Anna Ovyan, Alexei Polukhin
The global financial crisis has forced the US Government to curb the rights of wealthy people, while the Russian Government is making diametrically opposite decisions.
US Treasury Secretary Henry Paulson and Russian Prime Minister Vladimir Putin have proposed similar economic bailout plans. Just like Russian President Dmitry Medvedev's recent State of the Nation address and a speech by US President-elect Barack Obama, both documents have many common aspects but differ in details.
It is easy to note that both Putin and Paulson are spending most allocations on major companies, primarily those financial companies which have miscalculated their risks and are tottering on the verge of bankruptcy.
But few Russian analysts are discussing the implications of federal aid for US companies. In effect, such companies are little more than legal entities, and it is their top managers who will have to pay for the losses incurred.
The top managers of virtually bankrupt companies receiving federal aid will have to accept much smaller bonuses, which used to exceed their wages. This reduction will also apply to golden parachutes, namely, agreements between companies and upper executives specifying that the latter will receive certain significant benefits if employment is terminated. Even if employers want to pay sky-high bonuses to redundant executives, the US Treasury Department will be able to block such decisions.
Although Vladimir Putin has channelled over 2 trillion roubles ($73.2 billion) into major Russian banks, Central Bank statistics show that over $50 billion were taken out of Russia last month.
These banks converted most of this amount into the allegedly reliable and profitable dollar assets. Incidentally, this amount exceeds the one appropriated by disgraced business oligarch Mikhail Khodorkovsky. It will be interesting to see if any top managers are reprimanded.
However, this is just a detail. The main difference between the Paulson and Putin plans is highlighted by their measures with regard to ordinary people. In all, 28 million households in the United States will receive tax breaks, while all Russians who have delayed mortgage payments by at least 90 days will be subject to extra-judicial foreclosure proceedings.
The banks will certainly appreciate this decision.
In addition, the Russian Parliament has proposed two-year prison sentences for those confidence tricksters guilty of submitting fake personal records to banks, in case their actions have incurred losses in excess of 10,000 roubles ($365).
This means that any cash-strapped person can apply for a bank loan and repay it from his or her semi-legal incomes. However, they may be sentenced for fraud after delaying payments for over 90 days. This can happen even if the banks concerned do not notify their clients on time.
In reality, the two initiatives are interlinked because foreclosures lead to evictions, and because evicted people have to be housed at dormitories. However, prisons and penitentiaries are much cheaper and can house far more people. Technically speaking, inmate labour could be used to obtain material gains and to repay overdue bank loans. This can be done if Russia annuls several international conventions ratified by it during the pre-sovereign period.
Happily, the "Putin plan" bears no allusion to the Chinese anti-crisis programme, which stipulates no bailout plan but which sets aside over $500 billion for infrastructure projects, including road construction. Russian anti-crisis plans have always combined unusual prison sentences with infrastructure modernisation projects.
At any rate, Russia is the only country to save the super-rich from bankruptcy at the government's expense and to threaten reprisals against relatively poor population strata. In our opinion, this paradox far transcends the boundaries of financial document analysis.
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COMMENTS
Igor Simonov, a lawyer with Knyazev & Partners:
Creditors will try to compensate their losses and will therefore initiate foreclosure proceedings. Most likely, loan agencies will sell debts to other companies that will demand their repayment.
Under the Civil Proceedings Code, local courts have no right to exact debts from people with only one flat or home and to use them as collateral. Moreover, property rights are guaranteed by the Constitution and therefore cannot be infringed upon.
Any property can only be confiscated in line with court verdicts. Consequently, the extra-judicial foreclosure bill on confiscating mortgaged apartments violates citizens' constitutional rights. This is why I think it will be easy to appeal such decisions.
On the other hand, various additional agreements will be concluded on the initiative of banks, which will use legal arguments against borrowers who do not know all the nuances.
Those having no accommodations except mortgaged homes and apartments will have to live with their relatives. Technically speaking, this would not violate national legislation. However, borrowers now face additional problems, and the crisis is just beginning. Loan agencies will now start playing it tough in an attempt to streamline their assets.
Oleg Repchenko, head of the analytical centre Real Estate Market Indices:
Objective economic parameters should not be overlooked. The Moscow real estate market's prices have been unjustifiably high. Sooner or later the situation had to be rectified. Banks now facing liquidity shortages have to cope with this problem, no matter what. The market comes last in this situation.
Many companies which are trying in vain to sell housing at old prices must offer a discount. Flats facing extra-judicial foreclosure could be sold off and could expedite this process.
We predict that average housing prices will plunge by 20-30% or even more. Everything depends on the extent of overstated initial prices.
Although current prices rule out high profits, the banks will get their money back even by selling flats at a 30% discount because prices had soared by 30% before the subprime mortgage crisis.