........."Empires Built on Debt Start to Crumble"

"Empires Built on Debt Start to Crumble," see http://www.nytimes.com/2008/10/18/business/worldbusiness/18oligarch.html?em. The Russians are hurting also, which is more strong evidence that the credit debacle is a worldwide phenomenon, though it's being largely and somewhat unfairly blamed on the US (though much of the blame lies with the US obviously, partly because the US is the largest economy and had a large deleterious effect on much of the world). Part of the article is below.

"MOSCOW — Are the Russian oligarchs going bust?

In the current global financial crisis, perhaps no community of the superaffluent has fallen as hard, or as fast, as the brash Kremlin-connected insiders whose wealth was tied up in the overlapping bubbles of the Russian stock market, commodity prices and easy credit.

Already, Russia’s richest man, Oleg V. Deripaska, the nuclear physicist turned post-Soviet corporate raider, has ceded more than a billion dollars in assets to jittery creditors as his aluminum-to-automobile empire reels.

“Half the Russians could fall off the Forbes list” by next year, Maxim V. Kashulinsky, the editor of the Russian edition of the magazine, said in an interview.

Those most in favor with the Kremlin — who expanded fastest and ran up the largest debts — are most at risk now as borrowing costs soar.

Most of the ultrawealthy have large stakes in the mining and petroleum behemoths of the Russian economy, stakes gained through the legally questionable privatizations of the 1990s. A decade later, company ownership has still not spread to a broad shareholder base as in the West. Without a broad base of potential customers, the stock market here has tanked even faster than exchanges in the United States.

In America, toxic mortgage-backed securities sank mighty investment banks. In Russia, it is the empires of the oligarchs and the loans they took out from Western banks, using shares in their companies as collateral, that are at risk.

In a number of cases the value of shares pledged by Russia’s rich has fallen below the value of the loans, an ominous sign for the market here, where the benchmark RTS index is already down 71 percent from its peak in May.

Western banks are not immune. Their exposure to oligarch debt came into focus last week when the Russian central bank reported that, all told, Russian companies have to repay $47.5 billion to foreign creditors by the end of this year, and $160 billion by the end of 2009.

If banks require businesses to sell shares to repay these loans, “the Russian stock market could come down like a house of cards,” Michael Kavanagh, a mining sector analyst at Uralsib bank, said.

“This could be a game changer for a lot of very, very large players,” Rory MacFarquhar, an economist at Goldman Sachs in Moscow, added. “The ground is shifting under them.”

Not all of Russia’s rich are hurting. Their yachts, jets and London mansions are not yet up for sale. For instance, Roman A. Abramovich, the owner of the Chelsea Football Club in London, has not sold his 377-foot yacht, Pelorus. Or the 282-foot Ecstasea, his other yacht.

In the 1998 financial crisis, ordinary Russians lost savings in a devaluation of the ruble. This time is different. The wide middle class that emerged under the former president and now prime minister, Vladimir V. Putin, and the oil boom has yet to feel the financial turmoil, because few own stocks. That could change depending on how badly the economy is hurt by falling commodity prices and the flight of an estimated $74 billion in foreign investment since Aug. 1.

Estimates of the oligarch’s losses are necessarily rough. Bloomberg News calculated the richest 25 Russians on the Forbes list lost a collective $230 billion since the market peak, based on declines in value of publicly traded companies and analysts’ estimates of private company losses. That would make their collective loss over five months four times greater than the total wealth of Warren E. Buffett.

The oligarchs’ remaining assets, based on this estimate, would be worth about $140 billion."

.......http://www.JoeFRocks.com/