THE LOW POST: Death of a Drunk

Here's another line from the Yeltsin obit:

But Yeltsin was an inconsistent reformer who never took much interest in the mundane tasks of day-to-day government and nearly always blamed Russia's myriad problems on subordinates...

"Inconsistent reformer" is exactly the kind of language the American media typically used when describing Yeltsin during a period when he and his friends were robbing the Russian state like a gang of New Jersey truck hijackers. When I sent bits of this obit to a friend of mine who had also been a reporter in Russia during Yeltsin's reign, here's what he wrote back:

Yeah, it's a hoot. He simply had no power, for example, to prevent the misuse of the $1-$3 billion a year that his tennis partner at the National Sports Fund (Shamil Tarpishev) was getting from duty-free cigarettes...much of which inexplicably ended up in his daughter's foreign bank accounts.

What we were calling "reform" was just a thinly-veiled mass robbery that Yeltsin perpetrated with American help. The great delusion about Yeltsin was that he was a kind of Democrat and an opponent of communism. He was not. He was, like all politicians who grew up in that system, an opportunist. He read the writing on the wall and he threw his weight behind a "revolution" that turned out to be a brilliant ploy hatched by a canny group of generals and KGB types to privatize Soviet assets into the hands of the country's leaders, while simultaneously cutting the state free of its dreary obligations toward the rank-and-file Russian people.

The word "corruption" when applied to Boris Yeltsin had both specific and general applications. Specifically he personally stole and facilitated mass thefts at the hands of others from just about every orifice of the Russian state. American journalists, when chronicling Yeltsin's "corruption," generally point to minor cash-bribery deals like that involving the Swiss construction company Mabetex, which was given the contract to renovate the Kremlin in exchange for cash payouts to Yeltsin (at least $1 million to a Hungarian bank, according to some reports) and no-limit credit cards in the names of his two daughters, whose bills ultimately were paid by Mabetex. (According to reports, charges on the Eurocards in the names of the two women ran to $600,000 in 1993 and 1994 alone). This is the kind of simple, Boss-Tweed/Tammany Hall corruption that Americans understand, and in the eyes of most of the Western world, for a Yeltsin to dip his beak in a few million here and there in the midst of such a violent societal transformation was not really a big deal. A guy's gotta get paid, right?

Well, not exactly. What Americans missed during Yeltsin's presidency -- and they missed it because American reporters defiantly refused to report the truth of the matter -- was that under Boris Yeltsin the Russian state itself became little more than a cash factory for gangland interests. This was corruption on the larger scale, a corruption of the essence of the state, corruption at the core. Some of the schemes hatched by Yeltsin's government were so astonishing and audacious in scope that they almost defy description.

The FIMACO scandal was a great example. An extraordinarily complex affair, the broad strokes go as follows: in the midst of a Russian financial crisis in 1998, Yeltsin's government received $4.8 billion of an eventual $17 billion loan from the IMF. Shortly after receiving that money, two things happened; the ruble devalued, and huge masses of hard currency mysteriously fled Russia. IMF officials were subsequently forced to make statements along the lines of "IMF director Michael Camedessus emphasized that there was no proof of a link between these operations and IMF loans," even though everyone knew exactly what had happened.

Subsequently, huge masses of the IMF money appeared in the accounts of a tiny Jersey Islands-based company called FIMACO, which had started with only $1,000 in capital. FIMACO then began buying up huge masses of Russian T-bills, also known as GKOs. The Russian state, in other words, was stealing hard currency from the West -- if you go back far enough, from you and me -- and using that money to artificially create market demand for its own securities.

Here in America we call that kind of economics a pyramid scheme, and that is exactly what the Russian treasury was used for during those years. The state's coffers under Yeltsin were ritualistically raided for mass orgies of self-dealing, filtering tax revenues through tawdry offshore accounts, chiefly using two classes of people -- Westerners and the Russian public -- as marks in the con. It is worth noting that the economic crash that ensued after the theft of this IMF money (and the collapse of the pyramid-pumped T-bills) left more than 11 million Russians unemployed, an extraordinary amount when compared to the less than two million Americans who lost jobs after the 1929 crash. So we know who the victims were.

The beneficiaries? Well, in 1999, reports surfaced that a company belonging partially to Yeltsin's daughter, Tatiana Dyachenko, had received a payment into its Australian bank account of $235 million, and that that money had been taken from the $4.8 billion IMF credit. Maybe that was the carrying charge for the FIMACO transaction, who knows. The source for that story was Viktor Ilyukhin, a much-despised "dirty commie," as one friend of mine described him, but the details still ring true, if only because we ended up hearing so many similar stories with similar endings before Borya and his daughters stepped down from the throne.

In addition to those payments, we also now know that the revenues from FIMACO's T-bill machinations were used for all sorts of ill deeds, including the financing of election campaigns. There are even stories suggesting that Yeltsin himself received funds for his re-election from other T-bill scams.

Ah, yes -- Yeltsin's elections. The proof positive that Our Man in Moscow was a "Democrat." There were two big ones, the constitutional referendum of 1993 and the re-election of 1996. About the referendum it is worth saying only that evidence has surfaced suggesting that that vote was rigged and that Yeltsin actually lost -- but he got away with it, and the vote was close anyway, so mazel tov.

But 1996 was a historic event. The short version of the story is that Yeltsin originally looked likely to lose the election to the dreary communist Gennady Zyuganov. Panicked, Yeltsin's cronies, in particular privatization chief Anatoly Chubais, brokered (at Davos in 1995) a deal with the seven chief "bankers" of the new Russia, gangsters like Mikhail Khodorkovsky and Vladimir Potanin and Vladimir Vinogradov, who were really Russia's version of the five families. In exchange for their massive financial and media support (these men owned most of the new Russian media outlets) in the election, Yeltsin would hold a series of auctions of state properties called "Loans-for-Shares."

Essentially, Yeltsin agreed to a sell-off of Russia's major industries, in particular the great state oil and energy companies, for pennies on the dollar. In some cases, Yeltsin's government even lent the money the mobsters needed to make their bids. Bank Menatep, for instance, run at the time by Khodorkovsky, had $50 million in Finance Ministry funds transferred into its accounts just before it submitted the winning bid of $100.3 million for the oil giant Yukos, control of which of course was worth at least ten times that amount. Yukos eventually grew into one of the most powerful private companies in the world, but few people know it was born as a back-room favor in an election season.

Yeltsin, in other words, single-handedly created a super-gangster class to defend his presidency against an electoral challenge. He had also restored a system of despotic government-by-tribute that had reigned in Russia for centuries and even throughout the worst years of Soviet rule. In Russia there survives a style of leadership dating back to the local Khans of the East in which the leader is a pathologically greedy strongman who takes everything for himself, and then rules by handing out "gifts" to an oligarchy of ruthless underlings dependent upon his political survival. Stalin himself, an ethnic Georgian, used to physically re-enact this political style by walking around the room during feasts and breaking off pieces of chicken or hunks of mutton for his more important guests. Without me, you don't eat; with me, you eat good...Americans will recognize this form of rule because they see it every Sunday night in The Sopranos. You send the envelope upstairs every week, rain or shine (had a fire? Fuck you, pay me!), and once in a while the boss buys you a Hummer. That was Russia after 1996. Loans-for-shares formalized Russia's transformation from a flailing Weimar democracy into an organized mafia state; Boris Yeltsin was the Don.

And the Don had a lot of funds to play with. Back in 1993, Yeltsin created the Kremlin Property Department and decreed that all assets that had once belonged to the Soviet Communist Party now belonged to this office. Assets included everything from dachas to resorts to foreign property and cash, jewels, paintings, practically everything of value the Soviet state owned, minus its industrial holdings (and even a few of those, including the "Rossiya" airline). He then placed his buddy, Pavel Borodin, in charge of the office. Borodin was a fat pig and a crook to the bottom of his shoes; he was the man who brokered the Mabetex construction deal, the one that landed Yeltsin's daughters the magically repaid Swiss credit cards. Borodin once estimated that the Kremlin Property Department had over $600 billion in assets -- twice the size of Russia's GDP in the last year of Yeltsin's reign. He had over 3 million square meters of office space in Moscow alone. Basically, whenever Yeltsin needed to send a gift to a "friend," he picked up the phone and called Borodin. Give X this dacha, Y that river property overlooking the Kremlin, etc...It just never ends, the corruption tied to Yeltsin. That's why the Kremlin Property Department was so frequently described as an "octopus." Its legs were everywhere.