Siberian Auction Wealth Transfer

A story about how Russian oligarchs were created through a rigged auction system in post-communist Russia.

"This starts on November 3, 1995, in a remote Siberian town called Surgat. In a small cabin, an auction took place for the right to lend the cash-strapped Russian government millions of dollars. The Russian government wasn't doing well and needed money, so they got banks to come to this meeting. As collateral, they put up shares of large state-owned companies, as Russia was transitioning from being a communist nation to private.

Only 2 bidders showed up because conveniently, there were no more flights - the airport shut down and you couldn't book flights to this small town. One company made a bid to loan about $500 million to the government, just $100,000 above the opening bid. If the government didn't pay back the loan within a year, the bank would get the collateral shares and keep 30% of the profits.

The government deliberately didn't pay it back. There was a handshake agreement behind the scenes. For example, Roman [Abramovich] and his partner Boris paid $100 million for what is now the 8th or 10th largest oil company in the world. These new owners, about 8-10 oligarchs, initially tanked the companies on purpose to buy out minority shareholders. Then they improved operations, making the companies far more profitable.

This created 8-10 guys worth up to $40 billion each. At one point, one was worth $83 billion. Even government officials got rich - the minister of oil became president of one of these companies and is now worth $8 billion. Roman went from basically zero to $20 billion, all through this cronyism."