‘Eastern European property is about to go down the tube,’ Tarasov discretely warned Howard. ‘If you’ve got any business there I’d suggest you get out as quick as possible.’
‘That’s not what my Spanish friends are telling me,’ replied his normally astute friend.
‘Don’t listen to them, they’re trying to save what they can of their own affairs. My advice is get out and quick.’
‘Do you seriously think it’s that bad?’
‘Yes, and much of the EU will be effected.’
‘You’re an alarmist Sergei,’ he laughed.
‘I don’t think so, when the dominos fall a lot of people will be caught with their trousers around their ankles, mark my word Steve,’ said the Russian mixing his metaphors. ‘It’s just a question of time, a very short time.’
‘Maybe I’ll take your advice Sergei.’
The dominoes were lined up and the least rumour could set the chain reaction in motion. Tarasov had seen how his compatriots had been taken in by crude oil’s price spike, a short lived flash in the pan. The unexpected crash had transformed overblown ambitions into a farce, kings and dictators became gesticulating clowns as their hopes of glory were cut short. Leaders, from Putin to Chavez, had been fooled into believing they were richer and more powerful than they really were. Their arrogance transformed into fright as the spectre of bloody riots on the streets of Moscow or Caracas appeared.
Just two years earlier Angela Merkel had warned: What we have is a completely new balance of power in the world today, in reference to the world’s foreign exchange reserves held outside of Western economies. That vision suddenly looked premature as oil producing countries faced an unbelievably unexpected setback as investors fled from emerging markets to take shelter in the only real safe haven, the crisis stricken USA.
Speculation was threatening Russia’s banks and stock market with annihilation. The Kremlin’s adventure in Georgia and its meddling in business was bleeding the Russian market dry forcing the central bank to inject billions of dollars from its reserves to support the rouble.
Emerging markets were caught up in the banking world’s convulsions; even the stock exchanges of Middle Eastern petro-kingdoms were plummeting. As for China it was expected to ride out the crisis, but as its exports plunged a dramatic twenty percent and its dependence on the dollar with the accumulation of US treasury bonds revealed its Achilles' heel.
Never in living memory had the world seen a financial crisis of such rapidly growing magnitude. Experienced politicians and economists looked on appalled. It was like a Hollywood television drama series, each day producing startling new events, each episode challenging the ability of politicians and financial experts with scenarios they could have never imagined, even in their wildest dreams. Central bankers spoke of trillions and financial institutions reeled groggy under the massive blows delivered by banks, crooks and incompetents.
Accusing fingers pointed in turn at regulatory bodies, offshore banking, hedge funds and toxic bonds. It was as though those responsible for managing the world’s banks and financial institutions had been infected by a collective madness, like in Stephen King’s novel Cell.
Wall Street and the City of London had been infected by contagious greed. Not only infecting the rich and powerful, its fingers grasped had grasped at the very heart of the nations, ordinary citizens who were blinded into thinking money had become endlessly abundant. They were led into thinking there was no limit to how much they could borrow or spend, for whatever they envied; a second home, a new kitchen, car, home cinema system or why not a luxurious vacation.
Then came the news that the Wall Street bank Lehman Brothers posts had posted a second quarter loss of shocking proportions — four billion dollars. The stability of the firm, which bore a name going back almost one hundred and sixty years, was in jeopardy. In reality Lehman Brothers was a mere decade and a half old, it had been spun off as an unexciting entity by American Express. Under a new and dynamic leadership its fortunes changed for the better, and soon it was surfing what seemed like an endless wave of profits.
Being comparatively small in size and with a low capital base, Lehman Brothers financed its unparalleled expansion with huge sums of borrowed money. In the summer of 2008, its debts had reached a staggering thirty five times its capital; these mixed with its massive investments in real estate had created an explosive cocktail.
The days of uninhibited hedge funds, private equity firms and new fangled financial instruments seemed numbered. Governments looked on unable to put the genie they had unwittingly released back into the lamp, as bankers, traders, oligarchs and speculators fled for shelter clutching the remains of their ill gotten gains.