Soviet leaders, Pipes advised U.S. policy-makers, study Russian proverbs, not Marxism-Leninism.

Pipes's only defense was the lame excuse that "these remarks were meant as a kind of crash course in applied Russian history for policy-makers, at a time (1974) when many of them perceived Russia as a political tabula rasa." (See Encounter magazine, 1980)

And yet in his newest article Pipes again repeats russophobic stereotypes as he denies the right of ordinary Russians and their leaders to choose their destiny. He does not even consider whether Putin's policy is good for Russia or not. He just denies Russia a right to get out of the morass where Harvard-inspired reforms had pushed it.

As to the questions Pipes posed in the beginning, the short answer is: IT'S RUSSIA'S BUSINESS. And the main reasons why Russia under Putin insists so adamantly on minding her own business is that she has learned the all too bitter lesson what happens when she lets Harvard-trained advisers mind HER business.

So, "Why the Bear Growls?" Because it's in his unique nature to growl when he finds intruders in his layer and senses that their overBEARring attitude is no longer BEARable. The time when the Russian Bear was made to dance to a Harvard tune is over.

Or, Back to Cultural Disconnect and Flexing the Muscle of Triumphalism?

As to the question, "Would Harvard Ever Help Russia?," the answer is yes, but only if Russia asks for it through her duly elected leaders. Harvard could then try to help, but only after it puts its own house in order. For starters, the Harvard and U.S. policy-makers, ought to read carefully the writings of such whistle blowers, as Janine Wedel. A pioneering anthropologist, she realized that both the Shleifer affair and the Chubais-Sachs "shock-therapy" collusion are but symptoms of a more general disease that prevented U.S. donors from making their aid more useful to receiving countries. The disease is dangerous in that it creates the environment for an unwanted "collision." She calls it "cultural disconnect."

To begin with, "there was a gigantic disconnect between East and West-a disconnect forged by the Cold War and exacerbated by the barriers of language, culture, distance, information, and semiclosed borders." Of course, this was especially true right after the fall of the Berlin Wall when the stream of Western "do-gooders" rushed East in the euphoria of "triumphalism." But even years after, she says, the disconnect continued to plague country-to-country relations, most notably in Russia, where "there has been little successful adjustment, only scandal and ever increasing tension."

The disconnect also shaped the environment in which such elitist "clans" as those of Harvard and Chubais, with their unlimited access to power, could thrive. After all, only a handful of people who interacted with those clans, knew both English and Russian. This gave a tremendous advantage to the double-dealing few to have their way.

In her more recent articles, "Blurring the State-Private Divide: Flex Organizations and the Decline of Accountability," and "Flex Power: A Capital Way to Gain Clout, Inside and Out," Wedel demonstrates how tiny un-elected groups of well-connected officials, be it the Harvard clique in respect to Russia or the neoconservatives in respect to Iraq, can wield an enormous clout, influence the government policy in a decisive way, and yet escape accountability. Without taking a stand on U.S. invasion of Iraq or whether the neoconservative thinking was right or wrong, she clearly points out that even in the bastion of freedom the democratic process can be and has been woefully subverted.

We have no moral right to preach democracy to others, much less export it through intimidation, manipulation, and force; unless not only Harvard, but also the United States put their house in order, eliminate the influence of flex groups, and restore due process in formulating and executing foreign policy initiatives.

Available online at: Russia & America Goodwill Association (RAGA).

Russian version - "Медвежья Услуга Гарварда России"

English version - "Would Harvard Ever Help Russia?"

Privatization of Russian Industry

http://factsanddetails.com/russia/Economics_Business_Agriculture/sub9_7b/entry-5169.html

In the early and mid 1990s Russian President Boris Yeltsin launched an ambitious privatization program. In what was the largest sell-off of state-owned property in history, enterprises were sold at a rate of about 800 a month and by time it was complete 77 percent of Russia's large and mid-size enterprises and 82 percent of the small ones were private. The 15,000 privatized factories accounted for two thirds of industrial output and 60 percent of the industrial work force. The 85,000 privatized shops, restaurants, small business and service establishments represented 70 percent of the national total. Everything from sawmills to rolls of barbed wire was auctioned off. Tires are sold at a price that was equal to a month's wage for a Russian worker and MiG-29 jet fighters went for $23 million. [Source: Mike Edwards, National Geographic, March 1993 ♠]

The privatization program was at the core of economic restructuring and was a critical consideration for foreign loans and investment in Russia's economy. On the surface the privatization of Russian industry seemed to go fairly smoothly but the reality was a different story. Many state-owned companies involved with natural resources were raped by gangsters and corrupt officials. Jeffrey Sachs, a Harvard economist has advised the Russian government in the 1990s, wrote the New York Times: "Russia's resources provided an unparalleled opportunities for theft by officials. Oil, gas, diamonds and metal ore deposits were nominally owned by the state and thus by nobody. They were rip for stealing...the system was often skirted or compromised by ad hoc decrees and hidden arrangements."

A Russian business reporter told National Geographic: "The government is now selling shops to private people—not to the people worked in them, but the new rich who have gathered capital in some way. Under the old laws such manipulations would have been considered crimes."∞

After industry was initially privatized only 27 million of Russia's 67 million workers were in the private sector. The state was still responsible for paycheck for 40 million people. Tax revenues didn't come close to meeting the ends of these salaries. The government take turns paying off different groups.

Book: The Privatization of Russia: Russian Reform Goes Awry by Marshall Goldman, associate director of the Davis center of Russian and Eurasian Studies at Harvard University; Sale of the Century: Russia's Wild Ride From Communism to Capitalism by Chrystia Freeland (Crown Business, 2000); Failed Crusade: America and the Tragedy of Post-Communist Russia by Stephen F. Cohen (Norton, 2000)

Anatoli Chubais

Russia’s privatization campaign was masterminded and led by Anatoly Chubais. One Yeltsin's closest and longest serving advisor and for many year the second most powerful person in Russia after Yeltsin, he led the program to privatize to state property and served as Yeltsin's finance minister deputy prime minister. In 1996, he was selected finance minister of the year by Euromoney magazine for following policies developed by Harvard's Jeffrey Sachs.

Chubais is a former academic researcher. Hated by the Communist political class, he was considered by many to be arrogant, abrasive and combative but a sharp, able manager. He was popular in the West and close to some of the oligarchs, who he helped make wealthy men, but often at odds with other oligarchs and members of the Duma in parliament. Moscow mayor Yuri Luzhkov refused to along with Yeltsin's plan of privatization, complaining the "youth squad" led by Chubais gave away state property "like a drunk selling everything in the house."

Chubais was considered the architect of Russia's economic policy in the 1990s but also earned the epithet as the most hated man in Russia for setting up the system which allowed a tiny group of insiders and speculators to take control of much of Russia’s assets and become fabulously wealthy oligarchs. But even his critics gave some credit for quickly establishing a system based market economics after the collapse of the Soviet Union and rapidly moving property owned by the state into private hands, nailing the final nail in the coffin of state socialism. Chubais said in 1995, "Even before the collapse of the Soviet Union, the managers were stealing everything they could, in association with the state bureaucrats. You could not stop it. You could not get the manager—the insiders—out. They were powerful enough to block everything. The only way out was to get property into the private sector was to get the insides motivated and rewarded."

Chubais was fired and rehired twice. He left the government in April 1998 when Yeltsin sacked his entire cabinet, At that time it was revealed that Chubais had accepted $90,000 to write a book for a publisher owned by a Swiss company that benefitted from Chubais's policies. In 1998, after Yeltsin retired, Chubais became the CEO of Russia’s national electric monopoly, Unified Energy Systems RAO, the world’s largest electricity utility in terms of generating capacity. In 2000, Chubais faced a revolt from investors, who accused him of planning to sell assets for too low a price. Later he launched political party, the Union of Right Forces, that challenged, Putin.

In March 2005, Chubais survived an assassination attempt 18 miles west of Moscow. His attackers set off a bomb in front of his armored BMW as he left his dacha to go to work and sprayed his car with gunfire. The ambush was regarded as bungled. No one was hurt. The car carrying Chubais bodyguards suffered most of the damage. The bodyguards fired on the attackers as they fled into the woods. Chubais had many enemies. He said the attack was the forth attempt on his life.

Yeltsin’s Privatization Program

The Yeltsin privatization program began with small enterprises, a large proportion of which were in private hands by 1995. Sales of larger enterprises, accomplished in several phases, encountered substantial difficulties, however. In 1995 allegations of corruption slowed the process, as did persistent opposition from the antireform State Duma factions. Privatization was virtually halted during the 1996 presidential election campaign, but in July 1996 the administration announced new goals and a reformed system for ownership transition. [Source: Glenn E. Curtis, Library of Congress, July 1996 *]

Initially positive, Western evaluations of Russia's privatization program were tempered in 1996 by continued government favoritism toward former state enterprises, by the sale of investment shares to banks and other institutions with close state connections rather than to the public, and by the program's distinct slowdown in 1996. In October 1996, the government had collected only 14 percent of the year's targeted privatization revenue of $2.2 billion. In November the planned public sale of stock in two major state-owned telecommunications firms, Rostelekom and Svyazinvest, was canceled in favor of stock sales to two large banks that had financed Yeltsin's 1996 campaign, heralding a new privatization scandal. The 1997 national budget set a privatization income goal for 1997 at $1.1 billion, but already in February Vladimir Potanin, head of the privatization revenue collection commission, expressed doubt that the goal could be met. *

In April a series of presidential decrees moved Government policy closer to privatization in some sectors, although strong political support for the giant monopolies in the State Duma guaranteed that Deputy Prime Minister Boris Nemtsov would have a hard struggle in breaking them down. According to the new privatization goals, Government subsidies of housing and municipal services, which were budgeted at $27 billion in 1997, were to be reduced. (The average Russian paid only 27 percent of such costs in 1997.) According to a sliding scale, subsidies would reach zero in 2003, although some state housing support would remain for the neediest individuals. In the spring of 1997, local increases in utility and housing costs brought demonstrations in St. Petersburg, and Moscow's powerful mayor, Yuriy Luzhkov, objected strongly to the national proposal. *

Provisions were made for substantial modification of the pricing and/or structure of the state-controlled electric power industry and the railroad network, and Yeltsin ordered the sale of 49 percent of the telecommunications giant Svyazinvest, division of which was one of the most controversial privatization issues. In July 25 percent of total Svyazinvest shares were won at auction by a group including Russia's Uneximbank and German and United States investors. Because of the backward state of Russia's telephone system, telecommunications was considered potentially one of Russia's largest growth industries. The results of the Svyazinvest auction, which Boris Nemtsov touted as fully free and equitable, set off loud protests from the powerful business interests that failed to acquire shares. The issue threatened to split the large-business bloc that had supported Yeltsin before and after the 1996 election. *

First Phase of Privatization in Russia

In most respects, between 1992 and 1995 Russia kept pace with or exceeded the rate of selling off sate-owned assets established in the original privatization program of October 1991. As deputy prime minister for economic policy, the reformist Chubais was an effective advocate of privatization during its important early stages. In 1992 privatization of small enterprises began through employee buyouts and public auctions. By the end of 1993, more than 85 percent of Russian small enterprises and more than 82,000 Russian state enterprises, or about one-third of the total in existence, had been privatized. [Source: Library of Congress, July 1996 *]

On October 1, 1992, vouchers, each with a nominal value of 10,000 rubles (about $63), were distributed to 144 million Russian citizens for purchase of shares in medium-sized and large enterprises that officials had designated and reorganized for this type of privatization. However, voucher holders also could sell the vouchers, whose cash value varied according to the economic and political conditions in the country, or they could invest them in voucher funds.*

By the end of June 1994, the voucher privatization program had completed its first phase. It succeeded in transferring ownership of 70 percent of Russia's large and medium-sized enterprises to private hands and in privatizing about 90 percent of small enterprises. By that time, 96 percent of the vouchers issued in 1992 had been used by their owners to buy shares in firms directly, invest in investment funds, or sell on the secondary markets. According to the organizers of the voucher system, some 14,000 firms employing about two-thirds of the industrial labor force had moved into private hands.*

Russian Privatization Auctions

As part of Yeltsin's privatization program, shares from thousand of former state-owned enterprises were auctioned off or given to workers and managers. Most of the enterprises were bankrupt companies that the government no longer wanted to support. Between 1992 and 1994, the government gave away 144 million vouchers, which could be converted into stock shares, for more than 100,000 state companies (everything from small shops to oil giants). Prize enterprises included Rostelecom (the Russian phone company) and the oil giant Lukoil.

Describing one of the first privatization auctions, overseen by a Czech in Nizhni Novgorod in late 1992, John Lloyd wrote in the New York Times Magazine, "As each lot came up, the auctioneer described the shop in glowing terms and then threw it open to the audience. As he did so, it became obvious that the groups had already decide among themselves, which was to bid for each shop under the hammer; there was little bidding up of the price. Some of the groups, were men with darker skin than the fair Russians: a couple of matrons near me said, "Blacks!"...and then "Mafia!. This was no gathering of economically knowledgeable actors. The majority were puzzled and hostile citizens raised in a Soviet culture, with a few sharp customers thrown in—perhaps already accustomed to cutting corners and wheeling and dealing in the many cracks in the command economy."

In some cases there were no auctions. The vouchers were simply distributed to employees at the companies that were being privatized and given to other people. Through ways that are still not completely known some individuals were able to amass large amounts of shares for valuable properties even though the auctions doled out shares to 41 million Russians. Because the shares didn't pay dividends and failed to attract foreign investors, many were snapped at cut rate prices by speculators. Many workers were hard up for cash and sold their shares not realizing their worth. Vouchers were also given to relatives and counterfeit vouchers were printed up.

Politics and the Second Phase of Russia’s Privatization

The next phase of the privatization program called for direct cash sales of shares in remaining state enterprises. That phase would complete the transfer of state enterprises and would add to government revenues. After that procedure met stiff opposition in the State Duma, Yeltsin implemented it by decree in July 1994. But the president's commitment to privatization soon came into question. In response to the monetary crisis of October 1994, Yeltsin removed Chubais from his position as head of the State Committee for the Management of State Property, replacing him with little-known official Vladimir Polevanov. Polevanov stunned Russian and Western privatization advocates by suggesting renationalization of some critical enterprises. Yeltsin reacted by replacing Polevanov with Petr Mostovoy, a Chubais ally. In the ensuing eighteen months, Yeltsin made two more changes in the chairmanship position. [Source: Library of Congress, July 1996 *]

In 1995 and 1996, political conditions continued to hamper the privatization program, and corruption scandals tarnished the program's public image. By 1995 privatization had gained a negative reputation with ordinary Russians, who coined the slang word prikhvatizatsiya , a combination of the Russian word for "grab" and the Russianized English word "privatize," producing the equivalent of "grabification." The term reflects the belief that the privatization process most often shifted control of enterprises from state agencies to groups of individuals with inside connections in the Government, the mafiya , or both. Distrust of the privatization process was part of an increasing public cynicism about the country's political and economic leaders, fueled by the seeming failure of Yeltsin's highly touted reform to improve the lot of the average Russian.*

The second phase of the privatization program went ahead with the sale of state-held shares for cash. Although the process was virtually complete by the end of the first quarter of 1996, the Government failed to garner expected revenues. A 1995 transaction in which state banks awarded loans to state firms in return for "privatization" shares in those enterprises characterized the second phase of privatization; banks provided the government badly needed cash based on the collateral of enterprise shares that banks presumably would be able to sell later. But most of the twenty-nine state enterprises originally slated to participate withdrew, and the banks that received shares appeared to have a conflict of interest based on their role in setting the rules of the bidding procedure. *

In the most widely publicized deal, the Uneximbank of Moscow received a 38 percent interest in the giant Noril'sk Nickel Joint-Stock Company at about half of a competing bid. Other banks and commercial organizations joined the traditional opponents of privatization in attacking the loans-for-shares program, and in 1996 the Government admitted that the program had been handled badly. As a result of corruption allegations, the State Duma formed a committee to review the privatization program. And Prime Minister Chernomyrdin requested off-budget funds to buy back shares from the banks.*

Privatization and Yeltsin's 1996 Reelection

Yeltsin's June 1996 bid for reelection brought a virtual halt in privatization of state enterprises during the campaign period. In February 1996, the Procuracy announced a full-scale investigation into privatization practices, in particular a 1995 transaction in which state banks awarded loans to state firms in return for "privatization" shares in those enterprises. Because the faults of the Yeltsin privatization program were an important plank in the 1996 presidential election platform of the Communist Party of the Russian Federation—the strongest opposition party—Yeltsin's campaign strategy was to reduce privatization as far as possible as a campaign issue. Part of that strategy was to shift the privatization process from Moscow to the regions. In February 1996, a presidential decree simply granted shares in about 6,000 state-controlled firms to regional governments, which could auction the shares and keep the profits. [Source: Library of Congress, 1996 *]

After Yeltsin's reelection in July 1996, his financial representatives announced continuation of the privatization program, with a new focus on selling ten to fifteen large state enterprises, including the joint-stock company of the Unified Electric Power System of Russia (YeES Rossii), the Russian State Insurance Company (Rosgosstrakh), and the St. Petersburg Maritime Port. The Communications Investment Joint-Stock Company (Svyazinvest), sale of which had failed in 1995, was to be offered to Western telecommunications companies in 1996.*

The new, postelection privatization stage also was to reduce the role of enterprise workers in shareholding. Within the first years of such ownership, most worker shares had been sold at depressed prices, devaluing all shares and cutting state profits from enterprise sales. Therefore, to reach the budget target of 12.4 trillion rubles (about $2.4 billion) of profit from privatization sales in 1996, distribution was to target recipients who would hold shares rather than sell them immediately.*

Despite periodic delays, the inept administration of the program's more recent phases, and allegations of favoritism and corrupt transactions in the enterprise and financial structures, in 1996 international experts judged Russia's privatization effort a qualified success. The movement of capital assets from state to private hands has progressed without serious reversal of direction--despite periodic calls for reestablishing state control of certain assets. And the process has contributed to the creation of a new class of private entrepreneur.*

Rigged Auctions of Russian Privatization

The auctions were supposed to be free and fair but they were not. The most profitable enterprises did not come up at the public actions. These were either doled out to state officials or were sold at relatively closed auctions, organized by Chubais. Factories and other valuable properties were sold in rigged auctions for fractions of their worth. A tiny group of insiders and speculators took control of much of Russia’s assets and became fabulously wealthy oligarchs.

The oligarchs managed to pick up properties at a fraction of their value because high bid were disqualified on technicalities or the bidding process was rigged (Yukos Affair). Hundreds of companies, maybe thousands of them, were acquired in this fashion. Laws were poorly written and poorly enforced and full of loopholes that enabled insiders to pull off tricky schemes.

The seizure of state assets after the collapse of Communism is referred to by some Russians as "spontaneous privatization." Some regarded the process as the swindle of the century. One common joke was that Russia was more eager to privatize the managers than privatize the companies.

Oligarchs

The term oligarchs refers to a small group of industrialists and bankers who became fabulously rich during the Yeltsin era. In some ways resembling robber barons like Rockefellers and Carnigies, they are men who carved out empires while in their thirties, forties and fifties in the chaotic period that occurred while Communism declined and capitalism rose to take its place.

Some of them live relatively modesty. Other are quite ostentatiously with private jets and huge mansions. Many settled abroad, some in London. Most travel around in armored Mercedes sedans while in Russia led and followed by vehicles with body guards, carrying customized assault rifles. One reportedly ordered a new Boeing 767 equipped with its own anti-missile system.

The oligarchs are mostly well-educated and many had jobs in the Soviet bureaucracy before they became involved in business. Their acquisitions were often the result of connections rather than entrepreneurial skill. As they became rich they invested in media to gain influence. Influence spawned more wealth and influence. They also created banks that became receiving points for state funds that sometimes disappeared to overseas accounts. They also won tax exemptions and special privileges issued by presidential decree.

The Russian economy is dominated by oligarchs. As of 2003, there were 17 Russians on the Forbes list of the world’s richest men. This is quite something when you consider that only 15 years before there were few people in Russia with more than a few thousand dollars. By one estimate the oligarchs control 70 percent of Russia’s economy, including nearly the entire oil industry.

The oligarchs are among the most loathed figures in Russia. A survey in 2003 found that 70 percent of Russians disliked them. The oligarchs have been widely criticized for using underhanded methods to attain their assets and then double crossed foreign investors by diluting the value of minority shareholders in their companies.

Book: The Oligarchs: Wealth and Power in New Russia by David Hoffman (Public Affairs, 2002)

How the Oligarchs Obtained Their Assets

Most of the oligarchs got their start in the late 1980s, when the Soviet economy was liberalizing. The details of how some of them got their assets is still mysterious but many of them had key positions within the Soviet bureaucracy that allowed them to grab property. A few were Communist party leaders that acted quickly to cement control over profitable businesses such as oil, natural gas, precious metals and banking. Others were young upstarts who had more business sense than their Communist Party bosses and were able to take advantage of their boss’s ignorance or disinterest to develop schemes to gain property.

Some oligarchs were able to arrange sweetheart deals for state assets without having to go through the auction process because of their connections. Others were able to take advantage of the ignorance of the bureaucrats in charge of privatizing certain properties. Explaining how he was able to get some of his early assets the oligarch Boris Berezovsky told a PBS documentary: “The Soviet bureaucrats didn’t believe that capitalism would prevail. You would give an official $10,000, and he’d give you the property title. Not for one second did he expect this factory to stay private. He was convinced that the Reds would return and take it back.”

To get ahead and get an edge over rivals, the oligarchs used aggressive takeover tactics, manipulated regional legislatures and judges and took advantage of the lack of laws and the ease in which they could skirt the weak laws that existed. Often they behaved more like gangsters, using muscle to take advantage of the weak, than businessmen, trying to come up with a deal that appealed to all parties involved. The oligarch Mikhail Khodorvosky said, “At the time Russian law allowed us to do things that were unthinkable in the Western business world.”

The influence of the oligarchs was particularly strong among poorly-paid bureaucrats and judges in Russia’s provinces. One liberal politician told the New York Times, “There is much manipulation in the courts and law enforcement. It’s a kind of corporate, partly criminal system—a legal marriage between business and power.”

Oleg Deripaska is a tough, lanky aluminum baron known for the aggressive and unscrupulous methods of obtaining assets. As of 2002 he had an estimated worth of $1.5 billion and controlled the world’s second largest aluminum company. In the mid 1990s at the tender age of 26 he became the director of a large aluminum plant in Siberia at a time when different groups hired contract killers in their fight to grabs assets. His past has so many black marks the United States will not give him a visa. In 2002, Deripaska made a “loans for shares” deal in which he made a $10 million loan to a consortium building the 3,000-megawatt, $2 billion Bogichansk power plant in Siberia that was only half finished because it was short of cash. According to agreement if the loan was not paid back the oligarch would acquire 25 percent of the power plant—and that situation occurred.

How the Oligarchs Got Very Rich

The Oligarchs made their money by snatching up valuable state assets at dirt cheap prices. They used all the methods mentioned above and others to grab properties. Sometimes oligarchs stripped their acquisitions of assets or acquired natural resources and then sold them off and shipped the money abroad. Other times they were able gain large percentage of valuable properties. Once they gained hold of a property or the majority of shares they were able manipulate minority shareholders. See Yukos Affair

Some oligarchs were able to make large amounts of money through speculation and "easy money" business opportunities. In 1990, the cost of ton of oil in Russia was the same as the free-market price for a pack of Marlboros. Those that were able to ship the oil overseas made huge profits. Other made huge profits buying other resources and selling them abroad at a high mark up. When the ruble crashed similar opportunities arose because prices of things like oil, timber and minerals remained fixed in rubles, while their value in dollars soared.

Many of the future oligarchs started their own banks when the Russian financial system was liberalized under Gorbachev. When prices were freed in 1992, the oligarchs made huge fortunes on ruble-dollar speculation through their banks, often using government money to do it. Since Russia had no formal treasury, deposits were often made with "unauthorized" banks, often those owned by the oligarchs.

In the process of doing all this, the oligarchs performed one important task they maneuvered the Communist Party elite and conservative factory managers out of their jobs and spawned some degree of reform and movement towards efficiency.

Yeltsin and the Oligarchs

Yeltsin was an underdog going into the 1996 election with an approval rating in the single digits . Many analysts believe that the abundant air time and positive publicity he was granted in the newspapers and television stations controlled by the state and the oligarchs was the deciding factor in the election. If Yeltsin hadn’t won there is good chance the President would be a member of the Communist Party and that would have been very bad news for the oligarchs.

Under Yeltsin the oligarchs were created in rigged auctions that allowed them to acquire properties for a fraction of what they were worth. The oligarchs in turn supported Yeltsin by giving him money and television exposure, in the media they ran to allow him to get reelected in 1996. Yeltsin in turn was then committed to support the oligarchs as they became even richer and more powerful

The oligarchs became very powerful under Yeltsin. One Yeltsin aide told the New York Times, “To some degree the oligarchs regarded themselves as the real government of Russia and to some degree they were the real government. They could easily dismiss ministers and nominate people who people who would be loyal to them in ministerial positions.

The oligarch Boris Berezovsky was referred to as Rasputin because of the influence he had on Yeltsin and his family. Valentin Yumashev (a former journalist and ghostwriter of Yeltsin's memoirs) said Yeltsin’s daughter and son-in-law were close to Berezovsky. Berezovsky fell out of favor after one of his companies was accused of bugging Yeltsin.

Loans for Shares Deals Between Yeltsin and the Oligarchs

The oligarchs gave money to Yeltsin in the form of loans he never paid and media exposure in their television stations to help him win the 1996 Presidential election. In return the oligarchs were rewarded with stakes in some of Russia’s most valuable companies. That is how Berezovsky obtained his stake in Aeroflot and Khodorkovsky obtained Yukos. It was method used by many of the oligarchs to obtain their most valuable properties.

In 1995, when the Yeltsin government needed cash to pay off its debts and salaries owed soldiers, teachers and pensioners, it asked the oligarch-owned banks for help in what was called a "loan for shares" swaps. In return for the money, the banks received specific state-owned enterprises as collateral. When the companies were privatized, the banks took over their shares, often at below market rates, when the government couldn't pay back its loans. Critics called the process kleptocapitalism.

In some cases banks were given shares in state enterprises in return for loans. The shares were supposed to be held in a trust. When they were turned into equity the banks bids for them at an auction. The auctions were outrageously rigged. The oligarchs also made loans to struggling companies or projects with the caveat that if the money was not paid back the oligarch could claim some of the struggling company’s assets.

Failure of Privatization in Russia

The privatization program is now regarded by many as a big mistake. It allowed the wholesale transfer of valuable state assets to the Oligarchs at dirt cheap prices and allowed inefficient factories to be turned over to their mangers who resisted restructuring and drained money from state coffers.

The seizure of assets at bargain rates deprived the government of money that was supposed to help jump start the economy. The Oligarchs in many cases didn't put money into the companies they purchased to help them grow, prosper and become more efficient, stimulating domestic production and creating jobs. Instead they were more interested in selling off anything of value, converted assets to cash and cash to dollars that were squirreled out of the country, depriving the Russian economy of growth-spurring money.

Despite privatization only 10 million people worked in the private sector as of 1999. The government employed 40 million of Russia’s 67 million workers. When ownership was divided among many small shareholders, the Soviet-era managers continued the run the companies as part business and part welfare agency.

The Russian-version privatization made corruption, crime and cynicism worse. Some of the so-called reformers were the ones who profited most from it. Russians often refer to the whole process as the "great grab." Alfred Kokh, the head of Russia's privatization agency, was forced out resign after accepting a $100,000 in a book deal from a Swiss company interested in setting up deals with the government.

Nobel-prize-winning, World Bank economist Joseph Stiglitz wrote that the biggest mistakes that were made were that: 1) the economic incentives that encouraged asset stripping rather than wealth creation; 2) Russia’s human capital in technical and scientific areas was wasted; and 3) the large, relatively equal middle class had its livelyhood taken away. Historically it has been the existence of middle class that brought stability and argue for fairness in an economic system.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

© 2008 Jeffrey Hays

Last updated May 2016

How Clinton & Company & The Bankers Plundered Russia

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by Paul Likoudis (May 4, 2000)

In an ordinary election year, Anne Williamson’s Contagion would be political dynamite, a bombshell, a block-buster, a regime breaker.

If America were a free and democratic country, with a free press and independent publishing houses (and assuming, of course, that Americans were a literate people), Williamson’s book would topple the Clinton regime, the World Bank, the International Monetary Fund, and the rest of the criminal cabal that inhabits the world of modern corporate statism faster than you could say “Jonathan Hay.”

Hay, for those who need an introduction to the international financial buccaneers who control our lives, was the general director of the Harvard Institute of International Development (HIID) in Moscow (1992-1997), who facilitated the crippling of the Russian economy and the plundering of its industrial and manufacturing infrastructure with a strategy concocted by Larry Summers, Andre Schliefer (HIID’s Cambridge-based manager), Jeffrey

Sachs and his Swedish sidekick Anders Aslund, and a host of private players from banks and investment houses in Boston and New York — a plan approved and assisted by the U.S. Department of the Treasury.

Contagion can be read on many different levels.

At its simplest, it is a breezy, slightly cynical, highly entertaining narrative of Russian history from the last months of Gorbachev’s rule to April 2000 — a period which saw Russia transformed from a decaying socialist economy (which despite its shortcomings, provided a modest standard of living to its citizens) to a “managed economy” where home-grown gangsters and socialist theoreticians from the West, like Hay and his fellow Harvardian Jeffrey Sachs, delivered 2,500% inflation and indescribable poverty, and transferred the ownership of Russian industry to Western financiers.

Williamson was an eyewitness who lived on and off in Russia for more than ten years, where she reported on all things Russian for The New York Times, The Wall Street Journal, and a host of other equally reputable publications. She knew and interviewed just about everybody involved in this gargantuan plundering scheme: Russian politicians and businessmen, the new “gangster” capitalists and their American sponsors from the IMF, the World Bank, USAID, Credit Suisse First Boston, the CIA, the KGB — all in all, hundreds of sources who spoke candidly, often ruthlessly, of their parts in this terrible human drama.

Her account is filled with quotations from interviews with top aides of Yeltsin and Clinton, all down through the ranks of the two hierarchical societies to the proliferating mass of Russian destitute, pornographers, pimps, drug dealers, and prostitutes. Some of the principal characters, of course, refused to talk to Williamson, such as Bill Clinton’s longtime friend from Oxford, Strobe Talbott, now a deputy secretary of state and, Williamson suspects, a onetime KGB operative whose claim to fame is a deceitful translation of the Khrushchev Memoirs. (A KGB colonel refused to confirm or deny to Williamson that Clinton and Talbott visited North Vietnam together in 1971 — though he did confirm their contacts with the KGB for their protests against the U.S. war in Vietnam in Moscow. See especially footnote 1, page 210.)

The 546-page book (the best part of which is the footnotes) gives a nearly day-by-day report on what happened to Russia; left unstated, but implied on every page, is the assumption that those in the United States who think what happened in Russia “can’t happen here” better realize it can happen here.

Once the Clinton regime and its lapdogs in the media defined Russian thug Boris Yeltsin as a “democrat,” the wholesale looting of Russia began. According to the socialist theoreticians at Harvard, Russia needed to be brought into the New World Order in a hurry; and what better way to do it than Sachs’ “shock therapy” — a plan that empowered the degenerate, third-generation descendants of the original Bolsheviks by assigning them the deeds of Russia’s mightiest state-owned industries — including the giant gas, oil, electrical, and telecommunications industries, the world’s largest paper, iron, and steel factories, the world’s richest gold, silver, diamond, and platinum mines, automobile and airplane factories, etc. — who, in turn, sold some of their shares of the properties to Westerners for a song, and pocketed the cash, while retaining control of the companies.

These third-generation Bolsheviks — led by former Pravda hack Yegor Gaidar, grandson of a Bolshevik who achieved prominence as the teenage mass murderer of White Army officers, now heads the Moscow-based Institute for Economies in Transition — became instant millionaires (or billionaires) and left the Russian workers virtual slaves of them and their new foreign investors.

When Russian members of the Supreme Soviet openly criticized the looting of the national patrimony by these new gangsters early in the U.S.-driven “reform” program, in 1993, before all Soviet institutions were destroyed, Yeltsin bombed Parliament.

Ironically, when Harvard’s Sachs and Hay started identifying Russians they could work with, they ignored — or shunned — the most capable talent at hand: those numerous Russian economists who for 20 years had been studying the Swiss economist Wilhelm von Roepke and his disciple, Ludwig Erhard, father of Germany’s “economic miracle” in anticipation of the day when Communism would collapse.

Somewhat sardonically, Williamson notes that one, probably unintended, benefit of Gorbachev’s perestroika was the recruitment of these Russian economists by top U.S. universities.

In the new, emerging global economy, it’s clear that Russia is the designated center for heavy manufacturing — just as Asia is for clothing and computers — with its nearly unlimited supply of hydroelectric power, iron and steel, timber, gold and other precious metals.

This helps explain why America’s political elites don’t give a fig about the closing down of American industries and mines. As Williamson observes, Russia is viewed as some kind of “closet.”

What is important for Western readers to understand — as Williamson reports — is that when Western banks and corporations bought these companies at bargain basement prices, they bought more than just industrial equipment. In the Soviet model, every unit of industrial production included workers’ housing, churches, opera houses, schools, hospitals, supermarkets, etc., and the whole kit-and-caboodle was included in the selling price. By buying large shares of these companies, Western corporations became, ipso facto, town managers.

Another Level

On another level, Contagion is about the workings of international finance, the consolidation of capital into fewer and fewer hands, and the ruthless, death-dealing policies it inflicts on its target countries through currency manipulation, inflation, depression, taxation and war — with emphasis on Russia but with attention also given to Mexico, Thailand, Indonesia, the

Balkans, and other countries, and how it uses its control over money to produce social chaos.

Those who read Williamson’s book will find particularly interesting her treatment of the Federal Reserve, and how this “bank” was designed to plunder

the wealth of America through war, debt, and taxation, in order to maintain what is nothing more nor less than a giant pyramid scheme that depends on domination of the earth and its resources.

Williamson is of that small but noble school of economics writers who believe that the academic field of economics is not some esoteric science that can only be comprehended by those with IQs in four digits, and she — drawing on such writers as Hayek and von Mises, Roepke and the late American Murray Rothbard — explains in layman’s vocabulary the nuts and bolts of sound economic principles and the real-world effects of the Fed’s policies on hapless Americans.

Contagion also serves up a severe indictment of the World Bank, the International Monetary Fund, and the other international “lending” agencies spawned by the Council on Foreign Relations and similar “councils” and “commissions” which are fronts for the big banks run by the Houses of Rockefeller, Morgan, Warburg, et al.

The policies inflicted on Russia by the banks were cruel to the Nth degree; but the policy implementers — Williamson employs the derogatory Russian word myakigolovy (“soft-headed ones”) applied to the Americans — were a foppish lot, streaming into Russia by the thousands (the IMF, alone, with 150 staffers) with their outrageous salaries and per diem allowances, renting out the finest dachas, bringing in their exotic consumer goods, driving up prices for goods and rents, spurring a boom in the drug and prostitution businesses, and then watching, cold-heartedly, the declining fortunes of their hosts as they lost everything — including the artistic heritage of the country.

Williamson describes brilliantly that heady atmosphere in Moscow in the early days of the IMF/USAID loan-scamming: a 24-hour party. There were bars like the Canadian-operated Hungry Duck, which lured Russian teenage girls into its bar with a male striptease and free drinks, “who, once thoroughly intoxicated, were then exposed to crowds of anxious young men the club admitted only late in the evening.”

The Third Level

At a third and more intriguing level, Contagion is about America’s criminal politics in the Clinton regime, and, inevitably, the reader will put Williamson’s book down with the sense that Al Gore will be the next occupier of the White House.

Gore, who was raised to be President, has impeccable Russian connections. His father, of course, was Lenin financier Armand Hammer’s pocket senator, and it was Hammer who paid for Al Jr.’s expensive St. Alban’s Prep schooling; and, as Williamson reports, Al Jr.’s daughter married Andrew Schiff, grandson of Jacob, who, as a member of Kuhn, Loeb & Co., underwrote anti-czarist political agitation for two decades before Lenin’s coup, and congratulated Lenin upon his successful revolution.

Williamson also documents Gore’s intimate involvement with powerful Wall Street financial houses, and his New York breakfast meeting with multibillionaire George Soros (a key Russian player) just as the Russian collapse was underway.

Williamson tells an interesting story of Gore’s response to the IMF/World Bank/USAID plunder of U.S. taxpayers for the purpose of hobbling Russia.

By March 1999, Russia was now a financial basket case, and billions, if not tens of billions of U.S. taxpayer-backed loans had vanished into the secret bank accounts of both Russian and American gangster capitalists, and the news was starting to make little vibrations on Capitol Hill. “The U.S. administration’s response to the debacle was repulsively similar to a typical Bill Clinton bimbo-eruption operation: Having ruined Russia by cosseting her in debt, meddling ignorantly in her internal affairs, and funding a drunken usurper, his agents denied all error and slandered (‘slimed’) her,” writes Williamson.

“Pundits and academics joined government officials in bemoaning Mother Russia’s thieving ways, her bottomless corruption and constant chaos, all the while wringing their soft hands with a schoolmarm’s exasperation. Russia’s self-appointed democracy coach Strobe Talbott (‘Pro-Consul Strobe’ to the Russians) would get it right. An equally sanctimonious Albert Gore — the same Al Gore who’d been so quick to return the CIA’s 1995 report detailing Viktor Chernomyrdin’s and Anatoly Chubais’ personal corruption with the single word ‘Bullshit’ scrawled across it — took the low road and sniffed that the

Russians would just have to get their own economic house in order and cut their own deal with the IMF. . . .”

The cost to the American taxpayers of Clinton regime bailouts in a three-and-a-half-year period, Williamson notes, is more than $180 billion! The “new financial architecture” Clinton has erected, she writes, “isn’t new at all, but rather something the international public lenders have been wanting for decades, i.e., an automatic bailout for their own bad practices.”

As the extent of the corruption of the Clinton-Yeltsin “reform” plan for Russia unfolded last year, with the attendant Bank of New York scandal, the mysterious death of super banker Edmond Safra in his Monte Carlo penthouse, the collapse of the Russian stock market, and the whiplash effect in Southeast Asia, Congress was pressed to hold hearings.

What resulted, as Williamson accurately narrates it, was just a smoke screen, show hearings that barely rose above the seriousness of a Gilbert and Sullivan farce — though they did result in proposed new domestic banking laws that, if passed, will effectively make banks another federal police force responsible for reporting to the U.S. government the most minute financial transactions of U.S. citizens.

Double Effect

In this regard, it is instructive to quote Williamson at length: “If the FBI, [Manhattan District Attorney] Robert Morgenthau, or Congress were serious about getting to the bottom of the plundering of Russia’s assets and U.S. taxpayers’ resources, they would show far more professional interest in exactly what was said and agreed in the private meetings [U.S. Treasury secretary] Larry Summers, Strobe Talbott, and [former Treasury Secretary] Robert Rubin conducted with Anatoly Chubais [former Russian finance minister, who oversaw the distribution and sale of Russian industries], and Sergie Vasiliev [Yeltsin's principal legal adviser, and a member of the Chubais clan], and later Chubais again in June and July of 1998.

“Instead of allowing Larry Summers to ramble casually in response to questions at a banking committee hearing, the Treasury secretary should be asked exactly who suckered him — his Russian friends, his own boss [former Harvard associate Robert Rubin, his boss at Treasury who was once cochairman at Goldman Sachs], or private sector counterparts of the Working Committee on Financial Markets [a White House group whose membership is drawn from the country's main financial and market institutions: the Fed, Treasury, SEC, and the Commodities & Trading Commission]. . . . Or did he just bungle the entire matter on account of wishful thinking? Or was it gross incompetence?

“The FBI and Congress ought to be very interested in establishing for taxpayers the truth of any alleged ‘national security’ issues that justified allowing the Harvard Institute of International Development to privatize U.S. bilateral assistance. It too should be their brief to discover the relationship between the [Swedish wheeler-dealer and crony of Sachs, Anders]

Aslund/Carnegie crowd and Treasury and exactly what influence that relationship may have had on the awarding of additional grants to Harvard without competition. On what basis did Team Clinton direct their financial donor, American International Group’s (AIG) Maurice Greenberg (a man nearly as ubiquitous as any Russian oligarch in sweetheart public-funding deals), to Brunswick Brokerage when sniffing out a $300 million OPIC guarantee for a Russian investment fund. . . . And why did Michel Camdessus [who left the presidency of the IMF earlier this year] announce his sudden retirement so soon after Moscow newspapers reported that a $200,000 payment was made to him from a secret Kremlin bank account? . . .

“American and Russian citizens can never be allowed to learn what really happened to the billions lent to Yeltsin’s government; it would expose the unsavory and self-interested side of our political, financial, and media elites. . . . Instead, the [House] Banking Committee hearings will use the smoke screen of policing foreign assistance flows to pass legislation that will effectively end U.S. citizens’ financial privacy while making them prisoners of their citizenship. . . . The Banking Committee will use the opportunity the Russian dirty money scandal presents to reanimate the domestic ‘Know Your Customer’ program, which charges domestic banks with monitoring and reporting on the financial transactions in which middle-class Americans engage. This data is collected and used by various government agencies, including the IRS; meaning that if a citizen sells the family’s beat-up station wagon or their ‘starter’ home, the taxman is alerted immediately that the citizen’s filing should reflect the greater tax obligation in that year of the sale. . . . Other data on citizens for which

the government has long thirsted will also be collected by government’s newest police force, the banks. . . .”

You see, as this book explains, the Clinton’s Russia policy did not just plunder Russians, leaving them destitute while creating a new and ruthless class of international capitalist gangsters at U.S. taxpayer expense; it had the double consequence of bringing all Americans deeper into the bankers’ New World Order by increasing their debt load, decreasing their privacy, and restricting their civil rights. If only Americans cared.

A Look Back: Anne Williamson and the Rape of Russia

August 19, 2014

https://gizadeathstar.com/2014/08/look-back-anne-williamson-rape-russia/

This very significant article was brought to my attention - along with many others which, hopefully, I will share and blog about eventually, as soon as I have the time to digest them - by former Housing and Urban Development Assistant Secretary Catherine Austin Fitts. It tells a story that, given the current Western "policies" vis-a-vis the Ukraine and Russia, we would do well to remember, for it adequately outlines, I believe, how the USA is being perceived in Russia, both by the general population and by its leaders, and why. The article also provides some much-needed context in which to view the rise of the BRICSA bloc and the Russian foreign policy under Mr. Putin. Here is the link:

Testimony of Anne Williamson Before the Committee on Banking and Financial Services of the United States House of Representatives September 21, 1999

Having taught Russian history at one time at the college level, I personally deeply appreciate Ms. Williamson's understanding of Russian cultural institutions, and the effect they have had on the development of Russian culture and economy(see, for example, her comments on the votchina) . She is, in my opinion, sadly unique in this respect. I would personally have wished only for her to have mentioned the de-feudalization program of rolling back the obrok and barshchina systems of feudalism that had prevailed - for that in effect was what it was - that was undertaken by the Tsardom in the late 19th century, a program whereby Russian serfs were to buy their own land, on the basis of low interest loans from the government, which were in turn financed by Russian government bonds. (Communism, through collectivization of the farms, rolled all this back into yet another form of serfdom, this time sponsored by the Bolsheviks.) During the late 19th century, Russian agriculture, as a result, slowly began to modernize, and began to prosper and Russia began to be a net exporter of agricultural goods. All that changed of course under the Communists.

There are several points this article makes, and I will simply lay them out seriatim, so that the reader can see the historical development outlined in Ms. Williamson's testimony to Congress.

Point one: Russia was looted by the Russian oligarchs, many former Communists, with the aid of the USA, and this money was invested in the USA equities and real estate markets:

And there is no mistake as to who the victims are, i.e. Western, principally U.S., taxpayers and Russian citizens’ whose national legacy was stolen only to be squandered and/or invested in Western real estate and equities markets.

Point two: the Russian oligarchy - again, largely former Communist nomenklatura -  was essentially bought by Western financial institutions, which aided Yeltsin in creating the oligarchical class that was the basis of his political power and "popularity":

Western assistance, IMF lending and the targeted division of national assets are what provided Boris Yeltsin the initial wherewithal to purchase his constituency of ex-Komsomol [Communist Youth League] bank chiefs, who were given the freedom and the mechanisms to plunder their own country in tandem with a resurgent and more economically competent criminal class. The new elite learned everything about the confiscation of wealth, but nothing about its creation. Worse yet, this new elite thrives in the conditions of chaos and eschews the very stability for which the United States so fervently hopes knowing full well, as they do, that stability will severely hamper their ability to obtain outrageous profits. Consequently, Yeltsin’s "reform" government was and is doomed to sustain this parasitic political base composed of the banking oligarchy.

Point three: the Western financiers and newly-minted Russian oligarchy were completely ignoring Russian reformers who wanted, not the mercantilist system imposed on Russia by Yeltsin, the IMF, and the West, but a genuinely capitalist system in which the Russian people were given full property rights (recall the 19th century reforms of serfdom under the Tsars, vs the collectivization schemes of the Communists):

Ironically, the nontransferability of the votchina system’s entitlement was the very flaw a shareholding culture and an equities market could have addressed successfully had Lenin’s revolutionary dictum of "Property to the people! Factories to the workers!" been realized. And such a program existed. It was designed by Larisa Piasheva, a free market Russian economist who was appointed by Moscow mayor Gavriil Popov to design and execute a program for the privatization of Moscow’s assets. Ms. Piasheva’s program was a fearless and rapid plunge into the market which would have distributed property widely into Russia’s many eager hands. Further, the program – inspired as it was by the policies of Ludwig Erhard and his adviser, the renowned Austrian economist Wilhem Ropke - did not rely upon Western lending but instead tailored itself to maximize direct Western investment.

When the Administration says it had no choice but to rely upon the bad actors it did select for American largesse, Congress should recall Larisa Piasheva. How different today’s Russia might have been had only the Bush Administration and the many Western advisers from the IMF, the World Bank, the International Finance Corporation, the European Bank for Reconstruction and Development and the Harvard Institute of International Development then on the ground in Moscow chosen to champion Ms. Piasheva’s vision of a rapid disbursement of property to the people rather than to the "golden children" of the Soviet nomenklatura.

Point four: Russia was looted by its former Communist bosses, and the wealth thus looted was parked in western financial institutions (see above):

And only now, eight years almost to the day later, do US taxpayers learn that the "eager, young reformers" to whom their resources were sent for the purpose of building a new Russia were in league from day one with the exhausted Soviet nomenklatura in a scheme to loot Russia’s wealth and park it in the West.

Once the crime of voucher privatization was fully realized, thereafter ensued a years-long highly-criminal and oftentimes murderous scramble for hands-on control of the enterprises. Directors stashed profits abroad, withheld employees’ wages and after cash famine set in, used those wages, confiscated profits and state subsidies to "buy" the workers’ shares from them. The really good stuff - oil companies, metals plants, telecoms - was distributed to essentially seven individuals, "the oligarchs", on insider auctions whose results were agreed beforehand. Once effective control was established, directors - uncertain themselves of the durability of their claim to the newly-acquired property - chose to asset strip with impunity instead of developing their new holdings.

Point five: the influx of all this additional capital led to inflation of  value on western corporations' shares:

Once the criminal financial flows from Russia and Asia were combined with the easy money common to presidential election cycles and began pumping into the economy in the spring of 1995, it wasn’t long before asset inflation hit U.S. corporate share valuations.

Point six: the IMF was established to prevent the type of asset-stripping and currency speculation that, to a great degree, led to the rise of Hitler and World War Two, but the current policies are counter to the West's own long-term interest and only exacerbating the conditions for general conflict(a point we have been making here in slightly different ways vis-a-vis the Ukraine and Russia):

A world war and a score of years later, the allies established the IMF as a prophylactic money bag to prevent destabilizing trade imbalances and therefore, they thought, a repetition of the preceding decade’s nightmare. Yet over half a century later, the IMF, the World Bank and their similarly US-controlled spawn - the IFC, the six regional development banks and the EBRD - have become 800-pound gorillas of economic distortion and, over time, of pillage which unchecked will guarantee extensive international conflict and a broadly-based anti-Americanism.

Point seven: the playbook is well known and obvious:

Sell assistance programs on an alleged "free market" and "humanitarian" basis by awarding government grants to those academics who can be relied upon to supply the intellectual camouflage politicians and journalists then repeat ad nauseum to a distracted public, move the IMF and the World Bank to target, induce target to raise taxes, fine tune target’s central banking operations, encourage borrowing and debt creation through the target’s government and its national banks, allowing IMF lending to pay yields if necessary; induce target to privatize national property while building a flimsy, artificial "infrastructure" for an equities market good enough to attract high risk foreign investors. Once the target nation’s government flounders, step back and watch speculators assert discipline through a run on the target’s currency. The subsequent devaluation delivers, in turn, a flood of cheap imports to American manufacturers and producers.

The finishing touch on the swindle is to confiscate more money from G-7 citizens (the lion’s share from Americans) to pay for what is said to be an "essential" IMF bailout; thereby allowing Uncle Sam’s IMF minions to entrench themselves more deeply in the target’s government. Taxes are raised, the population struggles beneath indebtedness, government funding demands and the inevitable domestic inflation a devaluation delivers. Western neo-colonialists then bully the target over its rapidly compounding debt in order to extract yet more property. Once successful, the world’s insiders then turn around and deliver cheap shares from privatizations and initial public offerings into the maw of U.S. mutual funds and portfolio investors. US taxpayers get hit coming (foreign aid) and going (bailouts) and innocent foreigners’ property is finagled away either from, or on account of, inattentive and corrupt leaderships. The big winners are the world’s increasingly corrupt and cozy governing class, international bureaucracies and global banks.

Point eight: US policy has been that of deliberate fraud and deceit, and will only backfire against it:

What U.S. policy has wrought across much of the post-cold war landscape is a moral, political and financial abomination based on fraud, theft and deceit.

There's more to the story of the rape of Russia, but this, I think, will suffice to show why Russia is no longer content to be raped, encircled, and demonized. For the careful reader, there is yet another thing evident in this testimony, and that is the close alliance of President Clinton and Harvard University, and of the latter with the financial shenanigans in the rape of Russia. And that, I hope, will also indicate just how corrupt some of our academies really are, and how any pronouncements coming from their "experts" should be taken with a grain of salt. (For an interesting read, also courtesy of Secretary Fitts, see US vs Harvard Pdf, especially the opening paragraph).

Sequere pecunia.

See you on the flip side...

Testimony of Anne Williamson

Before the

Committee on Banking and Financial Services

of the

United States House of Representatives

September 21, 1999

http://bit.ly/2zJqEFm

Before I begin my testimony, I want to take a moment to thank Chairman Leach and Ranking Member LaFalce for the opportunity to share with the House Committee on Banking some of the things I have learned over eight years of watching our Russian assistance program unfold. Chairman Leach, I particularly want to commend your efforts to lead the Congress on this very timely investigation of the true nature and unhappy consequences of our Russian policies.

I should like to add just a few words about myself by way of introduction. I am the author of CONTAGION: THE BETRAYAL OF LIBERTY; RUSSIA AND THE UNITED STATES IN THE 1990s, which will be available to Committee Members and the American public in time for the nation’s Thanksgiving holiday. Prior to beginning my work on the book, I covered just about all things Russian for a broad range of publications which included inter alia The Wall Street Journal, The New York Times, Mother Jones, Art and Antiques, Premiere, Film Comment and SPY Magazine. From the late 1980s until 1997, I maintained homes in both Moscow and the United States. And therefore I can say for much of the last decade I had the privilege of being a witness to a dramatic history and the pleasure and excitement of sharing with the Russian people their remarkable land, language and culture. And it is with a profound gratitude to and a deep respect for that noble, heroic and too long-suffering people that I speak to you today.

In the matter before us – the question of the many billions in capital that fled Russia to Western shores via the Bank of New York and other Western banks – we have had a window thrown open on what the financial affairs of a country without property rights, without banks, without the certainty of contract, without an accountable government or a leadership decent enough to be concerned with the national interest or its own citizens’ well-being looks like. It’s not a pretty picture, is it? But let there be no mistake, in Russia the West has truly been the author of its own misery. And there is no mistake as to who the victims are, i.e. Western, principally U.S., taxpayers and Russian citizens’ whose national legacy was stolen only to be squandered and/or invested in Western real estate and equities markets.

The failure to understand where Communism ended and Russia began insured that the Clinton Administration’s policy towards Russia would be riddled with error and ultimately ineffective. Two mistakes are key to understanding what went wrong and why.

The first mistake was the West’s perception of the elected Russian president, Boris Yeltsin; where American triumphalists saw a great democrat determined to destroy the Communist system for freedom’s sake, Soviet history will record a usurper. A usurper’s first task is to transform a thin layer of the self-interested rabble into a constituency. Western assistance, IMF lending and the targeted division of national assets are what provided Boris Yeltsin the initial wherewithal to purchase his constituency of ex-Komsomol [Communist Youth League] bank chiefs, who were given the freedom and the mechanisms to plunder their own country in tandem with a resurgent and more economically competent criminal class. The new elite learned everything about the confiscation of wealth, but nothing about its creation. Worse yet, this new elite thrives in the conditions of chaos and eschews the very stability for which the United States so fervently hopes knowing full well, as they do, that stability will severely hamper their ability to obtain outrageous profits. Consequently, Yeltsin’s "reform" government was and is doomed to sustain this parasitic political base composed of the banking oligarchy.

The second mistake lay in a profound misunderstanding of Russian culture and in the Harvard Institute of International Development advisers’ disregard for the very basis for their own country’s success; property rights. It was a very grave error. Private property is not only the most effective instrument of economic organization, it is also the organizational mechanism of an independent civil society. The protection of property, both of individuals’ and that of a nation, has justified the existence of and a population’s acceptance of the modern state and its public levies.

Russian property rights are tricky; property has never been distributed, but only confiscated and awarded on a cyclical basis. For the big players property exists, as it always has, only where there is power. For the common man, the property right hasn’t advanced much beyond custom which prevents the taking of any man’s shelter, clothes or tools so long as continuous usage is demonstrable. An additional, purely Slavic feature of the Russians’ concept of property is the shared belief that each has a claim upon some part of the whole.

In ancient ‘Rus, property existed for the individual as a claim - or an entitlement if you will - to a shared asset, a votchina or "estate", held by all the members of a particular clan. This understanding of property still informs the culture; though Westerners bemoan Moscow mayor Yury Lyuzhkov’s retention of the system of the residential permit ("propiska") as an impediment to a flexible labor force, the policy is one of Lyuzhkov’s most popular. Muscovites are well-satisfied with a mayor who polices outsiders as they believe any proprietor of such a great estate as Moscow should.

The Russians’ failure to accept the Roman concept of private property has compelled them to suffer the coercive powers of the state so that at the very least a civil order, if not a civil society, might be established and sustained. The hackneyed idea that Russians have some special longing for tyranny is a pernicious myth. Rather, they share the common human need for predictable event undergirded by civil and state institutions and their difficult history is the result of their struggle to achieve both in the absence of private property.

Since only the Tsar or the Party had property, no individual Russian could be sure of long-term usage of anything upon which to create wealth. And it is the poor to whom the property right matters most of all because property is the poor man’s ticket into the game of wealth creation. The rich, after all, have their money and their friends to protect their holdings, while the poor must rely upon the law alone.

In the absence of property, it was access - the opportunity to seek opportunity - and favor in which the Russians began to traffic. The connections one achieved, in turn, became the most essential tools a human being could grasp, employ and, over time, in which he might trade. Where relationships, not laws, are used to define society’s boundaries, tribute must be paid. Bribery, extortion and subterfuge have been the inevitable result. What marks the Russian condition in particular is the scale of these activities, which is colossal. Russia, then, is a negotiated culture, the opposite of the openly competitive culture productive markets require.

Ironically, the nontransferability of the votchina system’s entitlement was the very flaw a shareholding culture and an equities market could have addressed successfully had Lenin’s revolutionary dictum of "Property to the people! Factories to the workers!" been realized. And such a program existed. It was designed by Larisa Piasheva, a free market Russian economist who was appointed by Moscow mayor Gavriil Popov to design and execute a program for the privatization of Moscow’s assets. Ms. Piasheva’s program was a fearless and rapid plunge into the market which would have distributed property widely into Russia’s many eager hands. Further, the program – inspired as it was by the policies of Ludwig Erhard and his adviser, the renowned Austrian economist Wilhem Ropke - did not rely upon Western lending but instead tailored itself to maximize direct Western investment.

When the Administration says it had no choice but to rely upon the bad actors it did select for American largesse, Congress should recall Larisa Piasheva. How different today’s Russia might have been had only the Bush Administration and the many Western advisers from the IMF, the World Bank, the International Finance Corporation, the European Bank for Reconstruction and Development and the Harvard Institute of International Development then on the ground in Moscow chosen to champion Ms. Piasheva’s vision of a rapid disbursement of property to the people rather than to the "golden children" of the Soviet nomenklatura.

Instead, after robbing the Russian people of the only capital they had to participate in the new market – the nation’s household savings  – by freeing prices in what was a monopolistic economy and which delivered a 2500% inflation in 1992, America’s "brave, young Russian reformers" ginned-up a development theory of "Big Capitalism" based on Karl Marx’s mistaken edict that capitalism requires the "primitive accumulation of capital". Big capitalists would appear instantly, they said, and a broadly-based market economy shortly thereafter if only the pockets of pre-selected members of their own ex-Komsomol circle were properly stuffed. Those who hankered for a public reputation were to secure the government perches from which they would pass state assets to their brethren in the nascent business community, happy in the knowledge that they too would be kicked back a significant cut of the swag. The US-led West accommodated the reformers’ cockeyed theory by designing a rapid and easily manipulated voucher privatization program that was really only a transfer of title and which was funded with $325 million US taxpayers’ dollars.

Voucher privatization’s conceits were compounded by a grievous insult; unregulated voucher investment funds, which the privatizers encouraged the uncertain Russian citizenry to patronize. Hundreds and hundreds of investment funds simply walked with their clients’ vouchers, reselling them to domestic criminals, Red Directors, western investment banks and international money launderers. In other words, the lion’s share of Russian money laundering occurs when capital enters the country, and what we see today in the Bank of New York scandal is, in fact, properly understood as capital flight. When the 18 month-long thieves’ banquet that voucher privatization was concluded in July 1994, the program, whose very design left the controlling shareholding of any single enterprise in the hands of the state, had actually institutionalized the state as the determinant owner of all that had formerly belonged to "the people".

Co-temporaneously with voucher privatization, an early and precipitous Bush Administration initiative was coming to fruition. In early 1992, the "Bankers Forum" project was wheeled into place by a former New York Fed chief, Gerald Corrigan, who at George Bush’s direction sent in a group of experts from the Fed, commercial banks and the Volunteer Corps on an off-the-books mission to teach the Russians at the Central Bank the bond game. Moscow-based Dialog Bank’s Peter Derby, who explained the project’s background remarked, "Basically, when Corrigan asks, I guess no one turns him down, because people reacted instantaneously. It was done by private investors, who were asked by a person you can’t say no to" (my emphases).

The improbable yields (290% on 3-month paper at one point) on the Russian market’s GKO instruments were paid with US taxpayers’ money via IMF loans. Guess where all investment went? By yielding those kind of non-market returns, the bond market insured that all the country’s resources and all that it was capable of attracting went to the support of the state, just as Tsarism and Communism had done previously.

So lush were the bond market’s rewards that dubious market participants included the Russian Central Bank itself through an off-shore firm known as Fimaco. The involvement of the Harvard Institute of International Development’s [HIID] honchos in the same conflict-of-interest activities has already been admitted publicly and remains the object of a Boston Grand Jury’s scrutiny. The Harvard Management Corporation[HMC], which invests the university’s endowment, was also an avid purchaser of Russian bonds, a dubious and unsettling history since there is no legal separation of HMC and the university itself. According to the Russian Interior Ministry’s Department of Organized Crime, Western employees of Russian banks, Western bankers and consultants, Russian bankers and anecdotal evidence, other likely participants include certain employees of the U.S. Treasury, of the multilateral agencies (most especially the World Bank’s Moscow offices), of bilateral aid agencies, and policy and program consultants acting through accounts established in their wives’ maiden names with non-U.S. reporting brokerages in Moscow. Even the Ford Foundation’s Moscow office sponsored its own internal Russian bond shop for which the unthinking Russian managers once asked this reporter to drum up U.S. investors.

One particularly striking aspect of Bill Clinton’s presidency is how aggressively his administration has worked to capture the political support of the financial sector, offering up heretofore unseen gobs of government favor. [A disproportionate number of firms receiving OPIC (Overseas Private Investment Corporation, a government entity) guarantees, Export-Import bank lending, and IFC (International Finance Corporation, the private lending arm of the World Bank) and Russian Enterprise Fund participation were generous contributors to both Clinton campaign coffers and the DNC.] The basic formula was simple, it’s not the rocket science Russia’s Harvard advisers intimated it was: The bread and butter of all equity markets are bonds. Wall Street wanted a debt market. You build it and we’ll come, they said.

The aid program delivered best it could what was in reality a flimsy contrivance, which - in turn - was really only an exotic venue through which to pass public funds to select Russians of the Clintons’ and HIID’s choosing and to Wall Street investment banks the Clintons hoped to entice permanently into their orbit of supporters and contributors. In short, the Russian bond market was the Arkansas Development Finance Authority gone international.

Today the Clinton Administration’s chief defense for their hand in Russia’s ruin is that somebody had to keep the communists at bay. But there were no communists in Russia by late 1991, only nascent investment bankers looking to nail down a stake any which way. Communism had evaporated by late 1987, the year in which the Russian people were allowed to hold convertible foreign currencies. Overnight, the power of money displaced the power of ideology.

Though some now say the loans-for-shares privatization program marked the reformers’ fall from grace, I beg to differ. On 14 September 1991, Vladimir Shcherbakov, the last First Deputy Prime Minister of the Soviet Union, formed with two other partners, one of which was the now notorious Austrian firm, Nordex GmbH, the International Foundation for Privatization and Private Investment [FPI]. FPI’s charter was legitimized by Gorbachev’s signature and approved by 13 heads of what were still constituent republics.

In an interview published in a 1993 issue of VIP, the vanity organ of the commercialized nomenklatura., Shcherbakov reported excellent relations with the new regime of "eager young reformers" – Gaidar, Chubais et al – and their leader, Boris Yeltsin. All hail-fellows-well-met. So too did FPI enjoy similarly sympathetic connections to the EBRD, the IMF and the UN Industrial Development Organization. Shcherbakov even boasted about FPI’s "new approach to the problem of the property of the Western Army Groups in Eastern Germany that comes down to its joint exploitation by Russian and German businesses", an eyepopping admission since a year after the interview was published, the Russian scandal was Bonn’s claim that Soviet weaponry sales to rogue regimes originating in the Western Army Group had amounted to a $4 billion criminal take.

A former employee of FPI, speaking through clenched teeth, reported, "It’s [FPI] not a well-known organization, but it’s one of the most wealthy and most powerful organizations in Russia," and their work was engineering commission-paying deals for money or privilege with the Kremlin, thereby organizing a pipeline of tribute typical of corrupt regimes. "I can’t say it publicly, I can’t prove my position with documents, but I know they were privatizing companies, the very best companies, before we had a privatisation program."

The CIA has determined that through Nordex, FPI seized the export earnings from Russia’s natural resource companies – oil, gas, platinium, gold, diamonds – and from industrial firms exporting items such as steel and aluminum and then stashed the hefty profits in Western bank accounts. And only now, eight years almost to the day later, do US taxpayers learn that the "eager, young reformers" to whom their resources were sent for the purpose of building a new Russia were in league from day one with the exhausted Soviet nomenklatura in a scheme to loot Russia’s wealth and park it in the West.

Yegor Gaidar still insists, John Lloyd was good enough to remind us in his recent New York Times Sunday Magazine article, that "he had no choice but to let prices rise to increase supply and to scrap trade barriers so that foreign commodities could begin to fill store shelves."

Gaidar’s assertion is untenable. The Soviet Union was economically self-sufficient except for bananas, coffee and coconuts. Foreign commodities weren’t required to fill Soviet shops. And even though the ruble was not convertible, that characteristic had nothing to do with the sudden shortages in late autumn 1991, which were only slightly worse than those normally encountered in the last thin years of Gorbachev’s perestroika.

No one had stopped producing, but shops were suddenly nearly empty. Producers had begun hoarding, as had fearful consumers, but why? It wasn’t that Yeltsin announced in November 1991 that the government intended to free prices, it’s that he also announced the exact date on which prices would be freed. Predictably, producers withheld their product from market and rubbed their hands together like flies awaiting the coming feast which Yeltsin’s newly announced policy guaranteed. Within a week of the ill-considered speech, Muscovites’ needs were being rationed.

However, Gaidar really was under pressure, but the pressure was coming from the West to open Russia to unrestricted imports in return for multilateral lending. Gaidar soon delivered a trade policy that was 100% back-to-front, accommodating as it did the self-serving demands of both the West and Russia’s nascent banking oligarchy; Russian manufacturing was to take the brunt of unrestricted foreign competition, but domestic banking was to be protected from competition! Even Russian Central Bank Chairman Viktor Gerashchenko protested, but the Russian bankers were accommodated and the IMF continued lending. So much for the "leverage" foreign policy elites claim foreign assistance programs provide the U.S.

In 1991, there was no hope whatsoever that wheezebag Soviet industries could compete with Western products. For decades, prices were set by Gosplan (State Ministry of Central Planning), any enterprise profits were claimed as Soviet tax revenues, all customer bases were guaranteed and therefore no enterprise had a financial incentive to compete. Without competition, there was never any need to improve quality.

How could freeing prices alone change this equation? Free prices only work to the benefit of consumers when producers compete with one another in the marketplace to satisfy customers’ demands, leaving consumers postitioned to reap the most benefit at the lowest price. Clearly, an equitable and transparent privatization that would have delivered property widely to Russia’s many eager hands should have preceded the freeing of prices. And during privatization, native producers should have enjoyed some protectionism at least, as did developing American industry and manufacture in the 19th century.

Competent advisers would have known Russia never did develop an effective banking sector and system of credit in a 1000 years of her history. The story of Russian banking – ancient and modern – always has the same plot, only the names and the dates change. S.Y. Borovoi’s easily obtained history of 18th century banking outlines a typical episode involving a certain "Suterland, who received 2 million pounds for transfer to London, but instead lent the sums to Prince Potyomkin (800,000), Finance Minister Vyazemsky, Foreign Minister Bezborodko and even to the future emperor Pavel. The debt of these honorable people was, according to the custom, forgiven and paid by the state." (My emphasis)

Certainly eager Western banks should have been given admission to Russia. By working initially with more developed and well-capitalized Western banks and later by competing with them, Russian banks could have developed quickly and today be mediating capital responsibly and profitably. No good economic purpose was achieved by foisting subsidized billion dollar loans onto Russia for the purchase of Western consumer goods.

Once the crime of voucher privatization was fully realized, thereafter ensued a years-long highly-criminal and oftentimes murderous scramble for hands-on control of the enterprises. Directors stashed profits abroad, withheld employees’ wages and after cash famine set in, used those wages, confiscated profits and state subsidies to "buy" the workers’ shares from them. The really good stuff - oil companies, metals plants, telecoms - was distributed to essentially seven individuals, "the oligarchs", on insider auctions whose results were agreed beforehand. Once effective control was established, directors - uncertain themselves of the durability of their claim to the newly-acquired property - chose to asset strip with impunity instead of developing their new holdings.

Unsurprisingly, the entire jury-rigged effort has collapsed in flames. The bond market has gone bust, Russia is crushed by her IMF loan payments, and OPIC’s nearly $2 billion in U.S. taxpayer-provided guarantees are yet to be resolved. The West’s best course under whatever new government the Russian people elect is to take its own advice, stop meddling, cease all subsidies and allow what few market mechanisms that do exist in Russia to work. The sooner the banking industry’s pylesos ("vacuum cleaners") are allowed to fail, then the sooner the national property can return to market where more able and productive hands might yet grasp it.

Until Russians have resolved for themselves how property is to be held and secured their decision de jure, all the destructive economic arrangements and cultural behaviors crowding Russian history will continue. Wealth will not be created without private property; without transferable property secured legally to protect no Russian will pay taxes; without revenues no Russian government can endure without falling back upon what is every state’s final reserve; coercion.

The years-long sugarcoating of what the Clinton administration’s policies have wrought in Russia is just one more lie bequeathed Americans. More Western money will only work to insure the continued degradation of Russia, bequeathing her people a future that can be discerned in that most familiar object of Russian folk culture - the Matryoshka nesting doll - a perfect, visual metaphor of Russia’s Brechtian universe: Each figure is captive, one inside the other, and in the end the biggest doll consumes the lot.

Turning to the question of the IMF and the World Bank generally and their specific roles in international finance, much needs to be said. When libertarians say that government produces nothing, they make a serious error. Government produces one thing in abundance - our money. U.S. paper fiat dollars have no intrinsic value and circulate only by faith and by edict. Consequently, the dollar in a baby boomer’s pocket is worth but the penny that was in his grandfather’s purse less than a century ago. But granddad’s penny was one hundredth of a gold-backed dollar’s value, while today’s dollar is the product of a government-operated pyramid scheme. Once the state slipped the "golden handcuffs" of budgetary discipline through the establishment of the Federal Reserve System, it gained the ability to create unlimited debt, thereby claiming for itself what before had been the purview of tyrants - the ability to debase the currency. It is the slow leaching of value from the U.S. dollar, not the far lesser sums raised by direct taxation, which has enabled the political class to purchase votes for its re-election, creating massive dependencies upon government amongst the citizenry in the process. The end result is the degradation of American society and the citizenry, a situation much remarked upon.

Any pyramid scheme remains viable only so long as its base continues to expand and it is that fact which has driven US foreign policy for much of the past century. Since politicians and investment bankers both have an interest in promoting deficits and in forcing taxpayers to redeem government debt, they were quick to come to terms on the advantages of underwriting foreign debt along with new markets and natural resources from abroad. Taxpayer-subsidized globalism then is not a new phenomenon, but it has reached an apogee of sorts under the guiding hand of the opportunistic Clinton Administration.

Once the criminal financial flows from Russia and Asia were combined with the easy money common to presidential election cycles and began pumping into the economy in the spring of 1995, it wasn’t long before asset inflation hit U.S. corporate share valuations. Throughout 1995 and 1996, the money supply kept rising, and along with it mutual fund holders’ paper wealth. Attracted by the double-digit yields found in risky, unregulated environments abroad, the banks - given the election year liquidity the Fed wished to export - lent unwisely and to excess. The moral hazard the 1995 $40 billion bailout of Mexico unleashed (the debt was refinanced, not repaid, with additional IMF lending and proceeds from eurobond sales in 1996) led to a tripling of international capital flows. Investors took greater and greater risks in the belief that the "new paradigm" economy promised taxpayer-provided redemptions if necessary. The consequence of all those dollars frolicking in exotic locales is a $141 billion bailout for Asia, more than $20 billion for Russia in 1998 alone, and $30 billion for Brazil in 1999.

Cures under discussion all share one quality; each has some aspect that degrades American citizens’ independence and prosperity while delivering yet more more to intrude to the political class. It is one more irony of the post-cold war environment that ambitious American policymakers, who were so busy "reforming" Russia in the most appallingly cavalier and self-serving fashion, failed to honor the lesson Russia has to teach, i.e. liberty and empire do not cohabit.

The 1930s were the last era in which the international political and financial elite sought advantage through control of the global economy. What economists call "hot money" raced from one nation to the next throughout that era, leaving a trail of competitive currency devaluations in its wake. Six decades ago, as nation after nation was humbled by and strangled with the manipulations of the financial world’s insiders, history saw fit to serve up Adolph Hitler.

A world war and a score of years later, the allies established the IMF as a prophylactic money bag to prevent destabilizing trade imbalances and therefore, they thought, a repetition of the preceding decade’s nightmare. Yet over half a century later, the IMF, the World Bank and their similarly US-controlled spawn - the IFC, the six regional development banks and the EBRD - have become 800-pound gorillas of economic distortion and, over time, of pillage which unchecked will guarantee extensive international conflict and a broadly-based anti-Americanism.

During the Cold War, the International Monetary Fund got itself repeatedly into all sorts of financial and ethical mishaps in the West’s effort to contain the Soviet empire. But the IMF’s excesses were of little concern so long as its financial firepower could be directed at whatever nation appeared on the verge of toppling into the Soviet camp.

No longer serving in an arguably wasteful manner what was nonetheless an agreed national purpose, the IMF has come to function increasingly as the personal gift of the office of the U.S. Treasury courtesy of that office’s service to the US presidency. The US-dependent IMF has been well pleased; far easier to serve a single master than answer to a committee of Congressmen such as yourselves.

The ascendancy of Treasury in foreign policy at the State Department’s expense is the result of a neo-mercantilist foreign policy in which enterprise is to be subject to direction from the presidential administration it is to serve. By expanding the mandates and accelerating the use of a host of international agencies in which the US is dominant - the IMF, the World Bank, the EBRD, the regional development banks, the IFC - and combining their efforts with those of the Commerce Department, the Export-Import Bank, OPIC and USAID-financed Enterprise Funds, the Clintons succeeded in constructing an international patronage machine in which the American executive stands supreme.

Today the president’s men are seeking to institutionalize the socialization of private investors’ and global bankers’ risks in international markets via a freshly-capitalized IMF. The price of the US’s $3.5 billion contribution to the proposed IMF bailout fund on top of another requested $14.5 billion was said to be insignificant when weighed against the financial calamity of a worldwide recession that IMF ministrations and policing could avert. But how true is this?

Taking the IMF’s behavior in Russia as a guide, the answer is that we can expect a rapid escalation of taxpayers’ liabilities in the service of failed policies. After the chaos unleashed by the Fund’s initial advocacy of a single ruble zone for the Commonwealth of Independent States, which handed management of the ruble to 12 central banks, the Fund’s monetary sages settled down to their more usual business of lending large sums in return for secret, IMF-designed recovery programs always said to be strictly enforced. In Russia’s case, only the rhetoric of strict conditions was enforced.

For example, when the IMF touted a 1996 $10.2 billion loan on the basis of what an extraordinary job Russia had done in meeting the conditions of a 1995 $6.7 billion loan, one crucial detail went unmentioned. The $6.7 billion loan was extended without any conditions via the IMF’s Systematic Transformation Facility, a program designed to funnel money to Russia in return for "the promise to reform". Also left unsaid was that through the magic of money’s fungibility, the $6.7 billion loan financed - almost to the kopeck - Yeltsin’s bloody and disastrous assault on Chechnya.

Following the Russian Communists’ success in the December 1995 parliamentary elections, the Fund proceeded into even dodgier territory with the 1996 $10.2 billion loan, which came front-loaded with a billion dollars meant for Yeltsin’s re-election. Tape recordings of conversations between Mr. Clinton and Mr. Yeltsin made public demonstrate that in return longtime Clinton supporter and campaign donor Tyson Chicken’s exports to Russia – a $700 million annual business – were protected from a threatened 20% tariff increase.

Once the first tranche’s payout of a billion plus dollars arrived the following May, Yeltsin pulled out all the stops; back wages for state employees and pensions were paid, and after the IMF’s billion was consumed, the capricious Siberian ordered his initially mulish Central Bank to hand over a billion more. The IMF said nothing despite claiming the Fund’s main achievement during the previous 6 months was legislation establishing the Russian Central Bank as an independent institution. Therefore, the Fund’s current denial of any knowledge of the Russian Central Bank’s offshore operations through Fimaco is dubious at best.

But weren’t Americans told that Russia’s financial oligarchy paid for Yeltsin’s re-election? To the contrary, Russia’s bankers made serious money on Yeltsin’s electoral weakness by buying government bonds at distressed prices using cheap money handed over from government deposits. The lion’s share of the domestic bonds’ high yields have always been paid with IMF loans. Russia’s first representative to the World Bank, Leonid Grigoriev, explained, "Of course, the government was to return this money and that is why the yields on 3-month paper reached as much as 290%. The government’s paying such huge, impossible rates on treasury bills, well, it’s completely unbelievable. It had nothing to do with the market and therefore such yields can only be understood as a payback, just a different method."

Clearly, building an empire of finance capitalism is an expensive business. But who pays? U.S. taxpayers, who paid directly through contributions to both multilateral and bilateral assistance efforts, and Russian workers, who paid indirectly by having their wages go unpaid and their national estate continually degraded. Secondly, the Russian people paid by being denied a means of exchange since the banking and trade sectors of the economy were quick to socialize amongst themselves what few rubles the IMF’s tight money policies allowed the Russian Central Bank to print.

"The new paradigm" economy concocted by the Harvard-connected Clinton Administration appointees in the U.S. Treasury, was designed to extend the federal government’s meddling hand worldwide through its control of the multilateral and bilateral public lenders, enabling government a free ride on the back of a re-structured U.S. economy grown vigorous and ever more innovative on account of the benefits the Reagan era’s low taxation, moderate inflation, reduced regulation and expanding world trade had delivered. The overall scheme works as follows:

Sell assistance programs on an alleged "free market" and "humanitarian" basis by awarding government grants to those academics who can be relied upon to supply the intellectual camouflage politicians and journalists then repeat ad nauseum to a distracted public, move the IMF and the World Bank to target, induce target to raise taxes, fine tune target’s central banking operations, encourage borrowing and debt creation through the target’s government and its national banks, allowing IMF lending to pay yields if necessary; induce target to privatize national property while building a flimsy, artificial "infrastructure" for an equities market good enough to attract high risk foreign investors. Once the target nation’s government flounders, step back and watch speculators assert discipline through a run on the target’s currency. The subsequent devaluation delivers, in turn, a flood of cheap imports to American manufacturers and producers.

The finishing touch on the swindle is to confiscate more money from G-7 citizens (the lion’s share from Americans) to pay for what is said to be an "essential" IMF bailout; thereby allowing Uncle Sam’s IMF minions to entrench themselves more deeply in the target’s government. Taxes are raised, the population struggles beneath indebtedness, government funding demands and the inevitable domestic inflation a devaluation delivers. Western neo-colonialists then bully the target over its rapidly compounding debt in order to extract yet more property. Once successful, the world’s insiders then turn around and deliver cheap shares from privatizations and initial public offerings into the maw of U.S. mutual funds and portfolio investors. US taxpayers get hit coming (foreign aid) and going (bailouts) and innocent foreigners’ property is finagled away either from, or on account of, inattentive and corrupt leaderships. The big winners are the world’s increasingly corrupt and cozy governing class, international bureaucracies and global banks.

What U.S. policy has wrought across much of the post-cold war landscape is a moral, political and financial abomination based on fraud, theft and deceit. In Russia the results of the Clinton Administration’s policies are the perpetuation of the longest depression of the 20th century in what is increasingly an unpoliced deadly weapons dump, the biggest swindle of national property since Vladimir Lenin muscled the country early in the century and the discrediting of the ideas of free markets and democracy.

But as the old saying has it, what goes around comes around. Unfortunately, all those dollars the Fed printed to get Bill Clinton re-elected in return for Alan Greenspan’s third appointment as central bank chief, are now returning to the United States in the form of manufactured goods and commodities with which U.S. producers can not compete on price.

When exchange rates fluctuate against one another as they do now, some countries will inflate more quickly than other countries. The G-7 are the only nations that try to co-ordinate their monetary policies and the effort usually ends up a failure over time. When one country inflates too quickly, the value of its currency will decline.

Some governments - especially those with an election on the horizon - actually want to devalue since national exporters, their goods now being cheaper, sell more goods. Global lenders like the IMF are also fond of devaluations because a rising national income from bargain exports leaves plenty in the national kitty for principal and interest payments to them. (Global direct investors who stick to the dollar, quasi-"good guys", fear devaluations, because their profits calculated in a devalued domestic currency buy fewer dollars for repatriation.)

But when exchange rates depreciate rapidly the specter of capital flowing out of a country appears. Foreigners and residents put their savings elsewhere. The currency goes into free fall, its value plummets, more investors flee and at the end of the cycle, interest rates skyrocket. This is exactly what happened in Asia in 1997, in Russia in 1998 and in Brazil in 1999.

Yet to curse the speculators is useless; since the 1972 collapse of Bretton Woods that broke the international link between the dollar and gold, the fear of the syndrome described above is the only remaining bit of discipline in the international system. How much better, the globalists reason, if there were to be one central bank and one fiat currency for everyone so that then national leaderships (and the financial oligarchies they sustain) could inflate and rob their own populations in unison.

In time, U.S. corporate profits will decline as a consequence of the IMF-induced deflation and share prices of all but premiere multinational corporations will follow suit. Alas, those Americans up to their necks in credit card debt may well be the next class of debtors to be rolled, and American farmers are already suffering serious losses from the collapse of farm commodities prices. In time, credit will dry up, government receipts will dwindle, the national debt will skyrocket and unemployment will increase. Eventually the government will inflate its way out of its accumulated debt.

Before concluding my remarks, I would like to recall one curious and mostly unremarked detail from 1994, that sticks out in this sad story like a boy’s unruly cowlick. In mid-July 1994 - at the very moment dollar-based Mexican tesobonos were being oversold to prosperous clients of Goldman Sachs and other U.S. investment banks, which, in turn, would lead to the 1995 Mexican bailout and the introduction of moral hazard into the world’s financial system - Michel Camdessus told a press conference that he intended to press for the creation of a new IMF facility to give members resources with which to defend themselves against speculative attacks in financial markets.

In other words, long before bailouts of entire countries became routine Camdessus wanted a new loan program to feed the last disciplinarians in the world’s financial system - currency speculators - so that national governments might become even more unaccountable to their citizens. At the time, The Economist slammed the proposal, saying it was "absurd and almost certainly unworkable," since Camdessus "bizarrely" was assuming the IMF would know more about economic fundamentals than the markets. And that assumption, The Economist noted, was the very assumption which had been the undoing of the USSR’s centrally planned empire. But Camdessus’ 1994 plan is the very one the Clinton Administration implemented and seeks to institutionalize.

So who wags the tail of the money dog? Citizens who labor to create wealth for themselves and their families or folks like IMF chief Michel Camdessus, a French socialist and lifetime bureaucrat, and his deputy, Stanley Fisher, who together are quite possibly the two most incompetent people on the planet? Sadly, it appears a once free people are slowly but surely being enserfed to globalism’s useless hors d’oeuvres eaters and incompetent lenders.

It doesn’t take a conspiracy theory to observe that the downward arc of citizens’ liberties, independence and civic competence and of American culture generally parallels the declining value of the U.S. dollar, which has lost 99% of its value since the founding of the Fed, and 75% of that debasement has occurred since the last link with gold established by Bretton Woods collapsed in 1971. From that perspective, it’s really not very surprising that at the end of the century, not quite a century after America instituted the Federal Reserve and thereby began the process that would deliver the power of creating unlimited debt to the political class, the White House is occupied by a couple who share not so much a marriage as they do a collection of felonies.

Throughout the 1990s, finance capitalism’s shills have been a "new paradigm" economy so glorious one might have thought Beatrice awaited us each and every one at the very lip of Heaven itself. Their brassy tune celebrated the defeat of the business cycle by globalization, productivity gains and computer technology. Inflation was tamed, the golden horns sounded, and we were to dwell eternally in lush fields of full employment, low interest rates and a booming stock market. And, insiders winked, foreign money once mugged by speculators would have nowhere else to go but directly into Wall Street’s money machine.

But what if - instead of Beatrice - what waits over our collective shoulder down Purgatory way is a repeat of the European currency instabilities of the 1930s, which culminated in the most viscious and widely-fought war in world history?

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity - not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people - their abilities, efforts and dreams - which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet - on the Russian people - and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tarrifs on Russian goods.

Russia is a fabled land, home to a unique and provocative thousand year-old culture, and a country rich in the resources the world needs whose people had the courage and resilience to defeat this century’s greatest war machine, Hitler’s invading wehrmacht. Yet, thanks to Boris Yeltsin’s thirst for power and megalomaniacal inadequacy, Russia has become the latest victim of American expediency and of a culturally hollow and economically predatory globalism. Consequently, Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed.

The worst of it was that some pretty good ideas - private property, sound money, minimal government, the inviolability of contract and public accountability - that have delivered to the West’s citizenry the most prosperity and the most liberty in world history, and might have done the same for the Russians, were twisted into perverse constructions and only then exported via a Harvard-connected cabal of Clinton administration appointees who funded - without competition - their allies at Harvard University courtesy the public purse. Joining the US-directed effort were the usual legions of overpaid IMF/World Bank advisers whose lending terror continues to encircle the globe.

But where, in a land in which today more of the people die each year than are born, lies the gain? History’s yardstick will measure out the answer, and I suspect it will not suit us.

HTML version courtesy of the J. Orlin Grabbe Homepage:

orlingrabbe.com

www.aci.net/kalliste

ONE ON ONE with Janine Wedel:

GSPIA scholar reveals how misguided U.S. economic aid hurt post-communist Russia

University Times, University of Pittsburgh

v. 33, No. 8, December 7, 2000.

http://janinewedel.info/bio_perspectives00.html

"Only a few years ago, American policymakers were confidently predicting that a regimen of privatization and market reform would in due course transform Russia into a stable and prosperous democracy," Janine R. Wedel wrote in the spring issue of The National Interest.

As "Bill and Boris" hugged and mugged for the cameras, a cozy new era in U.S.-Russia relations seemed to be dawning, Wedel recalled. American economic aid, expertise and good will would see to that.

Instead, Russians today face poverty, crime, corruption and rickety democratic institutions -- the legacy of ill-planned, poorly executed and misdirected U.S. foreign aid, according to Wedel, an anthropologist and associate professor in Pitt's Graduate School of Public and International Affairs (GSPIA).

Wedel analyzed what she calls the "gigantic disconnect" between East and West -- "forged by the Cold War and exacerbated by the barriers of language, culture, distance, information, and semi-closed borders" -- in her book, "Collision and Collusion: The Strange Case of Western Aid to Eastern Europe 1989-1998" (St. Martin's Press).

The book also is a cautionary tale about the dangers posed by newly emerging "power elites" and "econolobbyists" whose interests transcend national borders, and it recently earned Wedel the 2001 University of Louisville Grawemeyer Award for Ideas Improving World Order. The award carries with it a $200,000 cash prize.

"Collision and Collusion" was chosen from among 51 nominations submitted by individuals and organizations throughout the world. "This is a book that is bound to have a long-term impact on the practice and politics of foreign aid from the West to non-western economies," said the Grawemeyer selection committee.

Wedel, who also is director of research development at GSPIA's Ridgway Center for Security Studies, has studied the evolving economic and social order in eastern Europe for 20 years, including eight years of field research there. A three-time Fulbright fellow, she has received awards from the National Science Foundation, the MacArthur Foundation, the Woodrow Wilson International Center for Scholars, the United States Institute of Peace, and the National Council for Eurasian and East European Research.

As a policy analyst/anthropologist, Wedel has testified before congressional committees and frequently participates in National Research Council and National Academy of Sciences workshops. She is a member of the U.S.-Ukranian Working Group on Organized Crime.

She has served as associate producer of three PBS documentaries on eastern Europe and has contributed articles and opinion pieces to more than a dozen major publications, including The New York Times and the Los Angeles Times. In addition to her Grawemeyer Award-winning book, Wedel wrote "The Unplanned Society: Poland During and After Communism" (Columbia University Press, 1992) and "The Private Poland: An Anthropologist Looks at Everyday Life" (Facts on File, 1986).

Wedel earned a Ph.D. in anthropology from the University of California-Berkeley, a master's degree in anthropology from Indiana University, and a bachelor's degree in history and the social sciences and German from Bethel College.

University Times Assistant Editor Bruce Steele interviewed Wedel this week.

University Times: In your book, you argue that "the West's misguided aid efforts opened the door to misunderstandings and ill will on a massive scale." What went wrong?

Wedel: To begin with, it was naive to think that you could suddenly destroy well-entrenched institutions and start from scratch, as some Western economists recommended. My first two books were about informal social networks and how they shaped society and its institutions, even under communism. To have the intended effects, you had to recognize and take into account those patterns and cultural practices, and Western donors failed to do that.

I don't think that the West was equipped or prepared to intervene in the societies of central and eastern Europe and the former Soviet Union. These were not Third World populations; these were highly literate peoples whose educational systems were better in many cases, at least at the secondary school level, than those in the United States. On the one hand, Western donors employed the standard Third World aid machine, and on the other hand they set up new bureaucracies and institutions to work in the region. Neither translated very well to former Soviet bloc countries.

Beginning in 1989, after the Berlin Wall fell and the communist regimes in central Europe collapsed, hundreds of Western "fly-in, fly-out" consultants and advisers appeared on doorsteps of Eastern elites. This was a period of triumphalism. There was this euphoric sense that if the Berlin Wall came down, everything else would magically fall into place. But what Western advisers and experts encountered in these former communist countries were local elites who were very well-educated and highly literate, but who didn't necessarily know what to do. No one had the answers about how to convert communist economies into capitalist systems, not even the Western "experts."

What the eastern Europeans encountered, first, was this horde of Western advisers who, in many cases, didn't know much about the societies in which they were attempting to intervene. This led to what I call the second phase of the aid relationship: disillusionment. Both sides were frustrated, and eastern European officials began to say things like, "The major contribution Western consultants make to our economies is that they spend money here on hotels and restaurants and service people, and on hiring local translators and secretaries."

When the Soviet Union came apart in 1991, many of the Western consultants who had been working in central and eastern Europe went east to work in Russia and, later, in Ukraine. The dynamics just transferred from one society to the next: First, this great euphoria. And then, disillusionment.

Western aid programs were really rather fragmented. A lot of consultants from different countries got involved. Money was not very well targeted and certainly not coordinated. One exception was U.S. economic aid to Russia. That was effective -- unfortunately.

Responsibility for distributing $350 million in U.S. economic aid to Russia was essentially delegated to consultants associated with the Harvard Institute for International Development. These Harvard Institute consultants, in turn, worked almost exclusively in Russia with a group centered around Anatoly Chubais, who became an indispensable aide to Boris Yeltsin through much of the 1990s. This group became known as the Chubais Clan. The group got access to so much Western aid, thanks largely to the Harvard people, and wielded tremendous influence.

The Harvard-Chubais group was responsible for privatizing the Russian economy. And privatization, we now know, was heavily corrupt. It was supposed to be about wealth creation, creating a market economy. It was more about wealth confiscation. Sufficient attention was not paid to establishing the rule of law or to third-party dispute settlement. Informal groups such as oligarchies, clans, financial-industrial groups and so on were often able to get, and do, what they wanted.

You might have read that Harvard University, along with the two people in charge of the Harvard-Russia project and their wives, recently were sued by the U.S. government for $120 million. [NOTE: The U.S. Department of Justice alleges that the defendants used their positions and inside knowledge to profit from investments in the Russian securities markets and other private enterprises. In 1997, the federal government canceled most of the remaining aid it had earmarked for the Harvard Institute for International Development. Harvard closed the institute this year.]

It's one thing to criticize America's foreign aid policy. But to accuse Harvard of illegally profiting from foreign aid contracts, with help from Harvard-connected officials in the Clinton admini-stration....I'm curious how your book and journal articles have been received in academic circles.

I wrote an article called "Tainted Transactions: Harvard, the Chubais Clan, and Russia's Ruin," that was published in last spring's issue of The National Interest. It attracted a lot of attention. Some of the people whose activities and relationships I discussed in the article, notably some of the players associated with Harvard, responded quite virulently and emotionally. But support for my argument came out of the woodwork from many people who had witnessed aspects of the Russian aid story: Economists who had warned about the policies being implemented and the players being rewarded; American diplomats who had been posted to Moscow and had been concerned about the anti-democratic nature of U.S. policies -- how we had given a blank check to one group of Russians at the expense of others who supported the United States during the Cold War, and how we had alienated so many potential supporters.

I think the reason my book has attracted so much attention is because it hit a nerve. So many people have had some experience with the Russian aid story. When I came along and described the on-the-ground processes and responses to aid, many people welcomed that. Of course, there were those who didn't.

Harvard was able to gain control over so much USAID [U.S. Agency for International Development] funding, largely on a non-competitive basis, only because of the support and promotion it received from Harvard-connected officials at the top levels of the federal government, notably in the U.S. Treasury. When I began to put that together -- and I'm sure that what I know, and what the Justice Department knows, is only the tip of the iceberg -- some saw my work as being subversive. One person at the CIA told me that he and his colleagues were carrying around my article in brown paper bags.

How much U.S. economic aid was wasted or misdirected?

Public policy debates tend to focus on "how much" and "for what." But what's interesting to me is the processes of aid. In the case of U.S. economic aid to Russia: Who got the contracts? Who were the designated representatives on both sides? How did those representatives relate to each other and to local recipient communities?

The U.S. economic aid portfolio largely controlled by Harvard and the Chubais Clan was "only" about $350 million, but that aid was targeted. It paid for the design, implementation and promotion of privatization in Russia, among other things.

To put this in perspective on a small scale, imagine if someone from outside the University of Pittsburgh were to say: "I want to give Pitt a $3 million grant. I'm very impressed by the University Times, so I'm going to give all of the $3 million to the University Times and charge its staff with distributing that money around the University." I imagine that you would immediately become an important person, politically, at Pitt -- not necessarily because you had clout or influence or prestige to begin with, but because you now have access to this money.

That's roughly what happened with U.S. economic aid to Russia. We said, "Here are the reformers, the people we think are enlightened. We're going to let them manage the aid and implement their vision." That had an effect on Russian politics. This small group of so-called reformers, with access to hundreds of millions of dollars in Western aid, became the people to deal with. This shows how aid can play an important role in rearranging political-social relationships. The process can be completely anti-democratic.

How have the Russian people fared since the fall of communism?

The standard of living for many Russians, by whatever measure you want to use -- income, purchasing power, life expectancy, infant mortality -- is worse than it was 10 years ago, before the so-called reforms. Of course, Western aid cannot be blamed for all of this. But, unfortunately, certain aid policies did contribute.

Some Western pundits say it's unfair to blame ourselves for crime, corruption and the failure of democracy in Russia. After centuries of tsarism and communism, weren't Russia's recent hardships bound to happen?

If there was no hope of reform, why did we intervene in the first place? The fact is, some of the policies promoted by the West, particularly quick privatization, have been detrimental to Russian society. Western aid policies have damaged U.S.-Russian relations and Russia's relations with the West in general.

Many sophisticated Russians think that the United States set out deliberately to destroy their economy. One can understand how they came to that conclusion. Hundreds of foreign advisers and billions of aid dollars later, many things are worse. So, when officials at the U.S. Treasury and Harvard say, "Well, there was nothing that could be done, Russians have always been corrupt" -- that's a refusal to accept responsibility.

The major news media only began discussing Russian corruption in the last few years. Through the 1990s, Western press coverage consisted mainly of promoting U.S. policies and the so-called reformers in Russia. But now, I think, we're seeing a lot more about Russian corruption and will continue to do so. It's now convenient to blame Russia for what went wrong. Of course, there are precedents for corruption in Russian society and culture. That's precisely why the task of the Western aid community was to establish the rule of law and discourage corruption, rather than encouraging it -- which is precisely what U.S. economic policies did.

Frankly, Russians under communism weren't practiced in laundering money or siphoning billions of dollars into Swiss bank accounts. I've interviewed Western lawyers who made lots of money during the 1990s, working for Russians to help them set up precisely those kinds of arrangements. All of this did not happen in a vacuum. Western bankers had an interest in having Russians deposit monies in their banks.

In addition, the big Western consulting firms got huge contracts for work in the former Soviet bloc countries during the 1990s. That helped them move into the region and scout out business opportunities. Advisers from Harvard allegedly got involved in all sorts of business activities and that's why they're being sued. They were in a position to have intimate knowledge -- in fact, in some cases they were making decisions about economic policies -- and allegedly they used that insider information to wheel and deal.

You've noted the emergence of "global elites" -- power-brokers who, as you wrote, "see themselves not so much as American, Brazilian or Italian, but as members of an exclusive and highly mobile multinational club, whose rules and regulations have yet to be written."

The case of U.S. economic aid to Russia is a cautionary tale. In pursuing their own group and personal agendas, the Harvard people and the Chubais undermined the interests of the countries they were supposedly representing.

I think we're going to see more of this under globalization. We have an ever-growing number of global elites who have more in common with each other than they do with particular nations.

At the same time, the role of the nation-state is changing. Some functions of nation-states are now being performed by international organizations, non-governmental organizations and private groups. But legal structures have not kept up with this trend.

It was never clear in Russia who some of the high-profile Western economists -- I call them "econolobbyists" -- were representing. One of the Harvard professors sometimes presented himself as an adviser to the Russians. Other times, he acted as an adviser to the International Monetary Fund. Still other times, he functioned as an adviser on U.S.-Russian relations to the American government.

The manager of the Harvard program in Russia was authorized by the Russians to sign off on some high-level privatization decisions. When U.S. federal investigators went to Moscow, this American consultant said, in effect: I didn't make this decision as an American, I made it as a Russian. Can you imagine a representative of, say, Zambia being given authority to sign off on key policies of the U.S. Energy Department?

What are you working on now?

I'm developing my theory of transactorship, which grew out of the U.S.-Russia aid case. Transactorship is a motive organizing relations between parties that have been culturally and societally separate. In transac-torship, the separated parties have representatives I call transactors, whose job it is to build bridges between the two parties. Ultimately, transactors become more loyal to each other than to the parties they supposedly represent. The representational fraud that results is one of the features of transactorship. This may, intentionally or inadvertently, undermine or subordinate the aims of the parties for whom the transactors came together in the first place and on whose behalf they ostensibly act.

Kto Kogo?*

The NATO Syndrome, the EU’s Eastern Partnership Program, and the EAU

By Anne Williamson

March 21, 2014

https://www.lewrockwell.com/2014/03/anne-williamson/americans-are-the-new-bolsheviki/

In 2009, Poland and Sweden, ever attentive to the US’s geostrategic goals of isolating Russia and gaining control of China thereafter, initiated the Eastern Partnership program, which its sponsors said was intended to tighten ties with former Soviet Republics, such as Moldova, Armenia, Kyrgyzstan, and Ukraine.  A trade pact is a part of the Partnership’s Association Agreement (AA) deal.

What the Russians saw in the EU initiative was a repeat of the “NATO Syndrome,” in that what was promised would soon be betrayed, i.e. no NATO expansion in exchange for a Soviet agreement to the reunification of Germany.

To Russian eyes, NATO’s 1999 expansion throughout Eastern Europe and the subsequent celebratory bombing campaign against Serbia, inaugurated just one month later, and the still later Albanian annexation of Serbia’s heartland province of Kosovo, were altogether the Clinton Administration’s triple-combo opening salvos in an American campaign to recreate the Versailles Treaty’s cordon sanitaire.  And the 2009 Association Agreement is but a Trojan horse whose only practical purpose is to advance US and EU interests at the expense of the former Soviet republics’ naïve hopes and Russian security.

Dangling the Association Agreement’s implied – but not certain – right of eventual EU membership before the economically struggling former Soviet republics was but a means to beguile them into the EU orbit and thus US control with a future as NATO base hosts and IMF lab rats.

When the terms of the AA are examined, Russian skepticism is understandable.  The 350 laws alone that Ukraine would be required to institute over a ten-year period at a cost of twice the nation’s projected GNP in the same time period would overwhelm the struggling country, few of whose industrial and manufacturing products are either wanted or needed in the EU.

But whether or not Ukraine ever managed to fulfill EU conditions for membership would be of no importance to the U.S.  Once bound tight with IMF conditions and saddled with World Bank loans and perpetual debt, thereafter the west could leave the AA’s signatories to rot in limbo for years while their territory, cheap labor and resources were put to other, alien purposes.

The Russians saw as well that both the countries of the former Soviet Union and Russia, sandwiched as they are between large geopolitical units (China and the EU,) are disadvantaged when negotiating trade treaties and other matters.  Thus was born the idea of a new structure, the Eurasian Union (EAU), which began with the establishment of a Customs Union between Russia, Belarus and Kazakhstan in 2010.  The Russian plan was to inaugurate the Eurasian Union in 2015 with the inclusion of Armenia, Kyrgyzstan and Ukraine.

It is the Russian EAU initiative which is said to be Putin’s ham-fisted attempt to re-establish the Soviet empire, and not the plan of a man who accepts the world’s current political configuration and is attempting to place his country within that configuration as advantageously as possible.  It’s been a hard sell.

Without Ukraine, a Eurasian Union is at risk of never coalescing usefully, leaving the former republics and Russia vulnerable to neocon and globalist raids and incursions, possibly under cover of staged terrorist events.  In effect, the consequences might not be dissimilar from the days when Russian princes were run ragged repelling Tartar incursions from the south or the east, only having to turn and race westerly to beat back Lithuanian or Polish brigands.

By the week of the EU’s Eastern Partnership’s signing debut at the end of November 2013, Vladimir Putin had told Ukrainian president Viktor Yanukovich that he could continue flirting with the EU, if he wished.  But if Ukraine wanted a trade agreement with Russia, with whom the lion’s share of Ukraine’s trade actually occurs, $15 billion in the coming year, cut-rate gas prices, industrial co-operation projects, and possible further credits, the country would agree to the EAU.  Compared to the $200 million the EU offered out of a total of $799 million for all eight targeted Association Agreement signers and a certain decade in EU cold storage while the country underwent an IMF-directed mauling, Yanukovich made the prudent choice.

When the Ukrainian president informed the EU that Ukraine’s participation in the AA would require further discussion, a reasonable position considering the AA as drafted, and that the country had agreed to the join the EAU, thousands of misguided and confused protestors appeared in the Maidan.  Once the terms of the Russian offer were made public, the protests began petering out.

But in both the Russians’ EAU game plan and that of the US’s effort to sabotage the EAU, Ukraine is key.  Protest crowds on the Maidan began to grow again amid reports that many in the crowd were working for a daily wage.  Whether paid or unpaid, bussed in from Moldova or fresh off the Kiev city tram, it’s certain Ukrainians were not demonstrating for the establishment of NATO bases or IMF agreements, a number of which have already floundered and failed.

Recent events are not the first time the US has used Ukraine in an attempt to displace Russia as a significant power by piercing its sphere of influence.

In 2004, Putin and then Prime Minister Viktor Yanukovich had begun to tackle the politicized supply structure Stalin created to make permanent the Soviet Union.  By changing national borders and spreading key industrial components over two or more republics, Stalin bound the Soviet empire together.  When the 15 constituent republics that made up the Soviet Union became independent nations in 1992, this cross-border supply structure created havoc.

Mighty Soviet aluminum smelters were located in Siberia, but supplies of bauxite were to be had only in Ukraine.  A component an electronics manufacturer in Kharkiv needed could only be obtained from a manufacturer in Vilnius.  Multiplying the complications for obtaining key inputs throughout the industrial and manufacturing sectors of 15 nascent and bankrupt governments gives a fuller understanding of why the former republics have failed to successfully restructure their national economies.

Putin’s and Yanukovich’s initial efforts were beneficial, particularly to eastern Ukraine, in which the republic’s industrial sector is concentrated.  In 2004, Ukraine experienced a 12% increase in GNP, and the national currency, the hryvnia, enjoyed a modest appreciation.

The US-sponsored 2004 Orange Revolution put paid to the Putin-Yanukovich initiatives, and the Ukrainian cycle of state officials’ theft and oligarchical favoritism began anew under US-presidential pick Viktor Yushchenko, a recent tradition of sorts which Yanukovich was eager to honor, as well.

Fast forward to 21 February 2014, the day of the Yanukovich government’s violent ouster.  Earlier that day, Germany, France and Poland had brokered a compromise agreement between the elected Ukrainian government and the protestors’ spokesmen.  Having already agreed and executed much of the protestors’ agenda, the pre-2004 Ukrainian constitution was to be restored and Yanukovich, in turn, would stay in the diminished office of the presidency until new elections could be organized.

Within 12 hours of the agreement’s signing, dozens of corpses of demonstrators and police killed by sniper fire were reported in the Maidan.  On Saturday, in an un-constitutional procedure the Ukrainian parliament impeached Yanukovich, who then fled to Russia in fear of his life.

The Russian Foreign Ministry Russian Foreign Ministry observed that the Friday agreement was used “with the tacit consent of its external sponsors” as a “cover to promote the script of a forced change of power in Ukraine.”  In other words, the Russians smelled a high-stakes trick.

Now that the Ashton-Paet tape has leaked, and despite its being obediently ignored by the mainstream media, one wonders what other actions the west may have known about, but left unremarked on that Friday. Did the EU negotiators know that the opposition they were then championing in accordance with US preferences had possibly directed snipers into the Maidan to murder demonstrators and policemen alike?

Russian warnings to the US and the EU about the rough crowd in Kiev they’d taken up with were ignored. An arrogant Washington, in accord with a famous Leninism regarding the expediency of temporary alliances, sees no problem.  Once Ukrainian hotheads and thugs have been bled of all possible utility, they will be eliminated. Think Egypt.

In response to the coup, Moscow swiftly drew a red line so bright it might as well have been flashing in neon: within a day of Yanukovich’s shambolic impeachment 150,000 Russian soldiers were engaged in military exercises not so very far from Russia’s border with eastern Ukraine, almost overnight Crimea was under Russian military control, a bottled-up Ukrainian navy was registering little alarm at their predicament, and further payments on the remaining $12 billion of the $15 billion cash infusion and cut-rate prices for Russian gas Putin had earlier agreed with the overturned Yanukovich government were shelved.

What the US and the EU immediately claimed was a Russian invasion of Ukraine was a long term leaseholder’s defense of its property right.  Even with 16,000 troops in Ukraine, Russia is not in violation of the terms of its lease on the Sevastopol naval base.  The lease, a treaty in fact, permits the stationing and multiple movements on Crimean territory of as many as 25,000 Russian troops.

The west’s claim of a Russian invasion of Crimea is intended to support Ukrainian control of the Kerch Strait, a waterway at the northern end of the Black Sea which separates Ukraine’s Crimea Peninsula from the coast of Southern Russia and is one of Ukraine’s three potentially oil-producing provinces. Gas reserves lie offshore of the peninsula.

The US believes Ukraine’s long term needs for energy and income can be satisfied by cutting deals with Big Oil to drill for oil and gas, which can then be shipped through Ukrainian pipelines to the EU, and Europe’s dependence on Russian gas a forgotten inconvenience.

Complicating western media scripts, the Crimean parliament voted on 6 March to rejoin the Russian Federation.  A public referendum on Sunday, 16 March, confirmed the parliament’s earlier vote and the 96.7% of the electorate that voted its approval tallies with a 93.2% approval when the same question was put to the electorate in a 1991 referendum.  In the run-up to the recent public vote, 1000s-strong pro-Russian demonstrations erupted in the eastern Ukrainian cities of Donetsk and Lugansk at which possibly western mercenaries hired by wealthy Ukrainian oligarchs played the role of spoilers.

Without foreign largesse, the new Ukrainian coup government can’t even pay the nation’s light bill much less a single Ukrainian soldier’s combat pay.  In fact, the cost of tidying up a Ukraine that has been criminally misgoverned for over two decades in order to accommodate EU standards and procedures is in the neighborhood of a $200 billion, years-long taxpayer liability.

To date, the US has pledged $1 billion and the EU is planning a $1.5 billion emergency transfer to tide the coup government over prior to an IMF agreement and all before the 25 May elections.  Within a week of their elevation-by-mob, interim government leaders embarked on a palms-out Grande Tour of sorts.  A combined sum of $35 billion in promised IMF loans is now the west’s opening bid.

US policy achievements on behalf of American taxpayers for their $5 billion investment to date:  State Department-approved Ukrainian coup government officials have asked for money to finance an “independent Ukraine,” the US and the EU have offered up a promise of $35 billion to insure an “independent Ukraine,” and an “independent Ukraine” has agreed to take the money.

Where are the Pravy Sektor defaulters when you need them?  Hmm?

Over the horizon lies a propaganda campaign devoted to browbeating at least some of the Ukrainians’ requested billions from Russia’s earlier deal with the Yanukovich government on what will be said to be a “humanitarian” basis.  Rather like the ancient practice of the condemned paying the executioner’s fee, it will be an effort to maneuver Russia into paying the initial costs of Ukraine’s first steps towards EU membership.

When the Ukrainian people understand that the price for daydreams of strolling the Champs d’Elysées with a pocketful of euros is an IMF restructuring that entails the devaluation of the hryvnia, cuts in pensions, benefits and salaries to state employees, raising of the retirement age, the removal of subsidies to coal and other underperforming industries, the growth of natural gas prices, and other toxic rules and conditions that will translate into a life harder and colder than it now is, more turmoil is guaranteed.

Turmoil is the very aim of contemporary US statecraft.  In the “divide and rule” political schemata of empire, US blunders are but new opportunities to tighten the screws on what the US policymakers regard not as nations, but as subject territories.

What is extraordinary is that EU officials are persisting in the attempt to squeeze agreement with the IMF and to the Eastern Partnership from Ukraine’s coup government prior to the 25 May elections, and thereby secure their agents’ permanent presence in the country as a thing done.  The EU rush speaks to the insincerity and weakness of any substantial EU commitment to aid Ukraine or her people.

The Russians’ refusal to recognize the coup government is correct; doing so would only work to support the inevitable US effort to trade a Ukrainian agreement to the AA to Russia in return for Ukraine’s acceptance of the loss of Crimea.

In the wake of the Crimean referendum, a hysterical western and specifically US-aligned media has been shouting warnings of a sudden Russian grab for eastern Ukraine.  Stalin could have written the script – for the Americans, who without any foreign influence whatsoever long ago established their own history of provoking attacks.

Confused overnight media reports of the death of a Ukrainian soldier in Crimea, which imply that Russian troops are responsible, but which locals say was a tragic consequence of a dust-up with Crimean self-defense forces and an unknown sniper,  are indicative of the Russians’ concern that the west will create the evidence that compels Putin to make good his promises of protection of Russians in western Ukraine.

Russian Foreign Minister Sergei Lavrov said that Russian support for an OSCE observer mission in Ukraine is based on the need “of preventing provocations by ultranationalist and radical forces against Russian speakers and our compatriots in southeastern Ukraine and other regions.”

Contrary to western media’s repeated provocations, Russia has no interest in a divided Ukraine.  A divided country would only open Russia to endless enmity from western Ukrainians, and ongoing cross-border violence.  A division would be a tragedy for western Ukraine, which would bring increased economic misery and leave the country subject to a possible Polish annexation.

In truth, US scheming and bellicosity in Ukraine have only worked to drag the world back to the tired rhetoric of the cold war and to that era’s nuclear dangers and destructive tit-for-tat policies of economic sanctions, asset freezes, and boycotts.  The only bit of “new” is the threat of kicking Russia out of the irrelevant G-8’s treehouse.

The experience is rather like watching dinosaurs crashing about in a Steven Spielberg film.

The world is de-centralizing, and neither the rapidly changing times nor the world’s finances favor out-of-date multinational organizations, run-a-muck central banks, or rolling superpower seditions and military aggressions.

If so, then what explains Germany’s support of the US lead?  Since Russia supplies a third of the gas for Germany’s economy, risking Russia’s alienation seems unwise.

The cat western media doesn’t let out of the bag is the fact that Germany has a full tank of gas, and there’s plenty more from where that came from.

Gazprom’s Baltic Sea ‘Nord Stream’ project is complete and is now transporting Russian gas to Germany through a pipeline that transverses the bottom of the Baltic Sea, and the pipe’s capacity is double the amount of gas Germany purchased from Russia in 2012.  Since 2005, the chairman of the supervisory board of the management company of Nord Stream is Gerhard Shröder, the former German chancellor.

Gazprom in conjunction with Italy, France and Germany is building a second pipe, South Stream. The former SPD mayor of Hamburg, Henning Voscherau, plays the same supervisory role at South Stream Transport AG as Shröder does at Nord Stream.

Interestingly, the Financial Times reported that the City’s skittishness in the wake of John Kerry’s idiotic ultimatum to Putin to renounce in advance the results of the referendum in Crimea put ‘half a dozen live deals to fund some of Russia’s biggest companies” in limbo.”  But the FT article highlighted one deal that was not put in limbo:  “South Stream announced that it had signed a contract worth about EUR2 billion with Saipem of Italy to build the offshore stretch of the route under the Black Sea from Russia to Bulgaria. Construction is scheduled to start in June.”

Gazprom CEO Alexei Miller has been quoted as saying that the two projects in combination with the already-existing Belorussian “Beltansgaz” pipe would turn Ukraine’s network of gas pipelines and biggest strategic asset into “scrap.”

In other words, Germany’s verbal support for the west’s initiatives costs Germany exactly nothing.  Any actions beyond the symbolic would cost Germany.  Therefore, there will be no EU sanctions of consequence.  Even were Germany on side for a US-decreed suicide mission, twenty-eight nations’ governments are not going to agree to economic policies that will take the cost out of their own hides. In other words, no State Department neo-con princess is going to ‘’F**k the EU.”

With the Nord and South stream projects in hand, Germany, which has prospered mightily from the euro, but whose taxpayers are weary of bankrolling the sinking Mediterranean countries’ loans made by the prosperous north’s banks, has positioned itself remarkably well; in an EU financial pile-up, exiting the EU wouldn’t amount to much more than a fender bender.

Now that west has adopted Bolshevik political tools, the Russians ought to keep turning the tables and counter with what the west advocates only with words, i.e. freedom and economic competition.

An EAU based on free trade in which there are no tariffs, no quotas, and no favoritism by or for any member and which allowed for associate members would put the Soviet boogieman back in the closet.  A free trade pact would allow Russia and the former republics to reap the benefits of the spontaneous order that the world’s people are building daily on the internet without any state’s direction or even much of an awareness of what they are doing.

There would be costs to Russia for such an arrangement, and a subsidized energy program for certain former republics would have to be included initially, (and would be difficult to retire when no longer needed.)  But those initial costs would be less than the long term ones of state-managed trade agreements at which literally thousands of government lawyers and bureaucrats labor continually in order to first design and then police the treaties, which protect and favor individual nation’s corporate political funders at consumers’ expense.

An unhindered market-driven trade block would quickly rationalize the last vestiges of Stalin’s cross-border supply system at no cost to the Kremlin.  Endemic corruption would diminish since no bribes need be paid for permissions no longer required.  Overall, commerce and enterprise would be favored throughout the EAU.

A trade apparatus in which competing private entities provide reliable and efficient transport, short and intermediate term trade finance, goods insurance, and rapid dispute resolution in private courts would work to swell EAU membership rolls.  An EAU supportive of co-operative and unfettered trade would draw foreign investment, and new applicants for membership both within and outside of the CIS (Commonwealth of Independent States).

Would Russia ever initiate such a system?

The Russian love of everything big rather than the small and the quick argues against.  An unfortunate predilection towards monopoly, a modern manifestation of the legacy of the votchina structure of property rights established in the ancient Kievian state of ‘Rus, also posits a no.  Ditto the exhaustively detailed agreements covering every right and every duty between contracting parties. These elements all boil down to, for instance, Gazprom’s cultural and business preference for signing a single, complex, multi-year contract with Germany’s Ruhrgas, and not many agreements with a plethora of independent suppliers.

Still, the west would be wrong to write off the possibility of having to compete with a lean and mean EAU trade block.  Russia has demonstrated a capability for surprise.

After all, who would have thought in 2001 that the president of the Russian Federation, Vladimir Putin, would liberate the greatest number of people on the planet?

“Say what!?” you ask.

If any reader knows of another leader of a major power, who instituted a flat tax of 13% or less, and thereby liberated his people from the necessity of burdensome record keeping and government tracking, while eliminating from households’ budgets the grievous costs of accountants, tax lawyers, offshore scams, and sparing everyday life the social costs inherent in a society riven by the divisiveness that comes of progressive taxation, then, dear reader, please do email me that name.

_____________________________________________________________

Kto kogo? was one of Vladimir Lenin’s favorite expressions. Literally, the phrase means “Who of whom,” and is perhaps best translated as “Who will triumph (over whom)?”  The ‘g’ in kogo is pronounced as a ‘v’.

Who’s Sorry Now?

By Anne Williamson

April 24, 2014

https://www.lewrockwell.com/2014/04/anne-williamson/the-real-danger-to-eastern-europeans/

On 21 February, the day the Yanukovich government collapsed, cocktail hour at the U.S. State Department must have been one rip roaring, hours-long, high-five fiesta. The many billions the US had invested in a string of attempts to undermine an elected government in a former Soviet republic had finally paid off.

Since the targeted government was Ukraine’s, the possibility of new NATO bases and the eviction of the Russians from the Black Sea naval base in Crimea were back in play. So too was control of Russian oil and gas transported via Ukrainian pipelines and the certain joy of another country-wide looting operation courtesy of the IMF.

The additional satisfaction of having delivered Vladimir Putin a bitch-slap for refusing to recognize Kosovo as a nation independent of Serbia, for having deflected a 2008 attack on Russia’s “soft underbelly” in Georgia, for having smudged Obama’s Syrian “red line,” and for having given shelter to NSA whistleblower, Edward Snowden, must have been immense.

Even better, the EU, either by choice or by instruction, had put itself in harness as the lead dog for the realization of US schemes to undermine the Russians’ planned Eurasian Union of Moldova, Armenia, Kyrgyzstan, Ukraine, Russia, and Belarus. (EAU).

With the vapors of Friday night’s celebratory toasts still circling in their thinking apparatus, the neocon poachers at State assumed the fact of dozens and dozens of corpses of protestors and police having collected overnight in Kiev’s Maidan could be managed to the US’s advantage.

Hadn’t Yanukovich fled Ukraine?  Bang on!  There’s the killer!  With Our Man Yats in position as interim Prime Minister, Kiev was soon festooned with wanted posters for the vanished president. But why were they printed in English?

Still, despite the occasional revelatory detail, it was all good:  Team America had succeeded in rewinding the clock to the giddy days of the 2004 Orange Revolution, a US-taxpayer-supported political extravaganza, which featured perfectly matched bright orange protest accessories – scarves, hats, decals, signs, bumper stickers and port-a-potties.

But all that was then. This is now. Two months later.

Other than a lesson in both geography and history, what beneficial returns on their $5 billion in capital invested specifically in undermining Ukraine’s elected government have American and EU taxpayers’ actually received?

Let us count Fedgov’s many own goals:

A bigger Russia.

A smaller Ukraine.

A happy Russian Crimea.

A politically-agitated and alarmed Eastern Ukraine in full cry.

A hungry, confused, and dispirited Ukrainian military, whose troops increasingly find themselves preferring the cut of the Russian army’s jib.

The withdrawal of many millions of Russian money from EU and UK banks.

The significant selling of US Treasuries from the Russian treasury’s portfolio.

A US commitment of $1 billion and of euro 2.5 billion from the EU in emergency funds to Ukraine’s U.S.-selected interim government of no authority.

A further commitment of $27 billion of US and EU taxpayers’ money to Ukraine via the usual consortium of global loan sharks: the IMF, the EBRD, the World Bank, and the IFC, whose loans will be ““a windfall for hedge funds and Russian banks.”  (The initial sum is but a down payment on what will be at a minimum a $200 billion liability.)

An EU trade agreement with a bankrupt Ukraine whose products are not wanted or needed by the EU.

A near doubling of the price to Ukraine of formerly Russian-subsidized energy.

An unworkable plan to pipe Russian energy deliveries to Poland and Slovakia back to Ukraine, whose unnecessary costs US and EU taxpayers will be expected to make good.

Russian plans to create a national payment settlement system in light of US and EU sanctions, thus striking a blow to the US dollar’s reserve currency status.

An invigorated effort on the part of both Russia and China to conclude in May a ‘holy grail’ energy partnership in which settlement will not be in U.S. dollars.

A Russian agreement with Iran to purchase Iranian energy to re-sell and then transport to European buyers.  Settlement to be in gold and Russian goods, not U.S. dollars.

After many months of failed neocon-inspired efforts to gull Russia into invading Eastern Ukraine, the US unilaterally decided to bully up by reassigning some 600 EU-based US troops to rotating in and out military exercises with the national troops of Poland, and the Baltic nations, while deploying US warships to the Baltic, eastern Mediterranean and Black Seas.

The decision to deploy US troops was made and planned in cooperation with NATO’s General Secretary, Anders Fogh Rasmussen, whom Der Spiegel reports has  “positively blossomed” since the crisis in Ukraine began, and US Air Force Gen. Philip Breedlove, NATO’s top military commander in Europe.

How is it that NATO commanders planned a deployment of US troops?

To answer that question a brief review of NATO enlargement is in order.

The initial subterfuge to keep NATO alive after the dissolution of the Warsaw Pact was known as the Partnership for Peace.  The alliance was to provide, and did provide, a framework for NATO troops to engage in war games with the shattered armies of the Warsaw Pact in locales once considered exotic, like Ukraine.

In reality, the P4P program laid the crucial groundwork for public acceptance of the routine movement of NATO troops outside the alliance countries’ boundaries on the basis of a vague, post-cold war gesture towards the defeated Soviet bloc.

The Clinton administration next advanced NATO’s cause with a sterling example of Clintonspeak known as “The Founding Act”.  The Founding Act is an agreement between NATO and Russia governing the two entities’ relations in light of an enlarged alliance, but it was designed to be an end run around the U.S. Constitution, which requires Senate approval for a “Treaty,” but not for an “Act.”

Once the Founding Act was in place, in late April 1998, 81 senators, their pockets stuffed with $33 million of defense manufacturers’ campaign contributions, authorized the “rolling expansions” of NATO enlargement.  Within a month bombs were dropping on Serbia.

The Really Big Idea was that NATO’s members would provide an international army under the de facto control of the US executive.  This arrangement would also allow for a runaround of the US Constitution in that congressional support for NATO movements is not required as it is for use of the US military overseas.

However, the problem has been that NATO members have not played their assigned role as anticipated.  Some members at various times in various US foreign campaigns have joined in the aggression, and at other times, certain members have declined to participate.  Thus have NATO’s fortunes waxed and waned alongside US military campaigns in Iraq, Afghanistan, Somalia, Yemen, Libya and Syria.

The reason NATO’s Rasmussen and Breedlove planned the deployment of US troops is because once again, the neocons miscalculated.  Neocons were so certain that Russia’s annexation of a willing Crimea and deployment of 40,000 troops near Eastern Ukraine’s border with Russia would so set Europeans’ hair on end that they considered the matter a done deal and let NATO planners proceed.

It didn’t happen.  European sentiment, though mixed, is largely distant from events in Ukraine if not in actual support of the Russians’ defensive posture. Most feel it is not their problem, nor one for the US, to resolve or finance.

The news of US troop deployments to Eastern Europe is actually good news in that it announces US failure to engage NATO member nations’ support for US provocations.

Should Eastern European members grasp that the greatest risk they face is not from Russia, but from the use of their territories as military staging grounds to provoke Russia at their peril in order to advance US neocon dreams of world domination, it will be game, set and match for prudence, foresight and peace, and a 25-year overdue farewell to NATO.

Stop! Thief! Stop!

By Anne Williamson

July 30, 2014

https://www.lewrockwell.com/2014/07/anne-williamson/the-looting-of-eurasia-by-the-west/

Kiev’s hastily assembled, post-coup coalitions couldn’t hold, and Ukrainian PM Arseniy Yatsenyuk threw in the towel last Thursday. On his way out, news stories said, the PM expressed his “disappointment with Ukrainian parliament’s decision to reject a bill that allows the government to hand over up to 49 percent of the country’s gas transport system to investors from the European Union and the United States.”

In other words, what the U.S. and the E.U. have got themselves up to in Ukraine isn’t so much a demented, madhouse mirror set of policies built on bluster and gross deceit as it is a high-powered burglary.

Ukraine should craft attractive terms to facilitate foreign investment, especially of those technologically-advanced energy companies capable of locating and developing whatever energy assets Ukraine does enjoy. But what does foreign ownership of 49% of the nation’s functioning gas transport system have to do with energy exploration and development?

For 23 years, succeeding Ukrainian governments have survived in large part by playing off E.U.-U.S. and Russian interests. A fickle electorate has repeatedly endorsed whichever political players appeared to have the greatest potential as extortionists. (In 2009, then Prime Minister Yulia Timoshenko cut an underappreciated gas deal with the Russians and was rewarded with imprisonment.)

But now, we learn favored U.S. and E.U. interests intend to snatch away for their own pockets the single card the Ukrainians have had to play, i.e. 100% ownership of the national gas transport system. Without full control of the gas transport structure the country inherited from the defunct Soviet Union in national hands, Ukraine will be of no particular interest except to Nato, which majorities amongst all Ukrainians have repeatedly stated they do not wish to join.

The 2% advantage Ukraine would retain under the proposed sale will easily be finessed over time by the many billions in initial and future IMF loans any Ukrainian government will need to retain power. Trading the impairment of Ukraine’s single asset of multinational interest for $17 billion in loans now, an ongoing infestation of IMF and associated multilateral parasites, a trade deal of no consequence, since Europe has no need for Ukrainian manufacturing, and logistical support for a bellicose military alliance’s misadventures from the frontline is not much of a deal.  But it was no improvisation. It was, instead, a carefully planned E.U.-U.S. double-cross.

The urgency that inspired Yatsenyuk to place this particular legislation at the top of his to-do list lies in the fact that foreign ownership of even a minority interest in the country’s energy transport system is critical to the success of the US-EU’s true goal, which is to undermine the Russian economy using Ukraine as a lever.

Throughout the 1990s, what Europe had thought to be a benefit – a neighbor with affordable gas to spare and eager to sell – was, the U.S. said, in fact a threat. Cold war warrior Ronald Reagan had repeatedly warned Europe that by relying upon the Russians for the transport and supply of 30% of their energy needs would one day enable the Russians to hold their economies hostage.

In fact, the only disruption to Europe’s energy supply from Russia have been on account of Ukraine. Ever since the nation’s 1992 independence, Ukraine has been siphoning Russian gas for its own needs without paying for it.  And throughout those 23 years, Russia not only bore Ukraine’s thievery in order to fulfill its European contracts, but continuously offered Ukraine low rates for gas so that the country might actually be in a position to pay its bills.

Exceptions occurred in 2006 and 2009 when Russia locked horns with Ukraine over billions in arrears to Gazprom and reduced the flow for a handful of days in January of those years, thus temporarily putting the chill on Europe. It was the hiatus of supply during these two disputes, which allowed the U.S. to mount an effective public clamor regarding E.U. vulnerability.

There was no mention of a deadbeat Ukraine’s thievery of gas meant for Europe as being the source of the problem.  Instead, Russia was portrayed as a bully, demanding billions from a sadly impoverished Ukraine.  Western media was far too polite to mention that Ukraine’s energy arrears were accumulating while their government officials grew fat and sleek by buying Russian gas cheap and selling it dear, pocketing the difference.

Nobody commented that it was actually U.S sanctions on Iran which prevented the subservient E.U. from pursuing contracts with a competing supplier of gas; except Vladimir Putin that is, who did observe dryly that an independent E.U. could organize an additional supplier.  Some years later, during the U.S. assault on Libya, no E.U. voices of concern were raised regarding those particular energy contracts with European nations, just one of which was to deliver a 50-year supply to Switzerland.

Once the E.U. absorbed the geostrategic message the U.S. was sending, Brussels developed a legislative and regulatory attack on Russia’s Nord Stream pipeline and the proposed South Stream pipeline. Both pipelines’ routing was designed to avoid the Ukrainian problem.

The E.U. response to Russia’s pipeline resolution has been three measures:  the 2006 Energy Community declaration, the 2020 Climate and Energy Package (CEP) and the Third Energy Package (TEP).  The effect of those measures is to force all of Europe, nations both inside and outside of the E.U., into a single energy market subservient to EU policy, which is one of reverse economic blackmail against Russia.

A perverse consequence of the TEP, for instance, would be to permit the EU’s anti-monopoly initiatives against Gazprom to kill Russia’s hefty investment in the South Stream and Nord Stream projects and even theoretically allow the EU to expropriate Russian assets to non-Russian companies.  (For a thorough discussion of the E.U. initiatives and their likely consequences, see here.)

Once Ukraine’s elected government was eliminated, the U.S. went right to work developing further its contribution to the scam.

Hunter Biden’s earlier March appointment to the board of Burisma Holdings Ltd, Ukraine’s largest natural gas producer, at first appeared to be a garden variety example of nepotism involving a US vice-president improperly arranging a no-work cash flow for his son.  But, to the contrary, it turns out Hunter Biden has a full plate, insuring that the anticipated spoils of the US-led intrusion into Ukraine fall into the correct hands; big pairs of which will belong to the Biden family’s and the heist’s other multinational and congressional key players’ supporters.

In fact, Hunter Biden is an old Ukrainian hand. Prior to his appointment to Burisma’s board, Biden fils was a director of the U.S. State Department’s National Endowment for Democracy subsidiary National Democratic Institute, where he built up opposition parties first for the 2004 U.S.-engineered “Orange Revolution” and, later, the 2014 U.S.-engineered “Euromaidan” protests.

In the course of those ten years, Hunter Biden would have gotten to know steel and pipeline billionaire Victor Pinchuk, an enthusiastic supporter and financier of the Maidan protests earlier this year, who is also former Ukrainian President Leonid Kuchma’s son-in-law and is well-known for sponsoring an annual gabfest for international political and financial elite at a Tsarist-era palace on the Black Sea. Despite being a generous multimillion dollar donor to the Clinton Foundation, Pinchuk was smart enough to acquire allies on both sides of the aisle, developing a relationship with Senator Bob Corker (R-TN) when he was mayor of Nashville. Pinchuk then parlayed his Corker relationship into ones with various top shelf neocons, including Karl Rove and that ever present spitball of American imperialism, Senator John McCain.

This spring Corker rounded-up Senators McCain, Marco Rubio and Lamar Alexander and 23 others in support of Senate Bill 227, the Russian Aggression Prevention Act of 2014.  The bill is a veritable cornucopia of imperial dreaming, imposing as it does travel bans on and asset freezes of Russian officials, including Vladimir Putin and Sergei Medvedev, and corporate officers of prominent Russian banks and energy firms.  It provides for a stepped-up program of broadcasting propaganda into countries of the former Soviet Union, including Russia, along with the transfer of U.S. intelligence to Ukraine.

The bill further targets Ukraine, Georgia, and Moldava for de facto if not de jure Nato membership with $100 million in lethal military equipment and assistance, which means Nato bases and joint military exercises. It increases funding for NGO fifth-column cover operations in targeted FSU countries and former “captive nations.” The bill also provides for a stop to nuclear arms reductions authorized by the 2010 New START treaty between the U.S. and Russia.  And, of course, the bill bestows further gifts on the U.S. fracking and liquefied natural gas industries, the latter being a somewhat fanciful substitution for Russian energy in that decades of FedGov energy policies have insured that the U.S. has no liquid gas export terminals.

Global Research.ca suggests the bill targets “former officials of its Nato allies, including Germany and the Netherlands.”  The heads of BASF AG, Wintershall AG, E.ON AG, E.ON Ruhrgas AG, Gasunie of the Netherlands, along with officials connected to the South Stream pipeline project hailing from Italy, France, Bulgaria, Slovenia, Greece, Germany, Bulgaria and Hungary, all Nato members, as well as Austria, Serbia, and Bosnia-Herzegovina.

The most remarkable figure the bill might target for a travel and asset freeze is former German Chancellor Gerhard Schroder for his chairmanship of the board of North Stream AG, which is 51% owned by Gazprom and whose pipe insures Germany’s energy needs.

Last week’s brawl in the Ukrainian Rada (legislature), which foreshadowed our man Yats’s no doubt temporary departure from government, indicates that Senate Bill 2277 may perhaps be somewhat premature if not the high water mark of neocon lunacy.

The worry is that it’s not the latter, and that Ukraine’s future lies in becoming one big, super-sized military base and a super-wide, multilane expressway transporting wealth sucked from Eurasia to Europe.

The Ukrainian people will, of course, be left stumbling along the highway’s soft shoulders as mere pedestrians.

The Globalists’ Russia Game

By Anne Williamson

January 9, 2017

https://www.lewrockwell.com/2017/01/anne-williamson/globalist-game/

Thanks to Barak Obama’s most recent expression of his low character and a foreign policy weirdly akin to fantasy-baseball gone bad, thirty-five U.S.-resident Russian diplomats and their families targeted for rapid deportation feared a frantic search in the holiday crunch for open seats on flights to Moscow.

On Friday, Russia sent an Ilyushin 11-96 to collect everyone and the families’ panic that they might not make their deportation deadlines receded.  The embassy’s two retreats, one in New York and another in Maryland, were closed on schedule. Thus was the Obama administration’s maximally-inconvenient timing accommodated.

Everybody was home again on New Year’s Day, and America was Russkiifrei!

That’ll fix it, Team Obama thought, “it” being the lack of traction propaganda-wise that the administration’s unsubstantiated claim that President-elect Trump owed his victory to Russian hacking of DNC and Hillary Campaign Chairman John Podesta emails.

It cannot be said that Vladimir Putin’s response was anything but stylish. Instead of booting American diplomats out of Russia in retaliation, he invited everybody and their kids to a party!  Well, to several in fact, which the Kremlin stages annually in celebration of the New Year and the coming Orthodox Christmas.

No need to retaliate now, Putin told his foreign minister, and perhaps it wouldn’t be necessary at all. Why spoil the holidays? For what? A political corpse?

Then the Russian “thug” Putin really rubbed everybody’s nose in it, and sent holiday good wishes to Obama and his family, to Donald Trump, and – can you believe the nerve? – to the American people.

Team Obama was bewildered. And tongue-tied.

Even John McCain, semi-isolated in the Baltics on a special Christmas warmongering tour of Ukraine, the Baltics, and Georgia, piped down once someone got word to him that the Russians were stalling on the return serve.

It only got worse for the White House once the public had a chance to examine the codicil-ridden mess of speculation and innuendo the CIA and the FBI had assembled as evidence for U.S. charges of Russian interference in the American presidential election to President-elect Trump’s advantage. Talk about no there there.  Not a single private sector computer security expert supported the intelligence agencies’ allegations.

After Washington found its voice and held congressional hearings on the matter, it was clear the dud report didn’t and won’t crimp the media or the intel agencies. The Washington Post and the New York Times will keep reporting, restating and rewriting key segments of the report until those same speculations are reported as fact. This is how we know the Russians invaded Georgia in 2008 and intimidated Crimea into submitting to reunification with the motherland in 2014 while simultaneously invading Ukraine’s Donbas.

But other than a cheap attempt to delegitimize President-elect Trump, what led the Obama administration to pursue a gambit that delivered them a very public humiliation?

Team Obama’s Russian election hacking allegations had three additional short term goals:

To get President-elect Trump crosswise regarding foreign policy with a still largely neocon-aligned U.S. Congress. First came the abstention from voting on the U.N. Security Council’s resolution condemning Israeli settlements as illegal, which was followed by the Russian holiday hacking operetta with a view to next inserting Iran as a rough wedge between the two. (U.S. insistence on Russia forsaking Iran – or China – will make short work of any progress Trump and Rex Tillerson might manage in the U.S.-Russian relationship.)

To provide Hillary Clinton with a smokescreen to escape the calumny of having spent over a billion and a half dollars of other people’s money on a self-designed electoral bust, which, in turn, is meant to discourage a future Attorney General Jeffrey Sessions from further investigation into the Clinton Foundation’s criminal pay-for-play set-up, the initial attack on F.B.I. director James Comey having been judged unwise and therefore scuttled.

To have the theme of Russian interference at the ready for Angela Merkel’s re-election campaign later this year. (A glance at the German press will show that this one’s already afoot.)

Those are the short-term goals of what will prove to be an ongoing neo-con vilification of Russia.  What then is the long term goal of reanimating cold war nonsense 25 years after the Soviet Union’s demise?

There’s too much money and favor riding on the theme Majority Leader McConnell’s statement that “Russia is not your friend” so neatly summed up to back off now.

The military-congressional-industrial-academic-media complex needs an enemy the public can identify with. Guys wearing what appear to be 400 thread count bed sheets driving around vast deserts in Toyotas armed with guns, swords, knives, and suicide belts just don’t cut it.

With a proper enemy, one capable of organizing, deploying and supplying a well-armed army, the government can establish the fear necessary to squeeze the home team for the money needed to keep the U.S.’s war machine economy, seven decades in the making, turning over.

The key to a war machine economy is to never actually fight an organized army, which would be dangerous. Best are proxy wars. A war machine economy – not an actual Stalin-like war economy – is the goal.

The chief advantage of a war machine economy is that it is not necessary to win wars; in fact, winning is a detriment, a threat to the machine. Contrarily, in a war economy, not winning is not an option, a proposition best avoided.

Ugly truth:  Cut back weapons manufacturing and defense jobs now and the entire American enterprise might collapse.

To the individual congressman or Senator, talk of cutting back defense contracts is anathema.  Every one of those pocket-stuffing political birds has some defense-related manufacturing in his district, a trick defense contractors learned from the railroads. In the late 19th century after decades of state-subsidized railroad building, there wasn’t hardly a congressional district without a railroad and railway workers, and those workers got what their unions wanted, as did the owners of the railroads.

So there’s all that.

But there’s something more, something even bigger the globalists want so bad out of Russia that they’re willing to risk provoking a nuclear war through encirclement and targeted terrorist intrusions into Russian lands.

When John McCain says Russia is just a gas station, he’s projecting not describing.

What McCain and his ilk really want is to turn Russia into the war machine’s gas station.

The U.S. military is the largest consumer of energy on the planet.  If the globalists can supply the armies of the West with Russian oil, then they can eliminate Russian influence in Europe after having gained control of Middle Eastern oil on the cheap. The Mideast’s oil and pipelines under U.S. control are destined to fuel Europe.  Mexico, Venezuela, Canada and the U.S. domestic fracking industry will fuel North and South America.

Somewhere along the way to world empire, Africa, and its energy endowment will collapse into imperial hands, and even now the African nations are being slowly undermined by U.S-nurtured shadow wars.

Russian oil is destined to fuel the globalists’ armies, campaigns, and occupations, and the Anglo-American empire will then be secure even in the face of a currency switcheroo (or collapse), and the New World Order in a position to absorb Asia. China will then be in pole position for energy-starvation.  Gee, it’ll be FDR’s scheming against 1930s Japan all over again!

Control over Russian energy has been the overarching goal of the entire post-Cold War years. In the 1990s, the Americans tried to get control of Russian gas and oil through the share market they themselves built. But Russian-IMF operation of the domestic bond market the Fed built, crashed that scheme in 1998. American finance lost heart and retreated just prior to the steeply rising price of oil whose proceeds benefited the Russian treasury and not themselves. Bad luck, eh?

That this misfortune to the globalists’ grand scheme coincided with the retirement of the eminently pliable Boris Yeltsin and the emergence of a nationalist-minded and determined Vladimir Putin underlined their setback in red.

Worse, the Russian president has spent the intervening years clawing back the energy sector from the country’s oligarchs and their pals in the West while restoring the Russian people’s legacy of oil, gas, and pipelines.  And he has done it without engaging in over borrowing Western capital, which undermined one of the West’s most potent, sovereign-busting weapons, i.e. debt.  Unfortunately, Russian companies were not as prudent as the Russian state and were as beguiled by cheap dollar loans as was everybody else.

Thus, two initiatives are explained:

The first is the economic sanctions the US imposed on Russia in 2014, which were meant to bankrupt those Russian firms with large western loans so that the lenders might lay claim to the defaulting firms’ assets.  Putin deployed various schemes and subsidies successfully to prevent just such a debacle, which has only led to the piling on of more and more sanctions, some of the country and some of individuals said to be part of Putin’s inner circle.

The second initiative is the nonstop vilification of Vladimir Putin as an individual, which began many years ago and has now grown shamefully loud. The world of diplomacy is traditionally an inordinately polite one, and the U.S.’s personification of Putin as the end all of the Russian evility is extraordinary. Attaching “thug” “murderer,” and “dictator” to every mention of the Russian president speaks to the likelihood that the globalists believe they have agents in place who are eager to betray Putin to reclaim their former cash flows with the assistance of their western allies.

It is this misunderstanding of the country and the people that is the most dangerous to the rest of us. What’s that old saw?  “Fool me once, shame on you.  Fool me twice, shame on me.”

The Russians will not be fooled twice.

The Many Reinventions of Jeffrey Sachs

By Anne Williamson

Chronicles Magazine

January 16, 2017

https://www.lewrockwell.com/2017/01/anne-williamson/conman-globalism/

“Jeff Sachs is like the March Hare in Alice in Wonderland, moving from cup to cup. He can never return to any country that headvised, since they all hate him.

It happened in Latin America, in Slovenia, in Poland, a few of the Baltic States, and it was the same in Russia.  They maintain that he was of no help and that his advice was wrong.  He is a bright and brilliant man and I like him very much, but his public campaign has nothing to do with what he was actually doing.  Just nothing.”

—Leonid Grigoriev

Jeffrey D. Sachs, the peripatetic “world-renowned economist” who, for over three decades, has been called upon by leftist billionaires, governments, and international organizations to reshape the economies of entire countries and regions, is both the luckiest and the unluckiest of men.

In his own estimation, the unintended consequences that have dogged his long career of advising distressed areas—from Bolivia to Eastern Europe to Russia to Africa—can be laid at the feet of his critics and faint-hearted foreign collaborators along with a shortsighted American foreign-policy community and the institutional failings of a tight-fisted and purblind IMF.

Sachs, a devoted disciple of John Maynard Keynes, got his start as a self-advertised free-market transition specialist when he signed on as an advisor to Bolivia in 1985 (one year after he became a tenured professor of economics at Harvard), and he first gained notoriety with his claim that he “helped Bolivia to negotiate a debt cancellation agreement with its major bank creditors, which became a template for later debt-cancellation operations.”

Though the banks were said to have suffered a smallish haircut (Sachs never did report the actual amount forgiven), the publicity opened doors down Latin America way.  Sachs was soon hobnobbing with “leaders from Argentina, Venezuela and Peru.”

Sachs’s advice to Bolivia was to fight hyperinflation by the tried-and-true method of shutting down the central bank’s printing presses.  This inadvertently caused the Bolivian tin market to collapse and energy prices to rise tenfold within days, thereby accelerating Bolivia’s transformation into a “cocaine republic,” as the tens of thousands of newly unemployed sought work in the last sector of the economy that showed any vitality: coca farming.  Sachs was back in Cambridge, Massachusetts, before any serious critics appeared.  Who knew anything about Bolivia anyway?  Who cared?

Fortune smiled on Sachs in 1989 when Krzysztof Krowacki, an official in the Polish embassy in Washington, met with him in his Harvard office to ask if the advice Sachs was giving Latin America might be relevant to Poland, which was in a debt and inflationary spiral of her own.  His government, Krowacki said, wanted to make reforms.  Would Sachs help?

In his book The End of Poverty: Economic Possibilities for Our Time (2004), Sachs writes that he told Krowacki he would not work for communists, and that he would consider becoming involved only when the martial-law government legalized Solidarity and lifted the house-arrest order placed on Lech Walesa.  The passage marks an annoying feature of all of Sachs’s books, which is the ultracareful positioning of himself in the ongoing action he describes.  The man is a walking billboard for the tiresome “virtue signaling” of contemporary liberalism.

Four weeks later Krowacki telephoned to inform Sachs that the government had decided to legalize Solidarity, and that was enough to get Sachs to make a one-day visit to Warsaw at the tail end of a trip to a Moscow conference in April 1989.  When George Soros called several weeks later to ask if Sachs would accompany him on a trip to Warsaw to meet with both Solidarity and government officials, he was out the door like a shot.  At the conclusion of the trip Soros agreed to finance a reform team under Sachs’s leadership through his newly formed Stefan Batory Foundation.

With money in the company tank, Sachs contacted David Lipton, a former student, coauthor, and partner in their Cambridge-based consultancy, Sachs & Associates, who was then working at the IMF.  Thereafter, it was full-speed ahead to seduce Solidarity’s leading strategists, who, as men of politics and not of economics, were soon mesmerized by Sachs’s palaver and repeated assurances that his reforms “would work,” his insistence that they had the public behind them, and that now was the time to act.  To ensure his team’s authority, he managed to obtain a billion-dollar Polish zloty-stabilization fund by boldly working a loose contact to Poland-friendly Republican Sen. Bob Dole, which got him a meeting with Brent Scowcroft and other George H.W. Bush administration officials.  And he worked successfully to have $15 billion of Poland’s $40 billion in foreign debt forgiven.

Success misled Sachs.  First, he attributed the debt relief to his own efforts, and not to Poland’s importance—as a wedge between Germany and Russia—to the U.S. empire.  Poland was never going to be allowed to fail.

Working with Deputy Prime Minister Leszek Balcerowicz, Sachs shilled for what would become known as the theory of “shock therapy,” a souped-up, high-speed IMF-type program for transforming command economies into “free markets.”  Shock therapy requires several significant actions to be taken simultaneously: making the currency convertible, eliminating subsidies, decontrolling prices, privatizing industry, and removing restrictions on imports—the costs of which are to be underwritten by massive infusions of First World capital.  It was Bolivia all over again, and not, as Sachs had envisioned, the Wirtschaftwunder of 1948 in capitalist Germany.  The cracks in shock therapy’s promised market utopia appeared quite quickly, and, just one year later, Sachs’s Polish friends let him know they’d be glad to see the back of him.

Sachs and his reform team found themselves among the horde of competing foreign consultants then swarming over the whole of Central and Eastern Europe, each with its eye on the grand prize: Russia.  Having picked up light work advising Latvia, Lithuania, Hungary, and Slovenia, Sachs and Lipton came up short when Slovenia refused Sachs & Associate’s $300,000 billing.  By the early 1990’s, Central Europeans had learned that, as one state official put it, “We are just solving your employment problem, not ours.”

The Hoover Institution’s Michael Bernstam, who was advising the Supreme Soviet, remarked, “It was just a joke, a meaningless appointment, but advising foreign countries was sexy!  Very fashionable, like Hollywood.  The super ambitious were academic Lotharios and not having some country to advise, well, it was the same as Don Juan without a beautiful woman on his arm.”

In May 1991, Bernstam encountered Sachs at a dinner party and later recalled, “Sachs had actually gotten in late and there weren’t so many countries.  Poland wasn’t too happy with him, and when I asked him about it, he started telling me how he was leaving shortly for Mongolia, a vast wasteland where nomads live in tents or yurts constructed of animal hides.”

Still, business wasn’t too bad for Sachs, not with the tremendous opportunities for self-advertisement his patron Michael Weinstein was providing on the editorial page of the New York Times.  He and Lipton had managed to top up Soros’s foundation funds with grants and monies from the Ford Foundation, the Finnish government, a Japanese foundation (Sasakawa), and the United Nations, thereby keeping their freelance reform and aid-advisory shop, Sachs & Associates, cooking.

In the wake of the August 1991 coup attempt, Moscow filled with “aid tourists” from international agencies, punters of every sort, and consultants hungry for government contracts.  In the fall and winter of 1991-92, Sachs found himself fighting it out alongside his compatriots from the Harvard Institute of International Development (HIID) for the pole position.

Having aligned his team with Yegor Gaidar, who proved to be just the right man once he was named Yeltsin’s first deputy prime minister, Sachs’s successful recommendation of two key policies in the first quarter of 1992 ensured that the course of Russian reforms would be disastrous.

Many Americans think that World War II was what pulled the United States out of the Great Depression.  Not true: It was the large stock of personal savings Americans had accumulated over years of war-rationing, when there was hardly anything to buy.  Those savings were combined with the federal government’s deficit spending and the aspirations of millions of G.I.’s returning home anxious to restart their lives; they married, bought houses and cars, had children, established households and businesses, and otherwise invested.  America rocked, and a healthy, growing, property-owning middle class reemerged.

Long after V-E Day and Potsdam, the Soviet economy remained focused almost entirely on the defense sector, leaving little for the people to buy.  Consequently, at Cold War’s end the Russian people had accumulated a large stock of savings and were in a position not entirely unlike the one Americans had found themselves in during the late 1940’s.

Characterizing the Russians’ national savings as an “overhang,” as Sachs and his Swedish associate Anders Åslund did in editorial after editorial, helped to confuse the issue.  This was to the West’s advantage: If savings could be turned from something good into something scary—an “overhang”—then those savings might be destroyed by inflation, just at the time when they should have been used to give Russians a fair share of equity in their country’s means of production.  In one fell swoop, private property might have been made widely available to the population, avoiding a Latin American situation of concentrated ownership.  Market formation then would have had a basis on which to develop broadly, and the people a reason to support their new government.

Sachs saw things differently, and he let the cat out of the bag in a moment of candor shared with Michael Bernstam and his wife.  It was his and Yegor Gaidar’s intention, Sachs said, to remove from the market all “competing claims”—i.e., the people’s savings.

On January 2, 1992, Boris Yeltsin (at Gaidar’s and Sachs’s urging) abolished government price regulations throughout all of Russia, ensuring that in Russia’s monopolistic economy the producers would raise prices without restraint.  The subsequent 2,500-percent inflation in 1992 consumed the dreaded “ruble overhang,” thereby leaving foreign and Russian criminal wealth to exploit the new market.  The subsequent 1993-94 voucher privatization for small- and medium-sized businesses was so crudely designed that analysts would later conclude that Russia’s alcoholics, who immediately traded their vouchers for vodka, had actually gained the most value.

But back in 1991, Sachs and the HIID people were not the only bold folks in the race for the spoils.  Goldman Sachs, in what would prove to be co-chairman Robert Rubin’s bright and shining moment, was present, too.  The Goldman Sachs of 1992 was not the giant squid suffocating humanity that it is today.  It was a private investment-banking partnership, which meant the firm’s backing was the partners’ private fortunes.  No set of regulations any government might devise and impose on finance and banking will ever function as efficiently as the possibility of a banker losing his own money.

While Anatoly Chubais, the deputy prime minister of the Russian Federation, and Sachs’s team were kicking around ideas for a national privatization program in Russia, the Committee on Foreign Investment, which Gaidar had established under Leonid Grigoriev, engaged Goldman Sachs to handle the privatization of large enterprises—the very assets that would eventually be handed out to insiders in 1995’s infamous loans-for-shares privatization.

Bill Potvin, chief of Deloitte & Touche’s Moscow office, said Goldman Sachs thought the commission had given the firm a mandate and sent in 30 people to mine the deal: “It was a strategic mistake.  Goldman bought full-page ads in the Financial Times and hired Cleary Gottlieb, a big white-shoe law firm.  Critically, Goldman Sachs wanted to go deal by deal.”

Sachs and the HIID people were appalled.  If Goldman was running privatization of the cash-gushing natural-resource firms on a slow-moving, careful, deal-by-deal basis as Russia’s contracted agent, what power, glory, influence, and riches would there be for them and their Western sponsors?

The HIID principals Anatoly Chubais had put on GKI (the privatization committee) quickly went to work to undermine Rubin.  “Jeffrey Sachs was not on that mission, but [Maksim] Boyko was his protégé.  There was quite a debate at that time, well, it was a real fight between Goldman Sachs and Jeffrey Sachs.  Sachs versus Sachs.  Jeffrey Sachs said throw the whole thing to the market, mass privatization would be ‘more academically interesting,’” Potvin said, explaining why a photograph of Robert Rubin alongside Yegor Gaidar and Leonid Grigoriev announcing the deal had appeared in all the right newspapers, only for Rubin then suddenly to vanish.

“Afterward, the Foreign Investment Commission was disbanded, and Grigoriev was sent to the World Bank to get him out of the way,” Potvin added.  “The entire business was a huge embarrassment to Goldman.”

And a huge loss for Russia.  Had the arrangement with Goldman Sachs been allowed to stand, Goldman’s fiduciary obligation would have been to the Russian state.  Instead of savvy, purposeful professionals whose very business would be to find qualified large investors and who could have best negotiated workable terms to protect investors’ capital and the value of the Russian people’s legacy within the boundaries of what Russia was willing to agree to, the Russians got Jeffrey Sachs’s and the HIID contingent’s fraternity of academics and graduate students, who were legally obligated to USAID and not to Russia.  Thereafter, any chance of positively transforming Russia was lost, as shares-for-loans would prove.

In the December 1993 parliamentary elections, a furious electorate let the government and the foreigners know just what they thought of Yeltsin’s August 1993 bombing of the Russian parliament (and of his Duma adversaries within, who were demanding a rollback of Chubais’s criminal privatization).  The communists and nationalist Vladimir Zhirinovsky’s Social Democrats triumphed, the West’s “eager young reformers” earning the support of no more than 15 percent of Russian voters.

Sachs and Åslund resigned their much-disputed “official” positions and decamped to Ukraine in January 1994.  (When reporters asked Prime Minister Viktor Chernomyrdin about their resignations, he had to inquire as to who they were, as he’d never heard of them.)  Joined by George Soros in Kiev, the three men went to work establishing a shared office.  They then began a years-long lobbying campaign for congressional funding to establish an HIID office in Ukraine under their control.  Once funded, nothing much came of the effort, since USAID’s bumbling self-dealing was outclassed by that of the natives.  Still, topping up HIID coffers with another big bag of U.S. taxpayers’ money didn’t hurt in getting Sachs a 1995 appointment to head up HIID in Cambridge, Massachusetts.

Sachs had once more gotten his career back on track, despite the bad publicity and complaints HIID’s Moscow reforms were beginning to attract.  Before long, the position would prove a poisoned chalice when a GAO audit of HIID’s Moscow operations brought the roof down on the Harvard Institute.  Though Sachs had nothing to do with HIID’s conflicts of interest in Moscow (he was never accused) the scandal and subsequent court proceedings would fill the headlines and a string of reports for the next eight years; as the head of HIID, Sachs would have to see his name appearing in each one.  The exposure of HIID’s dark deeds worked to liberate Sachs’s critics, and the results of his own work came under scrutiny from his leftish political allies.

Sachs remained at his post and moved to Harvard’s Center for International Development when the university folded HIID’s operations into it.  In those years, Sachs turned his attention to Africa and began beavering away at developing what he calls “clinical economics,” which emphasizes public healthcare, social services, national safety nets, microlending to the poor, etc.  While polishing up his “expert” credentials with intense study, Sachs got lucky again when the most perfect beard imaginable—one who would assuage his disappointed admirers and fuel his comeback—dropped seemingly from the heavens into his lap.

That beard was Bono, the activist singer of U2, whose campaign on behalf of Jubilee 2000 for the cancellation of the least-developed countries’ debt to the rich countries led to Bobby Shriver (of the Kennedy clan) suggesting that Bono meet with Sachs.  The two men traveled across Africa together, aiding and abetting each other’s projects.  Thus was the rock-star economist born.

Suddenly, Sachs had what few economists can claim: a brand-new coterie of really good-looking and celebrated youth icons like Angelina Jolie, whose Diary of Angelina Jolie & Dr. Jeffrey Sachs in Africa aired on MTV.  What university professor could ask for more?

Jeffrey Sachs could, and did.

In 2002, Sachs got the plum job of director of Columbia University’s new Earth Institute, a reportedly $500,000 annual salary, and an appointment as special advisor to U.N. Secretary-General Kofi Annan.  He also achieved the status of best-selling author after his 2004 tome (with an admiring Introduction by Bono) sold hundreds of thousands of copies.  To top off one sweet deal, Columbia provided Sachs with an eight-million-dollar townhouse on Manhattan’s Upper West Side.  Apparently, nothing was too good for the university’s newest rainmaker.

The good news just kept coming.  George Soros and others financed his Millennium Villages Project, which seems to have amounted to not much more than the creation of a land-based archipelago of cargo-cult hamlets that depend on continual infusions of donated capital.

In time, the Hollywood set drifted away, but they were replaced by a truly celestial partnership with the Holy See, which was financed once again by George Soros.  Abortion advocate Jeffrey Sachs, to the consternation of many Catholics, was named an advisor to Pope Francis on climate change and healthcare, and began conducting classes at the Vatican.

While thumbing through Sachs’s oeuvre recently, I began to appreciate why each student of his I have randomly encountered over the years was an enthusiast for his former professor.  Sachs writes well, and he has a unique ability to inspire pain-free idealism in the Ivies’ privileged students through missionary-like, call-to-service exhortations.

Whatever reinventions lie ahead for Professor Sachs, he’ll land on his feet.  But the man’s highest calling is to the classroom: The subject he was born to teach is Personal Branding 101.

Reprinted with the author’s permission.

How George Soros Got His Mojo Working in Ukraine

By Anne Williamson

August 20, 2016

https://www.lewrockwell.com/2016/08/anne-williamson/bloody-evil-george-soros/

Excerpt from Contagion:The Betrayal of Liberty; Russia and the United States in the Post-Cold War Era adapted for lewrockwell.com

……..Spooked out of Russia after the electorate’s gleeful elevation of political showman Vladimir Zhirinovsky and his party of sometimes fire-breathing, sometimes bungling Russian nationalists (LDP) to the Russian Duma in January 1994, Jeffrey Sachs and his fellow opportunist, Anders Aslund, took their crusade for the application of shock therapy to Kiev. There Aslund picked up work managing a small team of advisors in Ukraine funded by the New York-based George Soros Open Society Institute while doing public relations work for Ukraine, also on Soros’s dime.[i]

Despite the criminal bonfire their advisory team had fueled in Moscow, U.S. Treasury generals considered both Sachs and Aslund to be good soldiers. Both were rewarded with comfy sinecures; the Carnegie Foundation in Washington would give Aslund a position from which he might pose as an allegedly objective analyst of U.S. policy toward Russia and Ukraine, and in June 1995, Harvard would reward Jeffrey Sachs with the leadership of the Harvard Institute for International Development (HIID), a plum position that would soon enough prove itself a poisoned chalice.

In Kiev, a USAID mission was already in place, along with the rest of the usual foreign aid plumage: the IMF, the World Bank, the European Bank for Reconstruction and Development, the International Finance Corporation, the European Union’s bilateral assistance programs, and those of Canada and the U.S.Treasury along with the National Endowment for Democracy (NED).  All that was missing was an HIID mission.

In March 1995, USAID sought proposals for assistance to Ukraine for impartial oversight and strategic advice for privatization and market reform programs. In May, however, USAID withdrew the request because Ukrainian officials said they weren’t interested. The Ukrainian rejection struck Aslund and Sachs – and their financier George Soros – as being extremely short-sighted. The three then teamed up in an attempt to revive USAID’s March proposal for assistance to Ukraine and while continuing to polish  their own HIID proposal.  If successful, the establishment of a second Harvard base of operations on the back of U.S. taxpayers would inaugurate Sachs’s leadership of HIID with a fiscal triumph in Ukraine, a new and potentially long-running stream of the most desirable money on earth, more commonly known as “other peoples’ money.”

Granted, one obstacle was the Ukrainian government’s contention that another USAID program was unnecessary. And it wasn’t helpful either that the IMF maintained that HIID’s proposed work would only duplicate work the IMF was already doing. When the governor of the National Bank of Ukraine told Sachs to his face that HIID’s program was not wanted, those of lesser ambition might have hesitated. Not these three amigos.

They turned to their friends in the executive branch of the federal government; David Lipton, Deputy Assistant Secretary of the Treasury and a former partner at Sachs’s consulting firm, the Washington-based Sachs Associates; and Carlos Pasqual, who served on the National Security Council (NSC), were both enlisted for support.[ii] (If the door were fully open on the U.S. government’s gang of schemers, Lawrence Summers’s silhouette would entirely block the view.) USAID’s Thomas Dine and Tom Pressley were also contacted by or on behalf of Sachs, et al. Embassies to Kiev were undertaken – with a view of lobbying the locals on the matter (that’s when the unpleasantness with the Ukrainian National Bank’s chairman erupted).

In time, dogged determination turned up one soon-to-depart Ukrainian official who agreed to support HIID’s $6-million grant request to USAID for another cooperative agreement, to be granted without any pretense of competitive bidding, with a Kiev-based HIID. But why would any Ukrainian official volunteer to help a pair of foreign academic types to a place at the trough? Shall we count the frog skins? The more interesting question is who ponied up the cash. Soros, Aslund’s home nation of Sweden, a notorious provider of foreign aid tailored to U.S. political purposes, or Harvard?

When HIID’s request came to the attention of the congressional International Affairs Committee in December 1995, its chairman, Benjamin Gilman, a New York Republican, didn’t like the smell of it. Why was HIID receiving so much money on a noncompetitive basis? How had a 1992 $2 million grant for Russian “reform” grown to $57 million, $40 million of which was awarded on the basis of “national security,” thereby evading the competition for government contracts required by statute? What were they accomplishing? What was the point of establishing a similar program in Ukraine?

And why was billionaire George Soros so concerned that Harvard receives a USAID grant for Ukraine that he actually lobbied Congress on Sachs’s behalf?

If Soros wanted Sachs to have $6 million, why didn’t he fork over the cash himself?  He often does. He and Sachs had been an item since the late 1980s when they started mucking about together in Eastern Europe. The billionaire had long salted considerable funds throughout Moscow’s “reform” community with grants for study abroad and domestic training programs for privatization and securities markets development under the auspices of his Open Society Foundation. His money had provided funds for both Aslund’s and Sachs’s separate projects, and the billionaire himself shared an office with Jeffrey Sachs in Kiev. So was he simply trying to leverage his widely publicized philanthropy with public dollars?

Or was Soros attempting to take advantage of a nascent, under-developed market that was incapable of policing conflicts of interest?  And was he being joined in that effort by Harvard University?  In the summer of 1997, the trading desk of Harvard Management Corporation, which invests the university’s endowment, confirmed that they had been active investors for several years in the Russian bond and equities market. (In fact, the endowment was growing fat and sleek indeed thanks to what was not so much a bond market as a pass-through arrangement with triple-digit yields for which Moscow was merely an exotic, hosting venue to the U.S. government’s industrial-sized laundry service.)  By late 1995, Soros and Harvard Management had any number of casual opportunities to exchange information with the publicly-funded Harvard reform insiders in Moscow and thereby gain privileged access to the sort of insider information investors prize.

In 1996 and 1997, the secret of insuring a good return from Russian stocks was to purchase shares before a company listed its shares as American Depository Receipts (ADRs) on the NYSE.[1] Of course, any ADR plans on the part of Russian enterprise would entail notifying the Federal Securities Commission (FSC) of the intended issuance as a first step, and the FSC was but one leg of an organizational triad in Moscow known as the Harvard Center, which included GKI, the privatization committee, and an outfit called ILBE – the Institute for a Law-Based Economy, which local wits quickly dubbed “the Institute for a Lobby-Based Economy.” Other matters of interest would concern the prospects for increased liquidity of Russian shares on the international markets, along with information concerning specific bond payments and alerts that would forewarn insiders of exactly when IMF funds available to pay out Russian bonds’ astronomical yields would run dry.

Considering the handsome taxpayer-provided listening post-HIID was operating in Moscow, it’s not surprising that George Soros, whose Quantum Fund invested $2.5 billion in Russia, would be keen to have something comparable flying the Stars and Stripes in Kiev – only with his agents in charge. Under cover of the U.S. assistance program, privileged information could first be obtained and then passed on in discussions devoted formally to -“reform policy.”  Surrounded by an HIID set-up, Soros would enjoy a certain authority his money alone couldn’t provide him. But that authority – that extra dollop of importance – can be most helpful even if illegitimate. The natives only know what they see, and nobody sees small pox on a blanket.

Questions and answers between Gilman and the State Department were kicked back and forth for several months. In late January 1996, Sachs contacted Gilman and asked that he remove the hold that the congressman had placed on the money allocated for Ukraine. George Soros too contacted Gilman’s office. Gilman complied and lifted the hold, but with the proviso that the grant had to be awarded on a competitive basis and could not exceed $2 million. After that, he called for a GAO (Government Accounting Office) investigation into HIID’s Russian activities and the grant request for Ukraine……………

And Kept It Working

…… In early June 1998, as Russia’s descent into the spiral of unmanageable debt accelerated, once again the issue of a possible IMF bailout emerged. As the situation went from bad to worse to near meltdown of the bond market, Yeltsin dispatched Anatoly Chubais to Washington to seek approval from the U.S. Treasury for yet more IMF cash.

Simultaneously and coincidentally, Russia’s top auditor, Veniamin Sokolov, Chief of the Counting Chamber, which is the Russian GAO, arrived in the United States with documents detailing incomprehensibly large amounts of corruption involving assistance money, state funds, and dicey natural resource sales on world markets.

It just so happened that World Bank officials were just then looking every which-a-way without success for hundreds of millions of dollars of lost coal loans. Cables flew from Moscow to Washington as the Moscow office tried frantically to stop the scheduled meeting between Sokolov and World Bank president James Wolfensohn, a meeting that was the principal focus of Sokolov’s visit.

Making the rounds of newspaper editorial boards, think tanks, and the U.S. Congress, Sokolov painted a picture of a Potemkin economy in which money itself had been socialized among a handful of large banks and the very top tier of an economically incompetent oligarchy. (Complying with IMF dictates had left the Russian economy a money supply that was only one-sixth of that considered normal for an economy of its size. Consequently, only the banking sector had actual rubles of any significance, leaving the general population ruble-poor.)

“The official economy about which you read in your newspapers has absolutely nothing to do with our national economy. Recently when we finished our audit of the Central Bank, we had to refuse to certify their annual report. It was the same at the Finance Ministry, where we had 150 auditors working for six months,” Sokolov said. “All our financial and banking authorities’ methods are designed to conceal the facts rather than to reveal them.

“When Americans read that Russia has an inflation rate of fourteen percent that figure refers only to the oligarchical economy and hides an eighty percent inflation in the national economy. But since the national economy is cash-starved and lives now by negative barter, meaning I’ll give you this and you give me that but neither one of us will pay the other, nearly our only product is debt. Our enterprises have finally used up all their reserves and this is why we are in crisis,” Sokolov told his U.S. audiences while comparing any new IMF lending to handing a drug addict more narcotics.

Since Russia’s chief auditor was anxious to cooperate in locating the true destination of U.S. and multilateral aid money, and since the Counting Chamber is mandated to audit any and all enterprises and government agencies in the Russian Federation, the U.S. Attorney in Boston and the USAID inspector general, who were assigned to sorting out the burgeoning HIID scandal, flew to D.C. from Boston to meet privately with Sokolov. The FBI followed up, and Sokolov seemed pleased.

What Sokolov wanted was for the U.S. money flow as designed to stop, it was corrupting his country from the top down, and the people were suffering terribly from the poisons it released into the atmosphere. Russia’s misdirected natural resource wealth was enough of a headache, but to have Americans dumping billions more into the country just to keep their artificial bond market functioning on behalf of a small crowd of very rich people and their institutions was a kind of genocide in its effects.

Surely, Sokolov reasoned, savvy Americans and their responsible and practiced legislators would want the money stopped as well. Why would they burn up their own wealth? Sitting beside him as he spoke, I couldn’t help but think a Mr. Smith in the shape of one Russian Mr.Sokolov had come to Washington. Sadly, Frank Capra wasn’t alive to direct and keep an uplifting story on the script.

At the conclusion of an encouraging meeting the following day with the House International Relations Committee head, Representative Benjamin Gilman, in which the two men agreed to collaborate, Gilman insisted his chief staff member arrange a meeting for Sokolov post haste with Republican Senator Jesse Helms, one of foreign aid’s greatest critics. The day’s developments promised results and for somebody somewhere that was apparently a problem.

It doesn’t necessarily follow that it was Representative Gilman’s dinner date with George Soros, then up to his eyeballs in Russia’s illiquid and collapsing equities market, the very evening of his meeting with Sokolov that stalled congressional cooperation with the Russian Accounts Chamber. Nor does it follow that Gilman’s Russian point man on staff two days later countermanded his boss’s instructions independently or that he received new instructions when he professed surprise at being queried as to whether Congressman Gilman would be accompanying Sokolov to the meeting with Senator Helms.

The meeting that Gilman had ordered with considerable urgency had “slipped his mind,” the staffer said, and that meant another hour of Sokolov’s time was wasted in a pointless meeting with a couple of stray staffers dredged up from Republican Congressman Gerald Solomon’s office recalling their personal epiphanies upon realizing that the Russian people, the former Soviets of the defunct Evil Empire, were – well – just folks. In other words, Veniamin Sokolov got the ne plus ultra Washington brush off; he was treated as if he were a constituent.

Later that June, Gilman’s Committee on Foreign Relations, after having passed up the opportunity Sokolov had offered of exploring official corruption and the misdirection of U.S. taxpayers’ billions, instead held hearings on Russian organized crime. Over the coming years, Representative Gilman’s congressional posse never did round up a single varmint, organized or unorganized.

When asked what it would take to move a proper investigation forward, a Treasury Department lawyer replied, “Nothing will make that happen. When the Clintons fired all U.S. Attorneys at once in 1993, they knew what they were doing. All those newly appointed prosecutors got the message. There will never be a Justice Department investigation of any Clinton administration policy or program that might make the Clintons look bad.”

While Veniamin Sokolov was finishing out his fruitless 1998 American journey (he never did meet with the World Bank’s Wolfensohn, the cables worked, and last I heard the World Bank never did recover the 100s of millions in coal loans), Anatole Chubais, former head of the Russian privatization program and deputy premiere, met with Lawrence Summers and Strobe Talbott. The topic was how to get sufficient billions into Chubais’s hands to keep the bond market humming. Other “private meetings” were arranged, and before departure, Chubais informed the Russian ambassador that he, the ambassador, was to consider Anders Aslund the deputy premier’s “personal emissary.” The surprise promotion from the leader of a crowd Aslund refers to as “my boys” failed to prompt the Carnegie Foundation “senior analyst” to register as a Russian government lobbyist as required by law.

Once again Treasury was arguing that Russia’s decreasing hard currency reserves and untenable finances would provide the leverage needed to compel the Yeltsin government to adhere to a responsible state budget, to enforce shareholder rights, and to adopt an effective tax code.

Treasury’s policy recycling effort left Sokolov, who complained of being presented with unsigned scraps of paper authorizing hundreds of billions in ruble transfers to private individuals as evidence of legitimate Finance Ministry expenditures, bemused; “You may tie our businessmen up, incarcerate them, and beat them to unconsciousness, and still it will be impossible to collect taxes from them, because they simply have no money to pay any tax of whatever kind. In our current conditions, further IMF lending will be diverted to the oligarchy. There will be no responsible state financing, only less for the people. Not one bureaucrat will lose his job, only teachers and medical personnel will be cut.”

By mid-June 1998, Sokolov and the U.S. Treasury’s Russian darling Chubais had returned to a country still home to a furious and impoverished population demanding their long overdue wages and pensions. For his part, Sokolov’s homecoming was sweetened by a well-organized Russian media vilification campaign that characterized his efforts in the U.S.as the deeds of a “traitor.” True, Sokolov was a traitor, a “class traitor” in the language of Lenin that is – to the oligarchs, to HIID, to the US-funded Chubais crowd and to one relentlessly self-advertising billionaire.

Adding insult to injury, the FBI returned a copy of Sokolov’s documents, not the originals. The problem was Sokolov’s documents were two-sided, the FBI’s copy one-sided. Sokolov never did get his original material returned, and nobody knows what the FBI did with it.  Hmmmm.

Western pundits wrote their editorials pro and con regarding further IMF lending, and official meetings and conferences convened and adjourned, and yet matters were allowed to drift. Daily the Russian  government assured the world – and Wall Street – there’d be no ruble devaluation. In mid-July, Anatoly Chubais undertook yet one more emergency trip to Washington to meet with Deputy Treasury Secretary Summers in his suburban lair for brunch and worked out the details of the proposed bailout. After the IMF received yet another assurance the Clinton administration would see to it that the U.S. Congress voted in a fresh $18 billion for their coffers, Chubais returned to Moscow in triumph, crowing a month later over how he had “conned” the West into a bailout commitment of $22.5 billion.[iii]

Once the first tranche of $4.8 billion was delivered to the Russian central bank, the bond market nose-dived. On 17 August, then Russian Prime Minister Sergey Kiriyenko announced a devaluation, which the IMF had anticipated, along with a 90-day moratorium on all debt payments, which the IMF had not anticipated.[iv]  In short, Moscow had in effect defaulted on domestic and foreign debts, which led to the collapse of the stock market and major commercial banks. The IMF froze the remaining $18 billion of Russia’s bailout.

Emerging market bond traders in London took solace in the by-then-routine use of metaphor drawn from gruesome details of the Battle of Stalingrad. Commercial bankers and investors in regional debt focused instead on the hidden, possibly mystical significance of one Siberian province’s offer to redeem their bonds in sausage links and oak caskets. But it was the derivative traders who had the really big headache, having made their leveraged bets with rivers of borrowed money. By late August, everybody on Wall Street knew $5 to $6 billion of “guarantees” or “forward contracts” Russian banks had contracted with Western counterparties would never materialize.

Once the smoke cleared, Western bankers and investors found themselves alone, wandering a deserted battlefield littered with empty bags.

Furious comment exploded across a full range of Western media. Amidst the hysteria, nobody had the presence of mind to remember Veniamin Sokolov’s loud assurances six weeks earlier that what had happened was exactly what would happen.

While Taking the High Road

At the late 1990s’ Harvard-sponsored investment conference in Cambridge, Soros had criticized his former ally, Chubais, pronouncing his “robber capitalism privatization” to have been “repulsive” while asserting, “I didn’t want to have anything to do with it.” [v]  The Russians in attendance sneered knowingly.

For some folks, philanthropy is just a big word for never having to say “chump change.”

[1] An American Depository Receipt is a share certificate that entitles the person with that security to shares of a non-U.S. company, which have been deposited in a bank located outside the U.S. This instrument is what allows foreign shares to trade on the NYSE, and their acceptance requires SEC approval.

[i] Wedel, Janine, “The Harvard Boys Do Russia,” The Nation, 1 June 1998.

[ii]

“Sachs Appeal,” Euromoney, February 1992.

David Lipton informed government investigators that on account of his previous business relationship with Jeffrey Sachs (Sachs and Associates), he recused himself – verbally, not in writing – from decision making on HIID’s Ukrainian grant effort.  Lipton’s deputy confirmed his boss’s unwritten recusal. Nonetheless, government inspectors were puzzled as to why – according to that logic – Lipton did not recuse himself from issues regarding Moscow’s HIID operation. Lipton explained that since Russia was an ongoing program (and Ukraine wasn’t?), he felt no need to recuse himself. In the course of their long relationship, Sachs and Lipton had established a private consultancy – Sachs, and Associates – which was funded mostly by public funds. And despite Sachs’s assertion that he took no money from client governments, Slovenia revealed Sachs and Associates once billed the government $300,000 for advisory services. Slovenia initially declined payment, citing the inadequacy of Sachs’s and Lipton’s “kindergarten stuff” but reportedly the two did eventually get the money.The Slovenians were particularly bitter because Sachs interfered fatally, as he did in Russia, with the government’s employee buy-out privatization program.

[iii]

Paddock, Richard C., “Russia lied to Get loans, Says Aide to Yeltsin,” Los Angeles Times, 9 September 1998.

[iv]

Helmer, John, “Sour Grapes,” Moscow Times, 15 January 1999.

AFP, “IMF Tacitly Approved Russia’s August Debt Default: Ex-tax Chief,” 16 December 1998 as reproduced on Johnson’s Russia List #2522, Item # 11, 17 December 1998.

[v]Interfax, “Soros Denies Getting Involved in Russian Politics,” 20 October 1997.

While in the midst of denouncing Russia’s “robber capitalism” to Western reporters, Soros said “strengthening  the oligarchy would benefit Russia.  This would be a step forward for the country.”  Ah dear, shades of Alexander Hamilton.

Beyond Imagination: Uranium One

By Anne Williamson

July 19, 2018

https://www.lewrockwell.com/2018/07/anne-williamson/beyond-imagination-uranium-one/

This originally appeared in Chronicles Magazine.

The multilayered story surrounding Uranium One—the former South African, then Canadian, and now Russian company, of which both Bill and Hillary Clinton and their family foundation are the enriched beneficiaries—has all the usual elements of a typical Clinton scandal.

A talented con man, Bill Clinton perfected his game in Arkansas. Through his control over state contracts, regulatory agencies, and judicial appointments, the creation of public credit and of agencies like the Arkansas Development and Finance Authority and their misuse, then-Governor Clinton was able to reward his allies, punish his enemies, and insert his political machine into nearly every endeavor, public and private, statewide. Clinton nailed down the couple’s franchise by continually getting himself re- elected governor of Arkansas, while his spouse handled the paperwork at the Rose Law Firm.

When Bill and Hillary made the move from Little Rock to Washington, the territory under their influence was enlarged, and the public cash pots at their disposal grew significantly, but their modus operandi remained the same. The only thing that changed when Hillary began her adventures in the U.S. Senate, and then at the State Department, was that she was now the one with political power, and Bill became the ornamental figure.

Uranium One’s predecessor is a Canadian company, UrAsia Energy Ltd., founded in 2005 by Canadian mining financier Frank Giustra. By mysterious means Giustra was able to fill what was no more than a shell company with the rights to three uranium mines located in Kazakhstan, a former Soviet republic that is fantastically rich in just about everything, including uranium. Bill Clinton appears to have played a significant role in smoothing the rough edges of Giustra’s good fortune by supporting Kazakh President Nursultan Nazarbayev’s appointment to a U.N. agency dedicated to validating elections, a p.r. coup for Nazarbayev.

Thereafter, Bill got the use of Giustra’s luxurious private jet, and the two began jetting about the globe together to Third World countries that enjoy attractive endowments of natural resources.  Bill made his speeches, and Frank made his deals.

In 2007, UrAsia purchased a South African uranium firm, Uranium One, and moved the company to Canada while retaining the firm’s South African name. Bill and Frank then set up their own philanthropic entity, the Clinton Giustra Sustainable Growth Initiative, to promote “progressive environmental and labor practices in the natural resources industry.” Giustra pledged $100 million and dragged in $16 million more in pledges at a 2008 star-studded gala in Toronto.

In 2008, things got more interesting. The Russian atomic-energy agency Rosatom, short of uranium for its own needs, entered into negotiations for a 17-percent stake in Uranium One. But in 2009, Kazakhstan questioned Uranium One’s claim of having obtained government approvals for UrAsia’s first mine purchases. The Kazakh government’s public doubts coincided with the arrest of Mukhtar Dzhakishev, the head of Kazatomprom (the country’s national importer and exporter of nuclear-fuel components), on charges of illegally selling uranium deposits to foreign companies.

Uranium One’s shareholders and principals were beside themselves. Would the company lose the Kazakh mines? Already, Uranium One’s stock value had collapsed by 40 percent. The Moscow investment bank Renaissance Capital was similarly alarmed since it had been heavily promoting Uranium One shares to its investors. Could some dastardly Russian scheme for control of Kazakh uranium assets be afoot?  And was it possible that Vladimir Putin, who enjoys excellent relations with his Kazakh neighbor, and with President Nazarbayev personally, was the kingpin of the operation?

Now why would anyone think that?

The office of the presidency of the Russian Federation is relatively new, having come into existence a mere quarter century ago. Vladimir Putin’s interpretation of the office is shaping and defining it.  He is the nation’s khozyain, a unique figure whose origins are in Russia’s misty past when the Slavic tribes roaming the great Eurasian steppe were among the freest people on earth. Unlike Western Europe, the tribal lord wasn’t an hereditary office, but one elected by the veche (popular assembly) in which each mature male householder of the votchina (estate) had a vote.  When one khozyain’s leadership delivered poor results, the votchina’s electorate did not hesitate to replace him.  And since each householder considered himself a rightful claimant to some part of the votchina’s earnings, the criterion for political support was the shared prosperity and security of all claimants.

Vladimir Putin’s principal aim has been the restoration of the Russian state and economy, and for that the state must be protected from both invaders and usurpers. This requires an army, which, in turn, requires the state to have income—preferably income that is not derived from crushing both healthy competition and the population generally, as was true under the tsars and the commissars.

Thus we arrive at the 1999 Law on State Corporations that governs strategic industries and giants like Russian Railways, Sberbank, Rosneft, and Rosatom.  Each corporation is created by separate legislation and escapes the scrutiny of the Federal Agency for State Property Management, being controlled instead by the Kremlin.

In the first years of Putin’s rule, Kremlin strategists puzzled over the best ways in which to invigorate the Russian economy. Where might they excel in this new, modern world in which post-Soviet Russia was struggling to find her footing?  What was Russia good at? What could Russia provide the world besides oil and gas?  The answer was bigness.

Enormity does give the Russians a special joy.  The idea of bigness empowers them: the biggest country, the biggest dam, the biggest steel mill.  When describing some aspect of their industries or their land to a visitor in terms of Big, they will sigh in exasperation because the guest clearly doesn’t grasp just how big Big is.  The poet Lermontov  captured the Russians’ proud defiance when he wrote, “We may be slaves, but we are enslaved by Russia, the ruler of the universe.”

Rosatom, a large state corporation built in 2007 out of the Soviet atomic industry’s degraded assets, exemplifies the Russian state’s policy of developing key strategic industries and infrastructure.  These big state corporations are (at least in theory) positioned to enable and stimulate the rest of the economy; in turn, Rosatom’s (and similar firms’) corporate earnings support the state.

Rosatom’s projects are enormous, and the Russians have proved themselves quite adept at developing nuclear reactor technology as well as advanced safety technology and procedures. They are also quite capable of strengthening the country’s position in the global nuclear-energy market.  The Kremlin’s idea of delivering nuclear-industry products to customers that cover the entire supply chain from raw uranium to a reactor’s final energy output is being realized, and Uranium One is a part of that story.  It’s a story that began in Vancouver at the first Clinton-Yeltsin summit.

In April 1993, Americans were rightly concerned about nuclear proliferation, but wrongly focused on a contract Moscow had with Iran to build a nuclear reactor.  In his memoir The Russia Hand, Strobe Talbott, Bill Clinton’s advisor  on Russian affairs, insisted that this reactor, once  completed, would “contribute to the covert nuclear-weapons  program of a regime that supported international terrorism and violently opposed the Middle East peace process.”

The Russians knew the Iranians had no “covert nuclear-weapons program,”  and that peace in the Middle East hinged more on Israel’s behavior than on Iran’s.  Viktor Mikhailov, then-minister of atomic energy, refused to swallow what he said was Washington’s cover story to conceal its true aim: keeping Russia out of a legitimate market for nuclear technology.  Russia needed income, and what Russia sold and to whom was none of Washington’s business.

That was hardly what the Americans expected to hear.  Talbott quotes his then- assistant and future State Department Ukrainian strategist and outspoken E.U. supporter “Toria” Nuland:  “See that’s how the Russians are. You try to get them to eat their spinach, and the more you tell them it’s good for them,  the more they gag.”

After the first Chechen war erupted in 1994, the Iranian contract took on additional importance.  Russia is home to the largest population of Muslims of any predominantly Christian country on earth.  Concentrated in the Caucasus (Chechnya, Ingushetia, Dagestan, Circassia, Bashkiria, etc.), Islam’s centuries-old settlements and communities crawl northward along both sides of the Volga to Tatarstan, and westerly to Bashkortostan.  Having already lost the buffer of Eastern Europe and nearly a third of the Soviet Union’s national territory, Russia Defense Minister Pavel Grachev warned Boris Yeltsin that if Chechnya broke free, there would be a domino effect in neighboring Muslim-dominated areas.  Russia would run the risk of being cut in two.

Otherwise on the proliferation front, Russian and American interests were aligned.  The two nations were quick to agree to the George H.W. Bush administration’s “Megatons to Megawatts” proposal, announced in August 1992,  in which over 20 years Russia would convert 500 tons of highly enriched uranium from dismantled nuclear warheads into low- enriched uranium to be purchased by the U.S. to fuel power plants.  The agreement was finalized under President Clinton in 1993, and everybody was happy.  The Russians were earning money from their nuclear expertise while reducing their overlarge nuclear arsenal (as were the Americans), and the Americans had a reliable supply of energy-grade uranium for their nuclear-power industry.

However, the following six years proved revelatory.  Putin summed them up well just recently:  “We gave  you uranium;  you repaid  us by bombing  Belgrade.”  What exactly did Putin mean? What was he summarizing?

In the oil and gas business, distribution is key.  Whoever controls the pipe servicing a field controls the product.

By securing an energy supply corridor from the fields of the Caspian Sea region to Europe, the West would provide for a significant supply of oil and gas to Central and Western Europe by pipeline, and to the U.S. through load-out terminals in the NATO sphere, in Turkey, Greece, and Albania.  The only trick would be to “maintain stability” along the pipeline from the Caspian through the Caucasus and the Balkans to Western Europe; the chosen solution was to create individual U.N.-NATO protectorates from the six republics and two autonomous regions that made up Yugoslavia before 1989. NATO’s “peace bombs” served to undermine the last sovereign state that stood in the way of the West’s colonization of the Balkans.

None of this was lost on the Russians.  They understood that there was nothing “humanitarian” in NATO’s Kosovo aggression, and the alliance’s cheap rhetoric was really cover for the West’s  ongoing oil-grab and the rolling expansions of NATO, both of which continue to this day.

Moscow had always controlled the pipes that carried the former Soviet Union’s oil and gas to Western markets.  Much better, the Americans reasoned, that the Central Asian republics should owe their future wealth, transit payments, and security to an imperial Washington.

Stripped of her pipeline monopoly, her nuclear capacity diminished through obsolescence, her defense sector in decline from lack of resources, and burdened with a corrupt government, unsustainable foreign-debt payments, and a thieving elite, Russia would be no more than a vast, disorganized, ineffective, and landlocked territory capable only of delivering raw materials (and thousands of thermonuclear warheads) to the West.  And even the efficient exporting of raw materials, certain interests argued, would require Western management.

Over the following decade the fracking revolution would change the face of the oil and gas industry; now the United States, for example, was to become an exporter of oil, not merely an importer.  But the pressure on Russia did not cease: It has only intensified.  The West’s sanctions regime compels Russia to live through a 21st-century version of the medieval siege.

In 2009, it was Sergey Kiriyenko who first saw the saving opportunity.  The West, which had focused on gaining control of Russian gas and oil, had neglected uranium.  The former Yeltsin prime minister saw that profitable assets which were even then giving a good return could be had for a cheap price.  He also knew that when the Megatons to Megawatts program ended in 2013, the U.S. would have insufficient uranium to supply her industry.  Kiriyenko’s proposal thus would give Russia a significant claim on U.S. uranium assets.  But that was not likely the driving force behind the plan.  What was essential for the development of Rosatom was increasing Russia’s supply of raw uranium, not settling old scores.

This article was first published on January 17, 2018.

5 reasons Ukraine will soon cease to exist

Published on February 14, 2017

http://theduran.com/5-reasons-ukraine-will-cease-exist/

With no historic basis as a state, an economy in tatters and political crises at every corner, it won’t be long till Ukraine becomes unrecognisable, if it exists at all.

As the fascist forces escalate their aggression against the Donbass Republics, many are questioning what the future of the Republic of Ukraine will look like in the medium and long term. The state as presently compromised will not survive but a few more years at the very most.

History is full of states coming and going/changing their borders. The idea that this state will evaporate into the annals of history is not novel. It will be one of many.

Here’s why.

1. There is no historical precedent for such a state

The majority of the territory that is currently Ukraine has at various times been ruled by Russia, The Golden Horde (Mongolia), The Polish-Lithuanian Commonwealth, Ottoman Turkey, the Austro-Hungarian Empire, Second Polish Republic and the Soviet Union.

The regions corresponding to post-1991 Ukraine had never been unified as a legitimate state. This is one of the reasons that current state has no cohesive identity, it is merely a mishmash of regions that for most of modern history were Russian. This poor political geography is owed in great part to the foolish Bolshevik map of Soviet Republics which replaced the Tsarist guberniyas, which as regional units, were far more reflective of the realities of local identities.

Because of Russia’s vastness, throughout history, regional identities have often been vastly more important than nation ones.

It is for this reason that many people in the cobbled together, geographically manic Republic of Ukraine, are far more comfortable calling themselves Odessa people, or Kharkov people or even Lvov people than Ukrainian.

The myth of Ukrainianism is a modern invention of an intelligentsia from the Galician region which during the 19th and early 20th century was part of the Austrian/Austro-Hungarian Empire and after the First World War, part of the Second Polish Republic. The development of the idea of Ukrainianism was an attempt to emancipate peasants who were neither Polish nor Austria and give them an identity during the ‘age of European nationalism’.

This was the basis of the rump-state that emerged from the ashes of both the First World War and the Russian Civil War known as the West Ukrainian People’s Republic. Another Ukrainian People’s Republic later formed in Kiev. Both places had limited international recognition and are best understood as an outgrowth of the territorial and sectarian wars fought in the region after the October Revolution.

Such conflicts include the Polish-Ukrainian War and the Polish–Soviet War, when both powers were competing for influence in the area known as Little Russia.

A state with such shaky foundations is difficult to unite. No such unity has yet to be achieved as the political infighting in Kiev, the coup of 2014 and the war in Donbass demonstrate.

Massacre in Odessa

2. Since 1991 Ukraine has always been divided

Ever since the former Soviet Republic became an independent state, Ukraine’s political map has always been evenly divided between eastern and southern regions which vote for parties that are broadly pluralistic and at times Russophone. Such a party was the Party of Regions from which Viktor Yanukovych derived his support.

Western regions, including those which were only incorporated into the USSR after 1945, always tended to vote for parties that were Russophobic and intended to build a young state on a sectarian basis, in spite of the lack of historical precedence.

This political conflict was the proximate cause of the coup of 2014. The country was split down the middle and the opposition to President Yanukovych was more violent and better funded from abroad than his political allies.

A similar political upheaval took place in the so-called Orange Revolution of 2004/5. A country prepared to split at any moment on political lines, cannot long call itself a country.

3. Russian regions outside of the two Donbass republics will go their own way.

On the 2nd of May 2014, peaceful protesters gathered at Odessa’s Trade Union Hall. They were voicing their opposition to the fascist government which took power in Kiev.

They were met by a combination of mostly non-local members of the neo-Nazi party ‘Right Sector’ as well as far right football hooligans, also not supporters of a local team.

The fascists came to provoke violence and with the authorities doing nothing to help, they achieved their goal.

Many of the peaceful demonstrators, most of whom were very young men and women, were burned alive as the fascists throw firebombs at the Trade Union Hall in which the protesters found themselves barricaded.

Some leapt to an instant death, whilst others who survived were mutilated and beaten to death by the fascist gangs below.

This has not been forgotten. Odessa is a traditionally multi-cultural city, but unmistakeably Russian in character and language.

Odessa along with Mariupol and Dnepropetrovsk and Kharkov in the north will not be so easily reconciled to the idea of Ukraine. As it stands, violence has been commonplace in such places ever since the coup of 2014. Just because unlike in the Donbass republics, there is not out and out war, does not mean things are peaceful.

The regions may well go their own way and sooner than many suspect.

4. It’s the economy, stupid!

Somalia has long been called a failed state due to the weak Mogadishu government’s inability to maintain a functional state.

Likewise, post-Gaddafi Libya is now several states in one, with two factions in two cities (Tripoli and Benghazi) competing for legitimacy. Compounding this are a plethora of tribal factions and terrorist groups including ISIS, who control parts of the country. There is no central economy and resources are constantly being plundered and sold on the black market, often with the help of the Sicilian mafia.

Ukraine too is a mafia state. Corruption in state-owned corporations, lack of any accountability among offices, one of the most corrupt and violent business cultures in the world, difficulty in the government collecting revenue and a thriving black market, has depressed the economy of a state which was since 1991 has never been a picture of economic health.

Unable to pay for its own necessities let alone its war of aggression, the Kiev government is almost entirely reliant on foreign aid.

With the EU states having their own economic and political crises and Donald Trump appearing less and less interested in paying for states like Ukraine, the fascist regime is more than just an aggressive state, it is a failed state.

The combination of regions uncomfortable with ethno-centric and linguistically discriminatory laws with central bankruptcy is a recipe for civil strife. Many of the Russian regions of the country would be more economically healthy if they formed their own federation or indeed returned to Russia.

Many would jump at such an opportunity. They soon will.

5. The EU Problem

Whereas the fascist regime in Kiev is keen to create an identity based on the myth of Ukrainian ultra-nationalism, many of her would be colleagues in a future EU arrangement do not share such views.

Many Poles feel that Lvov (Lwow as they call it), ought to be restored as a Polish centre of culture, which it was even during Austrian rule. Although the city largely lost her Polish population, if what is left of Ukraine, the western rump, were to join the EU, the possibility of Polish repatriation could be a very real possibility due to the EU’s open border policy.

As it stands, I believe in the next few years, all Russophone regions of the country will legally separate from the centre leaving mostly Western Ukraine and maybe some small areas of left-bank Ukraine (possibly not).

This rump state, would have little choice but to beg the EU for membership. Brussels may not be able to stomach the burden of even a small Ukraine. But if it did, that would be the end of Bandarastan. It would essentially mean a state perpetually reliant on the good will of Brussels on the physical periphery of Europe. Good luck with that!

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