What the Russian Revolution Can Teach Us About Bond Bubbles

Tracy Alloway (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:19)

So Joe, I think, oh, I'm trying to remember now, it must have been maybe four or six weeks ago, you were away, and I recorded an Odd Lots all by myself. And I felt really bad because it was a really good episode, and I think you would have enjoyed it. It was the one with Mittou Galati, and we were talking about debt defaults.

Joe Weisenthal (0:40)

Yeah, Tracy, I was sad to have missed that one. I mean, I don't think you should feel bad per se that you did it alone without me, because occasionally I'll do one solo, you do one solo, we pick up for each other.

But I do like that topic a lot, and so yes, I wish I'd been part of it.

Tracy Alloway (0:58)

Well, as my personal gift to you, we are going to do a sort of redux episode. We're not talking about defaults or sovereign debt restructurings in general. We're gonna talk about one very, very specific instance of a debt default. In fact, it's probably one of the most famous of all time. It's certainly one of the biggest. In fact, depending on your definition of debt defaults and how you actually measure it, it is the biggest one of all time. Do you know what it is?

Joe Weisenthal (1:28)

No, so I was just gonna say, this is really embarrassing to me because I know which one we're doing.

And if someone had said, what is the biggest sovereign debt default of all time? You say, oh, this is the most famous one. I don't even know if this one would have occurred to me. So I'm kind of embarrassed by the fact that I apparently didn't even know in advance what the most famous of the category was.

Tracy Alloway (1:54)

Yeah, I think most people would probably, you'd say Argentina, wouldn't you? I think you'd say Argentina.

Joe Weisenthal (2:00)

I might've said Russia in the late 90s.

Tracy Alloway (2:04)

Oh yeah, okay. Well, that's closer. It is, it's Russia, but it's Russia in the early 1900s. So it's the famous 1918 repudiation of Russian debt once the Russian Revolution happened. And it's a really interesting moment in time in international finance because it touches on all these themes that you and I like to talk about. One of them is bubbles, right? Russia issued an incredible amount of debt in the run-up to 1918 Loads of people bought it, and then suddenly the whole thing collapsed. But the other really interesting idea here is the sort of notion of a safe asset that suddenly becomes not so safe.

There was a moment in time when Russian sovereign debt was considered really, really pristine, almost like US treasuries today.

And the other big theme has to be the politicization of debt or the ideology behind debt. And that's something that you and I have touched on at one point or another, in fact, maybe most recently with modern monetary theory.

Joe Weisenthal (3:09)

I'm very excited about this for all of the reasons you laid out. So who are we talking to?

Tracy Alloway (3:14)

So today's Odd Lots guest is Hassan Malik. He is the author of Bankers and Bolsheviks, International Finance and the Russian Revolution. And he is also an emerging markets hedge fund analyst. So Hassan, thank you so much for coming on.

Hassan Malik (3:29)

Thanks guys, thanks for having me.

Tracy Alloway (3:31)

So this book was a really, really great read. I'm just wondering, why did you decide to focus on this particular episode of International Finance?

Hassan Malik (3:41)

It goes back to my days working at an investment bank in Moscow and really living in the center of the Russian capital. I was walking around every day and struck by the degree to which banks from before the revolution are present in the built environment in the city center, be it the Lubyanka, which is the former headquarters of the KGB, be it old bank branches that are repurposed as modern retail or office space.

And really when I was in graduate school and studying financial history, what really struck me was the degree to which this financial past of Russia was largely unremarked in the histories that we have of that time period.

Joe Weisenthal (4:24)

Yeah, Tracy led in with, oh, this is the most famous debt default of all time. So I'm glad that there's at least some people who have forgotten about this period, who I imagine like me, this episode would not have been top of mind when thinking about debt default.