re: Will Bitcoin be built under rather than on top of?

quote:

---

and Russian default.

---

A not-so-short anecdote on that event....

I was working in Moscow on a financial technical assistance and analysis World Bank project on August 17, 1998 when the Russian government announced it was going to stop supporting the ruble and would place a "moratorium" on repaying its debt. (To this day the Russians refuse to acknowledge they defaulted on their sovereign debt, it was just a moratorium on repayment that happened to last forever.)

Yeltsin's finance minister announced the "moratorium" on a Sunday night when the banks were closed and when the ruble was trading at 6 to 1 USD in the currency exchange kiosks that were on every corner in Moscow.

On Monday morning when markets opened, the exchange rate was 16 to 1.

That alone made most Russian banks technically capital insolvent, at least all of the Russian banks that had any amount of dollar denominated debt, including dollar denominated customer deposit accounts. (This was prior to the creation of the euro.)

Add to that the enormous portfolio of Russian sovereign debt bonds the banks held that became worthless overnight, and you get the picture....Russian banks were bankrupt with negative capital in excess of tens of millions of dollars equivalent amounts.

Our project had told the Russian Ministry of Finance and our World Bank bosses the previous March that the huge amount of both Russian sovereign debt and Russian banks' dollar debt that was coming due by September was never going to be able to be supported by the incoming revenues of the government and the banks. They both just dismissed our analysis and basically told us to shut up. So, the default was a surprise only to people who refused to acknowledge facts.

At about 4 PM on Monday (when the DC World Bank staff started getting to work) after the Sunday night default announcement, I received a call from my Washington World Bank boss. He asked me to create a spreadsheet to send to him detailing the Russian banking sector's financial condition resulting from the devaluation and default. The World Bank was always very big on spreadsheets. In their opinion every problem could be solved if we could only explain the problem on a spreadsheet.

I remember telling him, "Frank, there AIN'T going to be any more frickin' spreadsheets on the Russian banking sector because there is no frickin' Russian banking sector! And in case you're misinterpreting what I'm telling you, I frickin' quit!" And I hung up on him.

I flew home the next day....

Damn

Another anecdotal story on the brilliance of the Russian government with markets. A few years ago Russian bonds were trading at ~120 and they have an announcement that they'll be calling them at par. As you can expect, huge sell-off in Russian debt, including the quasi-sovs like Gazprom.

There was an advisory team that went to Russia and answered their questions as to "why in the world are our interest rates spiking?" Soon after the meeting they decided to scrap the idea. Just remember, no matter how mad you get at American politicians, it can always be worse.

quote:

---

all it comes down to is how much of it is there and how many people want to buy it.

---

Isn't that the idea behind BTC proponents' predictions that BTC will continue to grow exponentially in value? That being, there will be a finite number of BTC produced and as it becomes more globally accepted, more people will want a part of it, thereby resulting in the continued inflation in value...?

quote:

---

Damn

---

As an epilogue to that story from 1998, the same guy I hung up on at the World Bank, Frank (that was his real name), called me in April, 2000 after not communicating with him since that August phone conversation. I almost went into shock at why he was calling.

He asked me to put together a small team to go back to Moscow and do a 'postmortem' on the largest 25 Russian banks that were in operation. The banks were located across almost all 10 time zones of Russia.

I told Frank I couldn't believe he would ever ask me to work for him again after the way I spoke to him the last time and he said it was because of the way I spoke to him that he wanted me to lead the team doing the analysis. He said they realized that if they had only listened to what we had been telling them for almost 6 months in early 1998 maybe the Russian financial crisis could have been averted or at least softened a bit.

So I contacted a couple people (one Swedish guy and one Dutch guy) who I had worked with in Moscow and we met up in Moscow in May, 2000.

The purpose of the analysis was to determine if any of the top 25 banks had any credit worthiness at all so that the WB, via the Russian Ministry of Finance, could make some development loans to banks to jump start small businesses across Russia. "Small businesses" were defined basically as any business that wasn't controlled by a Russian oligarch.

We spent a month crisscrossing Russia interviewing bankers and regional government leaders trying to determine if any banks were credit worthy enough to take a chance on extending credit.

I think we ended up recommending only 4 or 5 of the banks which royally pissed off the Russian government who wanted the very favorable terms of large dollar loans to divide out among their banker friends.

One bank in Moscow which I handled personally was well known to be owned and run by the Russian mafia. It was very uncomfortable and it was the only time I'd ever personally come in face-to-face contact with the Russian mafia to my knowledge.

That bank was also the Kremlin's unofficial bank where all of the Kremlin government big shots had their personal accounts along with quite a few large governmental accounts (and they probably also owned shares in the bank). And that fact is the only reason that bank even showed up on our list of banks to analyze.

Based on the "character" analysis using the "Five C's of Credit" I could not recommend that bank to participate in the loan program. When I told that bank's CEO what my recommendation was going to be he tried to intimidate me by calling into his office a couple of his armed, flat-head goons to stand behind me where I was sitting in front of his desk in his office. My interpreter's voice started trembling when she realized how tense the situation had become.

With the goons standing behind me, the CEO asked me again if I would reconsider my recommendation. I told him no and pointed out that the Ministry of Finance's own rules (on capital ratios and diversification of ownership) prevented his bank from qualifying for the loans. I didn't point out to him that he was also a crook which was a definite black mark against him. I told him if he disagreed with the Ministry of Finance, perhaps he should take his disagreement up with them.

After about an hour of tense "negotiations" I told the CEO I was done and needed to go to my next appointment.

He said okay and even stood up and shook my hand. The goons escorted us to the bank's door and stopped there, much to my relief.

When we got to the car we had waiting for us my interpreter broke down crying and said if I ever needed to go back to that bank, I needed to get a different interpreter. She wasn't going back. I told her that worked out nicely because I wasn't going back either.

So, I like to tell people that I told the Russian mafia to f*ck off and lived to talk about it.

Nah. Not until you've taken your Ritalin.

quote:

---

did the CEO try to bribe you at some point?

---

Surprisingly, no.

quote:

---

I think the presence of an interpreter prevented an offer of a bribe. If you had suggested one, I'm pretty sure that he would have been open to discussion figuring you had already made arrangements with the interpreter.

---

Likely.