Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't all so Joe,
Speaker 1: I think? Uh oh, I'm trying to remember now. It
Speaker 1: must have been maybe four or six weeks ago. You
Speaker 1: were away and I recorded an Odd Lots all by myself,
Speaker 1: and I felt really bad because it was a really
Speaker 1: good episode. I think you would have enjoyed it. It
Speaker 1: was the one with mittwo Galate and we were talking
Speaker 1: about debt defaults. Yeah, Tracy, I was sad to have
Speaker 1: missed that one. I mean, I don't think you should
Speaker 1: feel bad per se that you did it alone without me,
Speaker 1: because you know, it's sort of occasionally I'll do one solo,
Speaker 1: you do one solo, we pick up for each other.
Speaker 1: But I do like that topic a lot, and so yes,
Speaker 1: I wish I had been part of it. Well. As
Speaker 1: my personal gift to you, we are going to do
Speaker 1: a sort of Redux episode. We're not talking about defaults
Speaker 1: or sovereign debt restructurings in general. We're going to talk
Speaker 1: about one very very specific instance of a debt default.
Speaker 1: In fact, it's probably one of the most famous of
Speaker 1: all time. It's certainly one of the biggest. In fact,
Speaker 1: depending on your definition of debt defaults and how you
Speaker 1: actually measure it, it is the biggest one of all time?
Speaker 1: Do you know what it is? No, So I was
Speaker 1: just gonna say, this is really embarrassing to me because
Speaker 1: I know which one we're doing, And if someone had said,
Speaker 1: what is the biggest sovereign debt default of all time?
Speaker 1: You say, oh, this is the most famous one. I
Speaker 1: don't even know if this one would have occurred to me.
Speaker 1: So I'm kind of embarrassed by the fact that I
Speaker 1: apparently didn't even know in advance what the most famous
Speaker 1: of the category was. Yeah, I think most people would
Speaker 1: probably you'd say Argentina, wouldn't you. I think you say,
Speaker 1: are Yeah, I might have said Russia in the late nineties.
Speaker 1: Oh yeah, okay, well that's closer. It is. It's Russia,
Speaker 1: but it's Russia in the early nineteen hundreds. So it's
Speaker 1: the famous uh nineteen eighteen repudiation of Russian debt once
Speaker 1: the Russian Revolution happened. And it's a really interesting moment
Speaker 1: in time in international finance because it touches on all
Speaker 1: these themes that you and I like to talk about
Speaker 1: one of them is bubbles, right, Russia issued an incredible
Speaker 1: amount of debt in the run up to nineteen eighteen,
Speaker 1: loads of people bought it, and then suddenly the whole
Speaker 1: thing collapsed. But the other really interesting idea here is
Speaker 1: the sort of notion of a safe asset that suddenly
Speaker 1: becomes not so safe. There's a moment in time when
Speaker 1: Russian sovereign debt was considered you know, really really pristine,
Speaker 1: almost like US treasuries today. And the other big theme
Speaker 1: has to be the politicization of it, or the ideology
Speaker 1: behind debt. And that's something that you and I have
Speaker 1: touched on at one point or another, in fact, maybe
Speaker 1: most recently with modern monetary theory. I'm I'm very excited
Speaker 1: about this for all of the reasons you laid out.
Speaker 1: So who are we talking to? So today's Odd Lots
Speaker 1: guest is Hassan Malik. He is the author of Bankers
Speaker 1: and Bolsheviks, International Finance and the Russian Revolution, and he
Speaker 1: is also an emerging markets hedge fund analysts. So, Hassan,
Speaker 1: thank you so much for coming on. Thanks guys, thanks
Speaker 1: for having me. So this book was a really, really
Speaker 1: great read. I'm just wondering why did you decide to
Speaker 1: focus on this particular episode of international finance. It goes
Speaker 1: back to my days working at an investment bank in
Speaker 1: Moscow and really living in the center of the Russian capital.
Speaker 1: I was walking around every day and struck by the
Speaker 1: degree to which banks from before the revolution are present
Speaker 1: in the built environment in the city center, be it
Speaker 1: the Lubyanka which is the former headquarters of the KGB,
Speaker 1: be its old bran bank branches that are repurposed as
Speaker 1: modern retail or office space. And really, when I was
Speaker 1: in graduate school and studying financial history, what really struck
Speaker 1: me as the degree to which this financial past of
Speaker 1: Russia was largely unremarked in the histories that we we
Speaker 1: have of the of of that time period. Yeah, Tracy
Speaker 1: lead in with, oh, this is the most famous debt
Speaker 1: default of all time. So I'm glad that there's at
Speaker 1: least some people who have, you know, forgotten about this
Speaker 1: period who I imagine, like me, this episode would not
Speaker 1: have been top of mind when thinking about debt default.
Speaker 1: But before we get to the default, obviously, what was
Speaker 1: it about Russia at the time that caused so much
Speaker 1: money to pour into their and for their government bonds
Speaker 1: to be seen as you know, a relative safe haven asset.
Speaker 1: So Russia was in many ways the emerging market boom
Speaker 1: story of the time. The Russian government was actively tapping
Speaker 1: the international bond market to build up gold reserves so
Speaker 1: that it could go on to the goal standard, and
Speaker 1: also to help finance and industrialization drive, led principally by
Speaker 1: the railroad industry. It really was, in many ways, not
Speaker 1: unlike China today, both a massive player in the emerging
Speaker 1: markets markets finance story, as well as a geopolitically speaking,
Speaker 1: a great power at the center of European and indeed
Speaker 1: global power politics. Right. So you mentioned the geopolitical aspect
Speaker 1: of all of this. Talk to us about who exactly
Speaker 1: was buying the debt that Russia was selling, because you know,
Speaker 1: obviously it's an emerging market play, lots of people want
Speaker 1: a piece of that. But you talk a lot about
Speaker 1: the political dimension of the foreign investors who were basically
Speaker 1: funding the Russian government at this point. Right. So, basically
Speaker 1: what was happening at the time was Germany was rising,
Speaker 1: and this was a story that was complicating the European
Speaker 1: balance of power in diplomatic and geopolitical terms. Now, at
Speaker 1: the time, France had the highest savings rate in Europe,
Speaker 1: and France was threatened by a rising Germany, which had
Speaker 1: had fought a war with in the late nineteenth century.
Speaker 1: Russia in in similar Vein was eyeing what was happening
Speaker 1: in Germany with some concern in various circles of the
Speaker 1: Russian government. And so this is really what under scored
Speaker 1: uh not only a diplomatic but a financial alliance between
Speaker 1: the Russian and French governments. And ultimately what this led
Speaker 1: to was a huge amount of retail money moving into
Speaker 1: Russian bonds that were perceived at the time to be
Speaker 1: very safe, investment grade assets. And so that's in some
Speaker 1: ways one of the big contrasts with the present day
Speaker 1: emerging markets boom, insofar as it was really French individual
Speaker 1: savers and then over time their counterparts in Britain and
Speaker 1: elsewhere in the West, that we're investing in Russian government
Speaker 1: and corporate securities over the course of the late nineteenth
Speaker 1: and early twentieth centuries. I'm something that I'm interested in
Speaker 1: is the idea of government debt just or just this
Speaker 1: idea of safe haven assets. It always kind of feels
Speaker 1: modern to me. And I think about the U. S
Speaker 1: Treasury market, and there's all kinds of very good reasons
Speaker 1: why we price everything or so many bonds, whether it's
Speaker 1: a foreign debt or private credit markets, there's a spread
Speaker 1: to US treasuries and that's a common way to sort
Speaker 1: of measure the perceived risky nous of any other asset class.
Speaker 1: When did this concept of safe haven assets emerge? And
Speaker 1: you know, thinking back to retail investors in the early
Speaker 1: part of the twentieth century, when did these ideas like
Speaker 1: start to form about what was safe asset and how
Speaker 1: much part of one's portfolio one might want to allocate
Speaker 1: to them. Well, it's it's a great question, and it's
Speaker 1: fundamental to kind of this this story of the Russian
Speaker 1: and other emerging markets booms. I suppose it goes back
Speaker 1: to the first times people started thinking about investing outside
Speaker 1: their own home markets. And in that sense, as emerging
Speaker 1: markets deepened in the late nineteenth and early twentieth centuries,
Speaker 1: a hierarchy began to form of which markets were perceived
Speaker 1: as riskier versus those which were perceived as closer to home,
Speaker 1: both physically and in terms of a risk profile. And
Speaker 1: in that sense, Russia was very much seen as a
Speaker 1: quote unquote European great power country. It wasn't seen as
Speaker 1: some semi colonial domain out in Asia or Africa. It
Speaker 1: was seen very close both physically and in terms of
Speaker 1: the risk profile to core European economies such as Britain,
Speaker 1: France or Germany. So there are all these characters in
Speaker 1: your book that are strategically fueling what's eventually going to
Speaker 1: become a Russian debt bubble. On the Russia side, there's
Speaker 1: a relatively well known finance minister, and then there are
Speaker 1: all these i guess lesser known bankers from London and
Speaker 1: Paris who are sort of deployed to start making these investments.
Speaker 1: Talk to us about the actual people, you call them gatekeepers,
Speaker 1: the gatekeepers to Russian debt investment. Yeah. So this is
Speaker 1: a concept that I borrowed from a scholar and sovereign
Speaker 1: debt by the name of Mark Flandre, and I think
Speaker 1: he very aptly described the way capital markets worked, both
Speaker 1: in the past and the present. That is, even though
Speaker 1: you have debtors and and savers, the process of channeling
Speaker 1: those flows of capital happens, of course through the banks
Speaker 1: and the bankers and the and the investment managers that
Speaker 1: are present both in current markets as well as in
Speaker 1: the past. And that to me was a very interesting
Speaker 1: nexus of people because they were ultimately individuals with all
Speaker 1: the biases and the prejudices and the imperfections of of
Speaker 1: of individual human beings. And that's really why I wrote
Speaker 1: this as a as a history book, as a story
Speaker 1: of people trying to feel their way through very difficult
Speaker 1: and imperfect markets at at really a pivotal moment in
Speaker 1: world history. So one of the things that comes out,
Speaker 1: for example, is the degree to which national biases and
Speaker 1: patriotism at a time of geopolitical tension and ultimately war,
Speaker 1: fed through to investment decision making, and how this wasn't
Speaker 1: just a story of clinical analyzes of of balance sheets
Speaker 1: or of macroeconomic accounts, but rather also of humans trying
Speaker 1: to think their way through very confusing and fuzzy market environments.
Speaker 1: You talk about these gatekeepers, but what specifically were the
Speaker 1: decisions that they made that we're so pivotal in getting
Speaker 1: flow funds to Russia. So there were several um In
Speaker 1: one instance in early nineteen o six, when the Russian
Speaker 1: government was really on the ropes financially aking, and on
Speaker 1: the verge of having to suspend convertibility of of rubles
Speaker 1: into gold, the bankers stepped in with a very key loan,
Speaker 1: which at the time was the largest ever recorded in history.
Speaker 1: And this really happens because of two bankers, in particular
Speaker 1: in Paris and London respectively, who had cultivated relations with
Speaker 1: the Russian finance Ministry, which the ministry levered to great
Speaker 1: effects in nine six. Another example is the opening of
Speaker 1: the first branch of what is now City Group in
Speaker 1: Russia in early nineteen seventeen, the very year of the revolution.
Speaker 1: And again reading the correspondence that the bank had internally,
Speaker 1: it's very evident that this was a decision that came
Speaker 1: to a large part because of the man on the
Speaker 1: ground and his feelings about Russia and its prospects, not
Speaker 1: only long term, but because of a sense of almost
Speaker 1: responsibility on the part of the US towards Russia and
Speaker 1: on the part of an American businessman to words his
Speaker 1: Russian counterparts at a time of war. Yeah, I love
Speaker 1: that anecdote because it's just amazing to think that City
Speaker 1: was opening a branch on the eve of the Russian Revolution.
Speaker 1: On that note, you know, you just mentioned the loan
Speaker 1: that basically saved Russia in nineteen o five or nineteen
Speaker 1: o six. Why did investors hold on for so long
Speaker 1: and why didn't they push the Czarist government for more
Speaker 1: reform after they extended that loan. It's a great question,
Speaker 1: and it's got a very complicated dynamic behind it. In
Speaker 1: one sense, there were conflicting arguments both in favor of
Speaker 1: and against extending loans. One argument, of course, is it's
Speaker 1: an anti democratic government and supporting them will just encourage
Speaker 1: bad behavior, and other arguments counter to that was that
Speaker 1: actually engagement is how one pushed development and ultimately a
Speaker 1: better direction in Russian policymaking. The other story, of course here,
Speaker 1: and this is where the gatekeepers were not just bankers
Speaker 1: but also ministry officials in Russia itself, was that the
Speaker 1: Russian government became very adept at leveraging the exposure that
Speaker 1: foreign governments and banks had to the Russian economy to
Speaker 1: great effects. So by the time the nineteen o six
Speaker 1: loan came up for discussion, the French had already invested
Speaker 1: so significantly into Russia that it really becomes a question
Speaker 1: of whether it was the creditors that had more power
Speaker 1: over the debtor or vice versa. I love Tracy's question
Speaker 1: about why didn't the investors in these bonds pushed more
Speaker 1: reform because it seems like such a modern question, And
Speaker 1: I'm imagining like all the same reform talk we hear
Speaker 1: about in E M these days, about like like with
Speaker 1: the I M F. Yeah, and you know, cutting pension
Speaker 1: obligations and privatizing state owned power plants and all these
Speaker 1: things that constitute reform these days. What does that mean though,
Speaker 1: Like what were the things that would have constituted reform
Speaker 1: in the early nine hundred, Like, what was it? What
Speaker 1: were the equivalent of those things? Well, it's funny you
Speaker 1: you make the comparison with today, because in many ways,
Speaker 1: a lot of the discussion points were very similar. The
Speaker 1: same things that we think about as problematic in Russia
Speaker 1: today and that are often ascribed to the Soviet past.
Speaker 1: Things like corruption, bureaucracy, rule of law issues were things
Speaker 1: that investors at the time we're talking about in Russia
Speaker 1: with respect to the Czaris regime. And indeed, at the time,
Speaker 1: as we got closer to nineteen seventeen, there was such
Speaker 1: a frustration in foreign investment circles with Bizarus regime on
Speaker 1: exactly these points, rule of law, bureaucracy, inefficient policy making,
Speaker 1: that there was almost a pining for some sort of change,
Speaker 1: and in some circles even an attraction towards the revolutionaries
Speaker 1: because they promised something different. So in in the build
Speaker 1: up to nineteen seventeen, nine eighteen, what were the signs
Speaker 1: that trouble was brewing in the Russian debt market? What
Speaker 1: were the signs that the bubble was going to burst? Well,
Speaker 1: it's interesting because when the war breaks out in nineteen fourteen,
Speaker 1: there's actually kind of a rally in the Russian economy
Speaker 1: and financial markets, and this is partly because it kicked
Speaker 1: off an industrial boom because of wartime production increases and whatnot.
Speaker 1: And so really the first couple of years of the war,
Speaker 1: you see the spreads the that is, the yields on
Speaker 1: Russian government bonds relative to the the investment grade benchmark,
Speaker 1: which was British treasuries at the time, shrink to multi
Speaker 1: year and even multi decade lows in just weeks and
Speaker 1: months before the the wheel really came off in Russia.
Speaker 1: And eventually what you started to see worth indicators in
Speaker 1: the real economies start to turn over. If you look
Speaker 1: at the primary market data from when the Russian government
Speaker 1: was issuing new bonds into the market despite their attempts
Speaker 1: at financial repression, you start to see more onerous terms
Speaker 1: that the debt markets are inflicting on the on the
Speaker 1: Russian government. But really, until very very quite late in
Speaker 1: the game, bond market participants weren't really showing signs of alarm.
Speaker 1: In fact, one of the things that I was shocked
Speaker 1: by was that even after the moment of default, when
Speaker 1: the yields explode, they explode quite dramatically, But when you
Speaker 1: compare them to relatively recent defaults that had happened in
Speaker 1: the time and in Argentina and Greece, the spreads hadn't
Speaker 1: been blown out to those levels, which indicated to me
Speaker 1: that investors still held out more hope in Russia even
Speaker 1: after the communists takeover than they had held out in
Speaker 1: Greece and Argentina in the late nineteenth century. It is
Speaker 1: pretty remarkable I think back, you know, to some of
Speaker 1: these more recent defaults. Like obviously, people, you know, we
Speaker 1: recognize the various political things that go on in these
Speaker 1: countries that precede the default, but there's a lot of
Speaker 1: focus still despite that, on sort of pure attempts to
Speaker 1: quantify debt sustainability within any of these countries, and they
Speaker 1: fixate on, you know, debt to GDP and primary surpluses
Speaker 1: or primary deficits or cyclically adjusted surpluses, these sort of
Speaker 1: attempts to, yeah, just put into numbers how sustainable a
Speaker 1: country's debt is. And I'm always sort of skeptical about
Speaker 1: the value of those numbers in the modern situation. But
Speaker 1: I'm curious, like what the tensions and the lead up
Speaker 1: to the Russian default tells us about what indicators are
Speaker 1: actually of any use when trying to assess that the
Speaker 1: end game is NI. Yeah, that's that's a great question.
Speaker 1: I mean. One of the things that is different from
Speaker 1: in the past key versus today, is at the time,
Speaker 1: the macroeconomic accounts were both simpler and different in terms
Speaker 1: of what investors would look at. So, for example, they
Speaker 1: didn't have access to statistics like GDP because they weren't
Speaker 1: really thought of in those terms back then. What they
Speaker 1: did look at, not unlike today, are things like export
Speaker 1: numbers and and a rough proxy for the current account
Speaker 1: position in a country. There was a consciousness about the
Speaker 1: level of debt, both in in absolute terms and in
Speaker 1: relative terms. But I have to say the Russian finance
Speaker 1: ministry did a good number by shifting the the accounting
Speaker 1: around such that they created two different budgets, an ordinary
Speaker 1: quote unquote budget and extraordinary budget. And there was a
Speaker 1: lively debate in investment circles about which numbers investors should
Speaker 1: be looking at. And also another complicating factor was at
Speaker 1: the time of war, investors that may have looked at
Speaker 1: hard nosed analyzes of raw numbers started also including in
Speaker 1: their thinking things like Russia's alliance with the West at
Speaker 1: the time of the war and the long term prospects
Speaker 1: of Russia, saying that even if right now things look
Speaker 1: rather stressed over the next hundred years, say, Russia still
Speaker 1: has a good future ahead of it, which brings to
Speaker 1: to mind the saying that every long term investment is
Speaker 1: really a speculation gone bad. It's almost like an intangible
Speaker 1: asset for a company, right you're sort of factoring the
Speaker 1: sort of I guess, like aura around the country. Okay,
Speaker 1: So Hassan talked to us about the moment of debt repudiation.
Speaker 1: You know, we're building up to nineteen eighteen. What was
Speaker 1: the decision making process that went into, ultimately the decision
Speaker 1: to just repudiate all the debt that had been issued
Speaker 1: under the Czar's government. So one of the things that
Speaker 1: really struck me when I was reading through all the
Speaker 1: archival material on this was the degree to which this
Speaker 1: was a a very complicated decision. There is a tendency
Speaker 1: in the histories that have come out on this period
Speaker 1: to just write this off as of course the Communists
Speaker 1: came in and of course they defaulted. In reality, it
Speaker 1: was a very complicated decision because, yes, the communists hated
Speaker 1: the bankers and the financiers and the capitalists, but there
Speaker 1: were also some so there was, you know, this ideological
Speaker 1: backdrop to it, but there was also some very practical considerations.
Speaker 1: So one of the things was the revolutionaries basically had
Speaker 1: their support in urban centers, and many of them were
Speaker 1: really not representative of Russia as a whole, which was
Speaker 1: still a very agrarian country. So coming in and talking
Speaker 1: about repudiating the debts was a very shrewd way of
Speaker 1: building support amongst the peasantry, which had run up mortgage
Speaker 1: debts in the process of land reform that had preceded
Speaker 1: the revolution. There's also the counter factual situation, which is
Speaker 1: that if the Bolshevik Revolution had not succeeded in late
Speaker 1: nineteen seventeen, and there's plenty of reason to argue that
Speaker 1: it could not have succeeded in a different scenario because
Speaker 1: it was such a closely run thing. You have to
Speaker 1: ask yourself what would a different government have done. And
Speaker 1: one of the arguments that I make in the book
Speaker 1: is that if you look at the numbers, and if
Speaker 1: you look at the situation and how badly the Russian
Speaker 1: economy had started to perform by late nineteen seventeen, that
Speaker 1: even a more pro western, even a more liberal government
Speaker 1: at the time, would have had to default. And so it's, yes,
Speaker 1: partly a story of this ideology, but partly it's also
Speaker 1: a story of practicality. And the other thing that I
Speaker 1: would say is that at the time that the Bolshicks
Speaker 1: came in, they really inherited the keys to essentially the
Speaker 1: largest country on Earth, and they were so taken up
Speaker 1: by the mechanics of running this large country that it
Speaker 1: took quite some time. Took a number of weeks before
Speaker 1: they were actually able to issue a decree repudiating the
Speaker 1: debts which also created its own levels of confusion and
Speaker 1: and and uncertainty in the market. I know we talked
Speaker 1: about how big this was, but what are the numbers, like,
Speaker 1: how big was Russia, you know, in terms of the
Speaker 1: nominal amount of outstanding debt and how much of a
Speaker 1: slice of the credit markets or sovereign bond market were
Speaker 1: they at the time? Right, so they were the largest
Speaker 1: international debtor on a net basis on the eve of
Speaker 1: the war. The US was larger on a growth basis,
Speaker 1: but they would then re export a lot of the
Speaker 1: capital elsewhere in frankly and emerging markets. If you look
Speaker 1: at default in roughly contemporary terms and sort of late
Speaker 1: sort of dollars, you're looking at at a default size
Speaker 1: that can easily be put at three billion dollars. But really,
Speaker 1: given the size of Russia's economy and given the size
Speaker 1: of the debt at the time, if you translated to
Speaker 1: some other inflation metrics, you could easily make the argument
Speaker 1: that this was on the scale of a trillion dollar default,
Speaker 1: which underscores the gap between Russia nineteen eighteen and Greece
Speaker 1: and Argentina more recently. What were then the knock on
Speaker 1: effect for the bag holders, so to speak, because even
Speaker 1: with Greece, which was, you know, so much smaller, there
Speaker 1: are all these fears about contagion throughout the entire financial system,
Speaker 1: and that the system couldn't handle an outright Greek default.
Speaker 1: What happened with the holders and who bore the brunt
Speaker 1: of it? Well, really, this is one of the tragic stories,
Speaker 1: is that a lot of the people that got hit
Speaker 1: by this were ordinary savers in the West. I mean
Speaker 1: when I when I talked to my French colleagues in
Speaker 1: the markets today, many of them have stories of grandparents
Speaker 1: and great grandparents who are rendered destitute by the default.
Speaker 1: There's to this day internet for a of descendants of
Speaker 1: French bond holders that are still demanding restitution. There were
Speaker 1: a series of deals that were done, so in one
Speaker 1: deal that was consummated in six bondholders essentially got four
Speaker 1: cents on the dollar um. None of this was inflation adjusted,
Speaker 1: and so really it was a story of individuals that
Speaker 1: lost out rather than the big institutions. And of course
Speaker 1: the biggest sufferers were people in Russia themselves, who entered
Speaker 1: this sort of monetary twilight zone of a collapsing real
Speaker 1: economy and hyper inflation. So, Hassan, what's the big takeaway
Speaker 1: for emerging market debt? Can you say that all bonds
Speaker 1: are all debt is political or ideological or is that
Speaker 1: just exacerbated with this particular example in financial history because
Speaker 1: we're talking about you know, Bolsheviks versus capitalists. Basically, well,
Speaker 1: I think you're you hit the nail on the head
Speaker 1: and in talking about the political dimension, and that I
Speaker 1: think is the key takeaway is that all debt is
Speaker 1: ultimately political. In fact, some historians have talked about debt
Speaker 1: markets being the crucible of of democracy in history really
Speaker 1: around the world. I think the lesson that I took
Speaker 1: away as as from an investment standpoint is that as
Speaker 1: important as the hard numbers analysis, thinking about balance of
Speaker 1: payments and GDP growth trajectories and whatnot, are the political
Speaker 1: dimension is so crucial, and in particular in emerging markets.
Speaker 1: Investing is not something that happens in a vacuum. It's
Speaker 1: not just a clinical scientific process. When one is deploying
Speaker 1: capital in an emerging market, one is often taking, whether
Speaker 1: explicitly or implicitly, um sides in a in a political spectrum,
Speaker 1: and it's very important to be conscious of what those
Speaker 1: investments represent in that context. I'm afraid we're going to
Speaker 1: have to leave it there. But that was a really
Speaker 1: fascinating conversation that was Hasan Malik, the author of Bankers
Speaker 1: and Bolsheviks, thank you so much for coming on. Thank you,
Speaker 1: thank you for having me. Yea so Joe. I really
Speaker 1: enjoyed that conversation, and I hope you did too. Oh,
Speaker 1: I love that conversation. The first thing we have to
Speaker 1: do is find one of these people that still holds
Speaker 1: some pre revolution Russian debt and do it a follow
Speaker 1: up episode on the ongoing legal fight to get remuneration
Speaker 1: that we have to do that. Hassan actually mentions this
Speaker 1: in the book, but there are internet forums for French
Speaker 1: holders of Russian debt still to this day. It's amazing.
Speaker 1: There's gotta be like some lawyer involved with it. So
Speaker 1: let's let's try to book that person. Seriously. Yeah, But
Speaker 1: the reason I found that whole conversation so interesting is because,
Speaker 1: as I mentioned in the intro, it touches on a
Speaker 1: number of things that that you and I like to
Speaker 1: talk about, such as when bubbles burst and what the
Speaker 1: sort of turning point or warning signs are. But I
Speaker 1: think Hassan also does a really good job of talking
Speaker 1: about the sort of individual and personal decisions that go
Speaker 1: into fueling, in this case, a sovereign debt bubble. Yeah, totally.
Speaker 1: I mean I think, you know, this is something that
Speaker 1: I know I talk about a lot, We've brought up
Speaker 1: a lot, but you know, we tend to just see
Speaker 1: all these assets as prices on the screen, you know,
Speaker 1: even with the debt today. But it's important to remember
Speaker 1: that it's like our actual human beings who have to
Speaker 1: make the decision to invest in something, or human being
Speaker 1: who has to go out and make the sales pitch.
Speaker 1: And we still have that where we have you know,
Speaker 1: finance minister of some country will come to New York
Speaker 1: and meet with investors and explain why they should invest.
Speaker 1: And so understanding that a country is more than just
Speaker 1: the sum of its statistical parts, but that people actually
Speaker 1: have to go out and flog this stuff and make
Speaker 1: decisions and make deals is sort of an essential element
Speaker 1: to this. And just in general, I always love when
Speaker 1: we talk about stories that remind us how things that
Speaker 1: we think of as sort of modern and finance really
Speaker 1: aren't that modern. So the idea of allocation to uh
Speaker 1: safe haven assets, or thinking about the spread of Russian
Speaker 1: debt to uh great a British debt at the time,
Speaker 1: just sort of all these things that feel extremely modern
Speaker 1: but have been around forever. Absolutely. So one other thing
Speaker 1: it really reminds you of is the sort of idea
Speaker 1: of weaponizing debt as well. So, you know, bankers obviously
Speaker 1: go into a country and they're trying to make investments
Speaker 1: and make some money, but a lot of what went
Speaker 1: on with Russia took place among Russian politicians, who either
Speaker 1: use the debt to fund their various expansion plans, or
Speaker 1: in the case of the Bolsheviks, they basically weaponized debt
Speaker 1: by undermining the provisional government's attempts to sell it domestically.
Speaker 1: So they're all these sort of push and pull factors
Speaker 1: that are just really really interesting. And I don't think
Speaker 1: you're right. We don't think about that enough. You know,
Speaker 1: in retrospect, it seems hard to believe, But I love
Speaker 1: that detail about how even after they came to power,
Speaker 1: there was still like a fair amount of confidence among
Speaker 1: the dead holders that that it would be okay, and
Speaker 1: that spreads hadn't really winded that much. By historical standards,
Speaker 1: So you know, it seems absurd in retrospect that would
Speaker 1: have been the case, but it's just how you never know,
Speaker 1: and it was still worthwhile opening a city branch in Moscow.
Speaker 1: This has been another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway, and also like to send a thank you
Speaker 1: to our Bloomberg colleague who suggested we interview Hassan. That's
Speaker 1: Gregor Stewart Hunter. You can follow him on Twitter at
Speaker 1: Gregor Hunter. And I'm Joe Why Isn't All? You can
Speaker 1: follow me on Twitter at the Stalwart, and you should
Speaker 1: definitely follow our guests on Twitter. Hassan Mollett, He's at
Speaker 1: h Malik h and be sure to follow our producers
Speaker 1: Toe for Foreheads He's at forehas T and Laura Carlson.
Speaker 1: She's at Laura M. Carlson. And don't forget to follow
Speaker 1: the Bloomberg head of podcast, Francesca Levy at Francesca Goodey.
Speaker 1: Thanks for listening.