Taking Stock / Learn to Breathe Under Water

The rabbi may not read the Wall Street Journal every day, but he could read body language.

DAVOS - Berl Lazar, the Chief Rabbi of Russia, is a fixture at the World Economic Conference, which convenes every January in Davos. For five years the Alpine resort has been a perfect place for Lazar to rub shoulders with the old and new billionaires of the world, Western or Russian alike, who could potentially donate to the education network he's building in Russia.

The times were good: The world economy was booming, real estate prices were soaring and oil had turned Moscow into the biggest generator of billionaires in history.

But in the last six months, everything's reversed course, at warp speed. The financial crisis swept across Russia like the biblical flood, leaving Lazar with bankrupt backers and vanishing budgets.

Asked on the last day of the conference if anybody was still willing to donate, Lazar said he hadn't come to Davos to find money, and told the joke about the rabbi, the priest and the imam who receive a message from God. The message is that he's had it with mankind's sins once and for all, and plans to punish them with a flood, leaving no survivors this time.

The priest goes to his people, reports on the oncoming inundation and suggests they take advantage of their last day to carouse and sin. The imam does the same. But the rabbi goes to his people and says, "Jews, we have to learn to live under water."

The global economic and political community all heard the learned, dire forecasts at Davos last week, but Lazar seems to be the only one who was listening, and who looks reality in the face.

The great economic crisis of 2009 is a fact, and all that remains is to learn to live under water.

Lazar may be a rabbi who doesn't regularly read the economic analyses of the Wall Street Journal or Financial Times. But he can read body language.

"They all look different today. I've never seen them looking like this," he says. "They're taking interest in things that never interested them before. Suddenly they're discovering new values, new issues. They're suddenly looking at other people straight in the face. The only question is whether the crisis will be bad enough and long enough for them to learn the lesson."

People who knew Vladimir Putin weren't too impressed by the Russian president's confrontational mien and confidence at Davos; they know the style of Russian rhetoric and the whisper of estimates that Russia will have 15 million new jobless in two years.

At Davos, Putin sticks to Russian, simultaneously translated to English by Kremlin interpreters (who also translate English to Russian for him). He used only one English expression during his conversation with reporters - margin call.

Margin call is when a lender (usually a bank) tells a borrower that he's in violation of his loan terms.

In the last three months almost all of Russia's oligarchs have received margin calls from the banks of the West, which lent them the money for their ostentatious acquisitions. The Russian financial system has collapsed and the Western banks are terrified that their loans will go the way of loans to Russia 10 years ago, during the last financial crisis.

But the Kremlin has no intention of letting the Western banks foreclose on Russian assets. No, it's using the hundreds of billions of dollars accrued in sovereign investment funds during the boom to shelter the oligarchs from the pressure of the Western banks.

Bill Browder is the manager of an international fund who terminated all his business in Russia after being hounded by the Russian authorities, based on his conclusion that in Russia today there is no such thing as law and order, or property rights. He told everybody who'd lend an ear at Davos that with hindsight, he realizes Putin saved him. He managed to return all his investors' money before Russia imploded.

But Browder couldn't have been as pleased as all that. Last summer he spoke with TheMarker and happily related that having realized Russia was corrupt to the core, and that Russian stocks were a bad investment at any price, he'd moved all his investments to the Persian Gulf. A few weeks later the crisis reached the Persian Gulf too, despite earlier assessments that the states there were too rich, and liquid, to fall to the economic crisis. His fund lost 40% inside months.

This is a flood that leaves no one untouched, no one unbathed in its bloody waters.

It isn't even a financial story anymore. American businessmen now admit that the first wave of layoffs, in the fourth quarter of 2008, wasn't deep enough to prepare the companies for the next two years. Expect another wave as the first quarter ends.

The year 2008 was the one in which the "bad banks" were hit, the banks that participated in the subprime bonanza. In 2009, it will be the "good banks'" turn, George Soros says. Economists predict that corporate bankruptcies in Europe and America will spike again, and that provisions for doubtful debt by banks will shoot up accordingly. Representatives of Barclays Bank canceled their participation at the conference at the last second, after the bank's shares tumbled 48% inside a week on fears of mass bank nationalization in Britain.

The lobby of the Congress Hotel was uncharacteristically quiet last week. In previous years businessmen had closed deals worth tens of billions on a handshake there. Exactly two years ago, Lev Leviev sat in that lobby, telling TheMarker that he thought his company Africa Israel would reach a value of $7 billion by year-end. After that interview, Africa Israel's value shot up by a quarter billion dollars, and inside three months it had doubled to the promised $7 billion.

Yesterday Africa Israel started the stock market session at a market capitalization of NIS 1.8 billion.

Leviev didn't attend Davos this year, nor did investment bankers or oligarchs or the new billionaires of Asia - this wasn't a good time to stand in the spotlight and answer questions.

Soon the history of the last five years will be rewritten. Each billion dollars passing from taxpayers to the banking system will reinforce the feeling that this wasn't only a period of globalization. It was a period of massive wealth flooding from the many to the few.