THE BLOODY EVIL OF GYORGY SCHWARTZ...
Started by Robert M
August 20, 2016
Excerpt from Contagion:The Betrayal of Liberty; Russia and the United States in the Post-Cold War Eraadapted for lewrockwell.com
........Spooked
out of Russia after the electorate’s gleeful elevation of political
showman Vladimir Zhirinovsky and his party of sometimes fire-breathing,
sometimes b***ling Russian nationalists (LDP) to the Russian Duma in
January 1994, Jeffrey Sachs and his fellow opportunist, Anders Aslund,
took their crusade for the application of shock therapy to Kiev. There
Aslund picked up work managing a small team of advisors in Ukraine
funded by the New York-based George Soros Open Society Institute while
doing public relations work for Ukraine, also on Soros’s dime.[i]
Despite
the criminal bonfire their advisory team had fueled in Moscow, U.S.
Treasury generals considered both Sachs and Aslund to be good soldiers.
Both were rewarded with comfy sinecures; the Carnegie Foundation in
Washington would give Aslund a position from which he might pose as an
allegedly objective analyst of U.S. policy toward Russia and Ukraine,
and in June 1995, Harvard would reward Jeffrey Sachs with the leadership
of the Harvard Institute for International Development (HIID), a plum position that would soon enough prove itself a poisoned chalice.
In
Kiev, a USAID mission was already in place, along with the rest of the
usual foreign aid plumage: the IMF, the World Bank, the European Bank
for Reconstruction and Development, the International Finance
Corporation, the European Union’s bilateral assistance programs, and
those of Canada and the U.S.Treasury along with the National Endowment
for Democracy (NED). All that was missing was an HIID mission.
In
March 1995, USAID sought proposals for assistance to Ukraine for
impartial oversight and strategic advice for privatization and market
reform programs. In May, however, USAID withdrew the request because
Ukrainian officials said they weren’t interested. The Ukrainian
rejection struck Aslund and Sachs – and their financier George Soros –
as being extremely short-sighted. The three then teamed up in an attempt
to revive USAID’s March proposal for assistance to Ukraine and while
continuing to polish their own HIID proposal. If successful, the
establishment of a second Harvard base of operations on the back of U.S.
taxpayers would inaugurate Sachs’s leadership of HIID with a fiscal
triumph in Ukraine, a new and potentially long-running stream of the
most desirable money on earth, more commonly known as “other peoples’
money.”
Granted,
one obstacle was the Ukrainian government’s contention that another
USAID program was unnecessary. And it wasn’t helpful either that the IMF
maintained that HIID’s proposed work would only duplicate work the IMF
was already doing. When the governor of the National Bank of Ukraine
told Sachs to his face that HIID’s program was not wanted, those of
lesser ambition might have hesitated. Not these three amigos.
They
turned to their friends in the executive branch of the federal
government; David Lipton, Deputy Assistant Secretary of the Treasury and
a former partner at Sachs’s consulting firm, the Washington-based Sachs
Associates; and Carlos Pasqual, who served on the National Security
Council (NSC), were both enlisted for support.[ii] (If
the door were fully open on the U.S. government’s gang of schemers,
Lawrence Summers’s silhouette would entirely block the view.) USAID’s
Thomas Dine and Tom Pressley were also contacted by or on behalf of
Sachs, et al. Embassies to Kiev were undertaken – with a view of
lobbying the locals on the matter (that’s when the unpleasantness with
the Ukrainian National Bank’s chairman erupted).
In
time, dogged determination turned up one soon-to-depart Ukrainian
official who agreed to support HIID’s $6-million grant request to USAID
for another cooperative agreement, to be granted without any
pretense of competitive bidding, with a Kiev-based HIID. But why would
any Ukrainian official volunteer to help a pair of foreign academic
types to a place at the trough? Shall we count the frog skins? The more
interesting question is who ponied up the cash. Soros, Aslund’s home
nation of Sweden, a notorious provider of foreign aid tailored to U.S.
political purposes, or Harvard?
When
HIID’s request came to the attention of the congressional International
Affairs Committee in December 1995, its chairman, Benjamin Gilman, a
New York Republican, didn’t like the smell of it. Why was HIID receiving
so much money on a noncompetitive basis? How had a 1992 $2 million
grant for Russian “reform” grown to $57 million, $40 million of which
was awarded on the basis of “national security,” thereby evading the
competition for government contracts required by statute? What were they
accomplishing? What was the point of establishing a similar program in
Ukraine?
And
why was billionaire George Soros so concerned that Harvard receives a
USAID grant for Ukraine that he actually lobbied Congress on Sachs’s
behalf?
If
Soros wanted Sachs to have $6 million, why didn’t he fork over the cash
himself? He often does. He and Sachs had been an item since the late
1980s when they started mucking about together in Eastern Europe. The
billionaire had long salted considerable funds throughout Moscow’s
“reform” community with grants for study abroad and domestic training
programs for privatization and securities markets development under the
auspices of his Open Society Foundation. His money had provided funds
for both Aslund’s and Sachs’s separate projects, and the billionaire
himself shared an office with Jeffrey Sachs in Kiev. So was he simply
trying to leverage his widely publicized philanthropy with public
dollars?
Or
was Soros attempting to take advantage of a nascent, under-developed
market that was incapable of policing conflicts of interest? And was he
being joined in that effort by Harvard University? In the summer of
1997, the trading desk of Harvard Management Corporation, which invests
the university’s endowment, confirmed that they had been active
investors for several years in the Russian bond and equities market. (In
fact, the endowment was growing fat and sleek indeed thanks to what was
not so much a bond market as a pass-through arrangement with
triple-digit yields for which Moscow was merely an exotic, hosting venue
to the U.S. government’s industrial-sized laundry service.) By late
1995, Soros and Harvard Management had any number of casual
opportunities to exchange information with the publicly-funded Harvard
reform insiders in Moscow and thereby gain privileged access to the sort
of insider information investors prize.
In
1996 and 1997, the secret of insuring a good return from Russian stocks
was to purchase shares before a company listed its shares as American
Depository Receipts (ADRs) on the NYSE.[1] Of
course, any ADR plans on the part of Russian enterprise would entail
notifying the Federal Securities Commission (FSC) of the intended
issuance as a first step, and the FSC was but one leg of an
organizational triad in Moscow known as the Harvard Center, which
included GKI, the privatization committee, and an outfit called ILBE –
the Institute for a Law-Based Economy, which local wits quickly dubbed
“the Institute for a Lobby-Based Economy.” Other matters of interest
would concern the prospects for increased liquidity of Russian shares on
the international markets, along with information concerning specific
bond payments and alerts that would forewarn insiders of exactly when
IMF funds available to pay out Russian bonds’ astronomical yields would
run dry.
Considering
the handsome taxpayer-provided listening post-HIID was operating in
Moscow, it’s not surprising that George Soros, whose Quantum Fund
invested $2.5 billion in Russia, would be keen to have something
comparable flying the Stars and Stripes in Kiev – only with his agents
in charge. Under cover of the U.S. assistance program, privileged
information could first be obtained and then passed on in discussions
devoted formally to -“reform policy.” Surrounded by an HIID set-up,
Soros would enjoy a certain authority his money alone couldn’t provide
him. But that authority – that extra dollop of importance – can be most
helpful even if illegitimate. The natives only know what they see, and
nobody sees small pox on a blanket.
Questions
and answers between Gilman and the State Department were kicked back
and forth for several months. In late January 1996, Sachs contacted
Gilman and asked that he remove the hold that the congressman had placed
on the money allocated for Ukraine. George Soros too contacted Gilman’s
office. Gilman complied and lifted the hold, but with the proviso that
the grant had to be awarded on a competitive basis and could not exceed
$2 million. After that, he called for a GAO (Government Accounting
Office) investigation into HIID’s Russian activities and the grant
request for Ukraine...............
And Kept It Working
......
In early June 1998, as Russia’s descent into the spiral of unmanageable
debt accelerated, once again the issue of a possible IMF bailout
emerged. As the situation went from bad to worse to near meltdown of the
bond market, Yeltsin dispatched Anatoly Chubais to Washington to seek
approval from the U.S. Treasury for yet more IMF cash.
Simultaneously
and coincidentally, Russia’s top auditor, Veniamin Sokolov, Chief of
the Counting Chamber, which is the Russian GAO, arrived in the United
States with documents detailing incomprehensibly large amounts of
corruption involving assistance money, state funds, and dicey natural
resource sales on world markets.
It
just so happened that World Bank officials were just then looking every
which-a-way without success for hundreds of millions of dollars of lost
coal loans. Cables flew from Moscow to Washington as the Moscow office
tried frantically to stop the scheduled meeting between Sokolov and
World Bank president James Wolfensohn, a meeting that was the principal
focus of Sokolov’s visit.
Making
the rounds of newspaper editorial boards, think tanks, and the U.S.
Congress, Sokolov painted a picture of a Potemkin economy in which money
itself had been socialized among a handful of large banks and the very
top tier of an economically incompetent oligarchy. (Complying with IMF
dictates had left the Russian economy a money supply that was only
one-sixth of that considered normal for an economy of its size.
Consequently, only the banking sector had actual rubles of any
significance, leaving the general population ruble-poor.)
“The
official economy about which you read in your newspapers has absolutely
nothing to do with our national economy. Recently when we finished our
audit of the Central Bank, we had to refuse to certify their annual
report. It was the same at the Finance Ministry, where we had 150
auditors working for six months,” Sokolov said. “All our financial and
banking authorities’ methods are designed to conceal the facts rather
than to reveal them.
“When
Americans read that Russia has an inflation rate of fourteen percent
that figure refers only to the oligarchical economy and hides an eighty
percent inflation in the national economy. But since the national
economy is cash-starved and lives now by negative barter, meaning I’ll
give you this and you give me that but neither one of us will pay the
other, nearly our only product is debt. Our enterprises have finally
used up all their reserves and this is why we are in crisis,” Sokolov
told his U.S. audiences while comparing any new IMF lending to handing a
drug addict more narcotics.
Since
Russia’s chief auditor was anxious to cooperate in locating the true
destination of U.S. and multilateral aid money, and since the Counting
Chamber is mandated to audit any and all enterprises and government
agencies in the Russian Federation, the U.S. Attorney in Boston and the
USAID inspector general, who were assigned to sorting out the burgeoning
HIID scandal, flew to D.C. from Boston to meet privately with Sokolov.
The FBI followed up, and Sokolov seemed pleased.
What
Sokolov wanted was for the U.S. money flow as designed to stop, it was
corrupting his country from the top down, and the people were suffering
terribly from the poisons it released into the atmosphere. Russia’s
misdirected natural resource wealth was enough of a headache, but to
have Americans dumping billions more into the country just to keep their
artificial bond market functioning on behalf of a small crowd of very
rich people and their institutions was a kind of genocide in its
effects.
Surely,
Sokolov reasoned, savvy Americans and their responsible and practiced
legislators would want the money stopped as well. Why would they burn up
their own wealth? Sitting beside him as he spoke, I couldn’t help but
think a Mr. Smith in the shape of one Russian Mr.Sokolov had come to
Washington. Sadly, Frank Capra wasn’t alive to direct and keep an
uplifting story on the script.
At
the conclusion of an encouraging meeting the following day with the
House International Relations Committee head, Representative Benjamin
Gilman, in which the two men agreed to collaborate, Gilman insisted his
chief staff member arrange a meeting for Sokolov post haste with
Republican Senator Jesse Helms, one of foreign aid’s greatest critics.
The day’s developments promised results and for somebody somewhere that
was apparently a problem.
It
doesn’t necessarily follow that it was Representative Gilman’s dinner
date with George Soros, then up to his eyeballs in Russia’s illiquid and
collapsing equities market, the very evening of his meeting with
Sokolov that stalled congressional cooperation with the Russian Accounts
Chamber. Nor does it follow that Gilman’s Russian point man on staff two days later
countermanded his boss’s instructions independently or that he received
new instructions when he professed surprise at being queried as to
whether Congressman Gilman would be accompanying Sokolov to the meeting
with Senator Helms.
The
meeting that Gilman had ordered with considerable urgency had “slipped
his mind,” the staffer said, and that meant another hour of Sokolov’s
time was wasted in a pointless meeting with a couple of stray staffers
dredged up from Republican Congressman Gerald Solomon’s office recalling
their personal epiphanies upon realizing that the Russian people, the
former Soviets of the defunct Evil Empire, were – well – just folks. In
other words, Veniamin Sokolov got the ne plus ultra Washington brush off; he was treated as if he were a constituent.
Later
that June, Gilman’s Committee on Foreign Relations, after having passed
up the opportunity Sokolov had offered of exploring official corruption
and the misdirection of U.S. taxpayers’ billions, instead held hearings
on Russian organized crime. Over the coming years,
Representative Gilman’s congressional posse never did round up a single
varmint, organized or unorganized.
When
asked what it would take to move a proper investigation forward, a
Treasury Department lawyer replied, “Nothing will make that happen. When
the Clintons fired all U.S. Attorneys at once in 1993, they knew what
they were doing. All those newly appointed prosecutors got the message.
There will never be a Justice Department investigation of any Clinton
administration policy or program that might make the Clintons look bad.”
While
Veniamin Sokolov was finishing out his fruitless 1998 American journey
(he never did meet with the World Bank’s Wolfensohn, the cables worked,
and last I heard the World Bank never did recover the 100s of millions
in coal loans), Anatole Chubais, former head of the Russian
privatization program and deputy premiere, met with Lawrence Summers and
Strobe Talbott. The topic was how to get sufficient billions into
Chubais’s hands to keep the bond market humming. Other “private
meetings” were arranged, and before departure, Chubais informed the
Russian ambassador that he, the ambassador, was to consider Anders
Aslund the deputy premier’s “personal emissary.” The surprise promotion
from the leader of a crowd Aslund refers to as “my boys” failed to
prompt the Carnegie Foundation “senior analyst” to register as a Russian
government lobbyist as required by law.
Once
again Treasury was arguing that Russia’s decreasing hard currency
reserves and untenable finances would provide the leverage needed to
compel the Yeltsin government to adhere to a responsible state budget,
to enforce shareholder rights, and to adopt an effective tax code.
Treasury’s
policy recycling effort left Sokolov, who complained of being presented
with unsigned scraps of paper authorizing hundreds of billions in ruble
transfers to private individuals as evidence of legitimate Finance
Ministry expenditures, bemused; “You may tie our businessmen up,
incarcerate them, and beat them to unconsciousness, and still it will be
impossible to collect taxes from them, because they simply have no
money to pay any tax of whatever kind. In our current conditions,
further IMF lending will be diverted to the oligarchy. There will be no
responsible state financing, only less for the people. Not one
bureaucrat will lose his job, only teachers and medical personnel will
be cut.”
By
mid-June 1998, Sokolov and the U.S. Treasury’s Russian darling Chubais
had returned to a country still home to a furious and impoverished
population demanding their long overdue wages and pensions. For his
part, Sokolov’s homecoming was sweetened by a well-organized Russian
media vilification campaign that characterized his efforts in the U.S.as the
deeds of a “traitor.” True, Sokolov was a traitor, a “class traitor” in
the language of Lenin that is – to the oligarchs, to HIID, to the
US-funded Chubais crowd and to one relentlessly self-advertising
billionaire.
Adding
insult to injury, the FBI returned a copy of Sokolov’s documents, not
the originals. The problem was Sokolov’s documents were two-sided, the
FBI’s copy one-sided. Sokolov never did get his original material
returned, and nobody knows what the FBI did with it. Hmmmm.
Western
pundits wrote their editorials pro and con regarding further IMF
lending, and official meetings and conferences convened and adjourned,
and yet matters were allowed to drift. Daily the Russian government
assured the world – and Wall Street – there’d be no ruble devaluation.
In mid-July, Anatoly Chubais undertook yet one more emergency trip to
Washington to meet with Deputy Treasury Secretary Summers in his
suburban lair for brunch and worked out the details of the proposed
bailout. After the IMF received yet another assurance the Clinton
administration would see to it that the U.S. Congress voted in a fresh
$18 billion for their coffers, Chubais returned to Moscow in triumph,
crowing a month later over how he had “conned” the West into a bailout
commitment of $22.5 billion.[iii]
Once
the first tranche of $4.8 billion was delivered to the Russian central
bank, the bond market nose-dived. On 17 August, then Russian Prime
Minister Sergey Kiriyenko announced a devaluation, which the IMF had
anticipated, along with a 90-day moratorium on all debt payments, which
the IMF had not anticipated.[iv]
In short, Moscow had in effect defaulted on domestic and foreign debts,
which led to the collapse of the stock market and major commercial
banks. The IMF froze the remaining $18 billion of Russia’s bailout.
Emerging
market bond traders in London took solace in the by-then-routine use of
metaphor drawn from gruesome details of the Battle of Stalingrad.
Commercial bankers and investors in regional debt focused instead on the
hidden, possibly mystical significance of one Siberian province’s offer
to redeem their bonds in sausage links and oak caskets. But it was the
derivative traders who had the really big headache, having made their
leveraged bets with rivers of borrowed money. By late August, everybody
on Wall Street knew $5 to $6 billion of “guarantees” or “forward
contracts” Russian banks had contracted with Western counterparties
would never materialize.
Once
the smoke cleared, Western bankers and investors found themselves
alone, wandering a deserted battlefield littered with empty bags.
Furious
comment exploded across a full range of Western media. Amidst the
hysteria, nobody had the presence of mind to remember Veniamin Sokolov’s
loud assurances six weeks earlier that what had happened was exactly
what would happen.
While Taking the High Road
At
the late 1990s’ Harvard-sponsored investment conference in Cambridge,
Soros had criticized his former ally, Chubais, pronouncing his “robber
capitalism privatization” to have been “repulsive” while asserting, “I
didn’t want to have anything to do with it.” [v] The Russians in attendance sneered knowingly.
For some folks, philanthropy is just a big word for never having to say “chump change.”
[1] An
American Depository Receipt is a share certificate that entitles the
person with that security to shares of a non-U.S. company, which have
been deposited in a bank located outside the U.S. This instrument is
what allows foreign shares to trade on the NYSE, and their acceptance
requires SEC approval.
[i] Wedel, Janine, “The Harvard Boys Do Russia,” The Nation, 1 June 1998.
“Sachs Appeal,” Euromoney, February 1992.
David
Lipton informed government investigators that on account of his
previous business relationship with Jeffrey Sachs (Sachs and
Associates), he recused himself – verbally, not in writing – from
decision making on HIID’s Ukrainian grant effort. Lipton’s deputy
confirmed his boss’s unwritten recusal. Nonetheless, government
inspectors were puzzled as to why – according to that logic – Lipton did
not recuse himself from issues regarding Moscow’s HIID operation.
Lipton explained that since Russia was an ongoing program (and Ukraine
wasn’t?), he felt no need to recuse himself. In the course of their long
relationship, Sachs and Lipton had established a private consultancy –
Sachs, and Associates – which was funded mostly by public funds. And
despite Sachs’s assertion that he took no money from client governments,
Slovenia revealed Sachs and Associates once billed the government
$300,000 for advisory services. Slovenia initially declined payment,
citing the inadequacy of Sachs’s and Lipton’s “kindergarten stuff” but
reportedly the two did eventually get the money.The Slovenians were
particularly bitter because Sachs interfered fatally, as he did in
Russia, with the government’s employee buy-out privatization program.
Paddock, Richard C., “Russia lied to Get loans, Says Aide to Yeltsin,” Los Angeles Times, 9 September 1998.
Helmer, John, “Sour Grapes,” Moscow Times, 15 January 1999.
AFP,
“IMF Tacitly Approved Russia’s August Debt Default: Ex-tax Chief,” 16
December 1998 as reproduced on Johnson’s Russia List #2522, Item # 11,
17 December 1998.
[v]Interfax, “Soros Denies Getting Involved in Russian Politics,” 20 October 1997.
While
in the midst of denouncing Russia’s “robber capitalism” to Western
reporters, Soros said “strengthening the oligarchy would benefit
Russia. This would be a step forward for the country.” Ah dear, shades
of Alexander Hamilton.
Laura J Alcorn
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