Black Earth: A journey through Russia after the fall

“It’s not that I don’t trust journalists,” he declared straight off, dabbing his eyes with an ironed blue handkerchief “I don’t trust anyone. But someone has to say what has happened here. Someone has to speak of Russia’s misery.”

Romanov came to the West’s attention in the 1980s, when he and Mikhail Gorbachev served as lieutenants to Andropov and his ailing successor, Konstantin Chernenko. Romanov was the darling of the Politburo’s hawks, the truest of the cold warriors, but upon Chernenko’s death, he was ousted by Gorbachev. He had not spoken to a foreigner in years. “The only people he hates more than foreigners,” joked Nikita, “are reporters.” But I had long badgered him, calling him first thing in the morning once or twice a week. At last he relented. He agreed to meet-only in public, “in an hour.”

His rant that winter day was almost pauseless. “Gorbachev will pay for his sins! I can’t stand the sight of his pig’s mug! He’s a traitor! A traitor to the Motherland! He’s sniveling about how no one here thanks him, about how ungrateful Russians are to him. To hell with Gorbachev. He started this disaster. He was a catastrophe, a peasant who had no right coming to the big city … Yeltsin? Who is Yeltsin? A swine who drinks. He got drunk on power. I can’t even speak of him. He’s a criminal. A common thief who’s robbed his Motherland and killed his people. All these Gaidars, Berezovskys, these so-called oligarchs, they’re all Yeltsin’s little children. Now they want to ban the Communist Party. Do you think all people are born the same? Of course not. Some are born to make things – to create, build, and work. Others are born to take, to steal. Gorbachev is one of the takers. He started the fashion. Now look where it’s led us.”

To some, Grigori Romanov was an oddity, a hapless relic shuffling toward his life’s end. He was, to be sure, a diehard Communist who had chewed sour grapes ever since he fell hard from the Soviet Olympus. But oddly enough, in advanced retirement, far from his rarefied life among the Party elite, Romanov echoed the lament of many a common man in Russia. In the years after the Soviet collapse, he had found company. Romanov had no power now, but he took solace in the knowledge that millions of Russians shared his views. His principal conviction – Ran’she bylo lushche (“Things were better before”)–had become the motto of his generation. And the dirty secret, only conceded in the capital sotte voce by the ascendant Young Reformers, was that they were right. For many of his generation, things were indeed better before – for them.

Romanov lived on some sixty dollars a month. As a veteran of the blockade of Leningrad, he said he deserved much more. “I’m entitled to several war pensions. I’m a veteran and an invalid. And I received the Hero of Soviet Labor. Politburo privileges? What a joke! We have nothing. No dacha, no car, no privileges at all. Only the apartment.”

Once it was a very different story. After rising through the Party ranks, he ran Leningrad, Russia’s second city, for twenty-five years, until he was summoned to Moscow by Andropov in 1983. He survived various Politburo wars, until he was finally outflanked by the ascendant Gorbachev.

“In February 1985, Chernenko called me out to the dacha,” Romanov told me. “He was weak. He sat up in bed. I stood beside him. ‘Just wait,’ he said. ‘Relax. It’ll come to pass.’ He relied on the defense sector. He knew the importance of our work. He never wanted Gorbachev … We all knew Chernenko couldn’t last long. He was in very bad shape. So were most of the others, for that matter. They were all old and sick. Gromyko and the rest. There were two candidates discussed at that time: Vladimir Shcherbitsky and Romanov … No one talked about Gorbachev with any seriousness.”

A few weeks later Chernenko died, and within hours Gorbachev wrested control of the Politburo in a late-night five to four vote. It was a bit of spectacular luck, or so his biographers have held, that the three committee members who were Gorbachev’s chief opponents were absent from Moscow.

“The week before Chernenko died, my wife and I flew to Vilnius,” Romanov said. “They had given us a trip to Lithuania, to a sanitarium. The day Chernenko died, we were there. They said the plane would only fly the next day. They met that day, hours after he died. But the three most senior members of the Politburo weren’t present! Kunaev was in Almaty. Shcherbitsky was in the States. And I was in Lithuania. By the time we got back to Moscow he’d already done it. That fast. That was it. It was agreed to in public of course at the Politburo meeting and at the plenum. But he’d already cut the deal in secret with all of them. And you think the timing, Chernenko’s death, I mean, was all accidental?”

In the aftermath Romanov was stripped of power. He had long been renowned as an epicurean lush, ridiculed as the “Last of the Romanovs.” Gorbachev’s cronies played upon that reputation, spreading the rumor that to celebrate his daughter’s wedding. Romanov had ordered the caterers to use Catherine the Great’s Sèvres from the Hermitage. Worse still, the story went, a few pieces had been smashed. By July Romanov had been summarily retired and sent, according to another rumor fed to reporters, to dry out.

Did he ever regret, I wondered, not making it to the top?

“No,” he retorted. “I’m just sorry the wrong man did. The traitor. Because if it had been me, the invasion never would have happened.”

SIX (#ulink_dc53f9a8-28a2-5565-bd70-b610f1201696)

Please, put it in a bank … Please, let’s put it in a foreign bank.

–Vladimir Putin advising the relatives of those who died on the nuclear submarine Kursk on what to do with their compensation

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EVER SINCE RICARDO, economists have built intricate mathematical models to explain and forecast how markets will move. Calculus, however, assumes reason. When Russia crashed in the summer of 1998, there was little rational about it. “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency,” John Maynard Keynes wrote in 1921. “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Russia under Yeltsin was less a test market for the “Invisible Hand” or shock therapy than a new Babylon where the wheeling and dealing were nasty, brutish, and, for many in August 1998, lethal.

In the dawn of the new market those who would play its princes, if only for a while, needed gastronomic palaces where they could feast in the unreality of their reality. Across Moscow elite men’s clubs sprouted, with reliable security and robust wine cellars. Fashioned from the pages of Tolstoy and Pushkin, the clubs were draped in pre-Bolshevik bliss. Whether or not such bliss had ever existed didn’t matter. Artifice and excess were the object. In their urge to build a new world, the plutocrats imported Swiss chefs, Austrian furniture, English nannies. Having grown fat on the spoils of the Motherland, they could bask in the shimmer of their own money.

Tucked discreetly off Moscow’s Ring Road, two blocks down from the Institute of Biological Structures, which handles the annual repair work on Lenin’s corpse, is Club T. For a time it was considered among the finest restaurants in Russia. It should be, since it was designed as a private reserve for the new plutocracy, its very own “21” Club. Guests are vetted by videophone. The ten or so tables inside reflect absolute elegance, their pink tablecloths radiant under crystal and gold chandeliers. One corner of the dining room is heavy with the smell of Cuban cigars, another with the high notes of French perfume and Armenian cognac. Silk drapes keep the outside outside. Gold seraphim dance on the walls, their pudgy arms hoisting aloft little gilded candles Large mirrors announce your entrance, reassuring you that you belong, that you’ve arrived. The mirrors also assist the discreet diner to find the famous faces hidden across the room.

One evening, as the cold wake of the crash forced its survivors to renew their exit strategies, I invited four of the earliest American pioneers to join me at Club T. Paul Tatum of course was not the last American investor to see his dream sour in Russia. By the time Russia crashed in 1998, countless frontiersmen had been scalped, fled for home, or moved on to the next gold rush. But the quartet of Americans I invited to dinner – Bill Browder, Peter Derby, Charlie Ryan, and Boris Jordan – who, when their portfolios were at their fattest, controlled several billions of dollars of investments in Russia, remained.

Derby, a New Yorker of Russian descent, had arrived first, opening Russia’s first foreign-owned commercial bank in 1991. Jordan, another prodigal son of Long Island’s Russian diaspora, with roots among the Whites who fled the Revolution, had come in 1992 to help run Crédit Suisse/First Boston’s Moscow outpost. By 1995, having reaped billions of dollars in the privatization scheme, he had left to found Russia’s first Western-style investment bank, Renaissance Capital. The 1998 crash forced a divorce that split the bank, and Jordan for a time found himself isolated and on his own.

Browder, the soft-spoken grandson of, ironically, the American Communist leader Earl Browder, had also arrived in 1992, having run an equity fund for Robert Maxwell and later the Eastern European markets for Salomon Brothers. In April 1996 he founded the Hermitage Fund, a high-end hedge fund that at its peak boasted $1.2 billion in assets. By 1997 Hermitage had returns of 228 percent; Browder’s return on his initial capital was 725 percent.

Ryan first came to Russia after working at the EBRD, the European Bank for Reconstruction and Development. Together with one of Russia’s leading reformers, former Finance Minister Boris Fyodorov, Ryan founded the United Financial Group, which, by 1998, managed more than a billion dollars in assets. With his main line roots and mainstream résumé, he was an anomaly, a reflective banker. “Of course the money brings us here,” Ryan told me in 1997. “But it’s much more than that. We’re building something entirely new. Okay, you can get stability and good returns in the U.S. But can you get the buzz?”

Over snails and caviar, king prawns, and medallions of New Zealand lamb, the evening’s theme, at my request, was “What went wrong?” For the next three hours, the foursome pointed fingers at the IMF, former Prime Minister Sergei Kiriyenko, inborn Russian corruption, falling commodity prices, the global recession, prudish U.S. investors, prudent Asian investors, again the IMF. Jordan inevitably dropped the name of every player in Russia, from Kiriyenko to Soros, and declared early on: “This’ll help them” (“this” being the crash, “them” being the Russians). Derby spoke in breathless arias on the chronology of the fall. Ryan waxed philosophical, and Browder concluded, “Sadly, this is a crash with too many morals.” Sadly, too, the meal, by far the most expensive I had ever eaten, got lost in the burlesque of charge and countercharge.

“The basic problem is you can’t control a company in this country,” stated Jordan.

“You can have controlling stakes,” said Browder.

“And get ripped off on every level,” parried Jordan.

Derby announced that his number two, “a great Russian guy,” would go to jail in days. (In fact, he didn’t.) Derby paused, then said: “We will stay and try to be honest and fulfill our responsibilities.”

“This country’s so corrupt they fucked themselves,” added Browder.

“Bill, you obviously don’t believe that,” replied Jordan, “or else you didn’t do your fiduciary duty for your clients, investing a billion in the place.”

At this moment the joust between Browder and Jordan was interrupted by the governor of St. Petersburg, Vladimir Yakovlev, a blithe opportunist, who stopped by for a round of handshakes. When the governor floated away, Derby seized his chance. “The worst thing about it was there was no reason to default,” he said. “Absolutely none. There wasn’t that much debt coming due, like twelve billion dollars over the six weeks. And it was ruble-denominated. There were reasons to take action, but not to default on the domestic debt.”

“Any country will default if they can’t roll over their debt,” noted Browder. “If the U.S. couldn’t sell T-bills for a month straight, they’d have a big fucking problem. But the thing that’s most damaging is the collapse of the banking system …”

“This place never had a banking system,” scoffed Derby.

“It had a system where you made payments,” Browder retorted. “You can’t make payments now.”

“The banking sector did not take savings, invest it, and get growth through investment,” said Derby.

“There was no multiplier effect,” Ryan summed up.

“And the reason you don’t have people breaking the windows here is that they didn’t deposit their money in the banks,” said Jordan.

“This is one the great mysteries of Russia,” Ryan noted. “No one’s had a job in a lot of towns for years. But car ownership in those same towns has gone up by two hundred percent. Consumer durables are way up. And at the same time no one’s rioting. That’s a clear sign that no one’s being very honest about their real net worth or about their real sources of income.”

“Let’s say you’ve got twenty-five percent of your money in the bank and seventy-five percent in your mattress,” said Browder. “Eventually your mattress money is going to disappear.”

Tuxedoed waiters unveiled course after course with remarkable flair, raising broad silver lids from big silver plates, making sweeping bows in unison. As the evening wound down, Browder, more puckish than the rest, observed, “There used to be Third World countries. Then they became Developing Countries. Then Less Developed Countries. Then the wall came down, and we got Emerging Markets. Well, folks, now they’re gone, too.”

With dessert the conversation drifted to talk of the price of bodyguards, the best tax havens for billionaires, and the travails of Bermudan citizenship. Over coffee, Jordan offered a parable: Back when it was flush, the Central Bank decided to buy an American satellite to monitor electronic trading across Russia’s eleven time zones. No sooner had the satellite been launched than it spun out of orbit. Eventually it disappeared altogether.

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SEVEN (#ulink_08155742-ac16-5b36-b335-744cf5acc32f)

So many wonderfully fine women can hardly be seen in any country in one assemblage.

–Cassius Marcellus Clay, the Kentucky abolitionist Lincoln sent as America’s emissary to Alexander II

ANOTHER STREAM OF PROSPECTORS had started in the last days of the old USSR. American men, weighted with middle age and regret, began to come to Moscow to troll. Back then they were searching for a woman they had heard of, the charming and servile Russian antifeminist, the alluring woman who could be wife, lover, cook, cleaner, and mother all in one. Moscow, the American lonely hearts believed, would be their mecca. For thousands, it was.

In the hotel bars and nightclubs you ran into all sorts: human rights lawyers and postdoctoral scholars, cardiologists, and even astronauts. Most of the men spoke no Russian, knew nothing of Tolstoy or Pushkin. To them, the girls were “Natashas,” one and all, and Moscow was heaven. That was in the pioneer days. As time moved on, the marriage market slumped. “Russian bride” agencies still claimed a strong niche, but many of the men who came to Moscow now wanted only one thing. Sex ruled the night, and the dollar was the coin of the realm.

During Bill Clinton’s last presidential visit to Moscow, Mia and I went for a beer at a new hotel on Tverskaya, Moscow’s main drag. We found half a dozen Secret Service agents lining the bar. (After Tatum’s murder the White House was relieved that a new American hotel had opened in Moscow.) Nearby sat several other Americans, from their banter, junior-level White House adjutants. The Secret Service on that night was more than happy to share a tip. “Go to Night Flight,” one agent in a pinstriped suit said, “and you’ll never regret it.”

Night Flight was Swedish run and scarcely resembled a bordello, but it was famed for offering Moscow’s most beautiful, and most expensive, prostitutes. (“DO IT TONIGHT,” said its ads at the airport, tempting new arrivals.) The cover was steep, the Secret Service agent said, twenty dollars after 9:00 P.M. “But,” he added, “it’s the best twenty bucks you’ll ever spend.”

If Night Flight was the high end, the Hungry Duck anchored the low end. Run by a Canadian innkeeper who opened his first bar in Moscow in 1993 and housed in the old House of Culture for Soviet Workers in the Arts, a few minutes’ walk off Red Square, the Duck, as the bar was known among ex-pats and natives alike, grew world famous. The Washington Post even dubbed it “the wildest bar in the world.” While it lasted, it was certainly one of the most vulgar, with drunken sex in its dark corners and vomit on its floors.