I N T R O D U C T I O N
ON A SINGLE DAY in 1998, I lost $15 million in the ruins of the
Russian economy. A short time before I had been a guest on a tour of
Russia sponsored by MFK Renaissance, a Russian investment empire
headed by Boris Jordan. He is an American-born investment banker
of Russian descent. Among the country’s new class of power brokers—
known as the oligarchs—he is the only one born outside of
Russia. The tour was by invitation only, organized for movers and
shakers in the international investment community who had been
invited to come see the vast potential of the new Russia and, not
incidentally, it was hoped, to invest there.
I was deeply impressed, and when I returned home I added to my
Russia holdings, which were already quite significant. Russia has vast
natural resources and a large, well-educated population. With its powerful
nuclear arsenal, a landmass that stretches across ten time zones,
and its geopolitical importance, Russia was too big to fail, I thought.
The international community and its financial institutions, the International
Monetary Fund (IMF) and the World Bank among them,
would never let the Russian economy collapse. The stakes were simply
too high. Global stability and security would demand that the financial
cavalry ride to the rescue on white stallions if worse ever came to worse.
The IMF and theWorld Bank did try to ride to Russia’s rescue, but I
was mistaken about the possibility of the Russian economy failing.
For more than thirty years, I have made my living by creating a
market for the sovereign debts of governments in what are often
called, sometimes euphemistically, emerging markets or, sometimes,
third-world countries. I’ve made and lost tens of millions of dollars by
investing in the world’s most derelict and downtrodden economies:
economies racked by war or revolution, where inflation has run amok
or corruption and greed sap the economic lifeblood out of an entire
nation; economies battered by bullets and bandits. I like to think I
know what I am doing.
I certainly thought so when, giddy with the potential I saw in
Russia, I bought $9 million in Russian government bonds for Turan
Corporation, the company I founded in the 1970s to trade in emerging
market debt. I was so swept away by Russia’s promise that I invested
several million of my own money in Russian bonds and other
debt instruments as well. But when the Russian government defaulted
on its foreign debt obligations on August 17, 1998, the value of Russian
paper in my accounts plummeted instantaneously by nearly 80
percent. Never has money disappeared so fast.
In retrospect, it was all foreseeable. Throughout my career I have
thrived on making instinctive decisions, but in this case my instincts
were wrong—temporarily, at least. I didn’t panic. I held on and even
bought more Russian paper, which was now selling for next to nothing.
By 2001, I had not only recouped my losses, but made a nice
sum, though not before losing a lot of sleep.
A headline in Forbes magazine once declared, ‘‘Indiana Jones,
Meet Bob Smith.’’ Some called me the King of Jungle Bonds, and
others credited me with contributing significantly to the birth of the
debt market and ‘‘possibly even to the entire emerging market investment
community, well ahead of Wall Street’s more prominent
houses.’’* I rather like the Indiana Jones image, though I am not as
prepossessing a presence as Harrison Ford in his fedora and Territory
Ahead wardrobe. Indeed, if you passed me on the street, you might
mistake me for the small-time collections lawyer I was in my youth.
Indiana Jones searched for riches among ancient ruins. I search for
riches among modern-day economic ruins. Along the way, the adventures
have been many and Hollywood couldn’t begin to invent some
of the characters I have thrown my lot in with. It’s been a unique
education in human nature and the nature of the global economy we
live in today.
In the opening of his insightful book The Lexus and the Olive
Tree, New York Times columnist Thomas L. Friedman describes how
the sudden devaluation of the baht, Thailand’s currency, in December
1997, set off a global economic panic sometimes referred to as the
Asian flu. Russia’s default was indirectly related to the Asian flu,
which triggered a dramatic loss of confidence in emerging markets.
Friedman’s point was that today’s highly integrated global economy
is like a single ecosystem in which a small change in one seemingly
remote place can trigger a series of unexpected changes in all parts
of the global economic ecosystem. Or, as some described it, Thailand
sneezed and the world caught a cold. The devaluation of the baht
was akin to the proverbial butterfly that flaps its wings somewhere in
western Africa, triggering a tiny perturbation in the environment
that eventually leads to a massive hurricane that strikes the United
Yet, what happened to the global economy following the devaluation
of the Thai baht was more of a psychological phenomenon
than an economic one. Markets are supposed to be extremely efficient
processors of vast amounts of information that result, ultimately,
in rational economic outcomes. But people, the millions of
us who every day make large and small financial decisions, are not
rational. We are creatures prone to excesses of both pessimism and
optimism. We are emotional. And emotions, especially contagious
emotions like excessive pessimism and excessive optimism (‘‘irrational
exuberance,’’ as Alan Greenspan once famously called it), move
markets all the time.
In The Lexus and the Olive Tree, Friedman, while often explaining
the global economy at street level, also takes a bird’s-eye view, especially
as he describes the huge amounts of capital that rush across
international boundaries daily like huge tsunamis. I surf those perilous
tsunamis, and the view in this book is sometimes from the crest
of a tsunami. But because I, too, am human and prone to irrational
exuberance from time to time (as happened with my investments in
Russia), sometimes my perspective is from the beach, after the wave
has crashed ashore, leaving me bedraggled, alone, and a good deal
Economic bottom feeder? I’ve been called that and worse. I call
it opportunism, and while my motives were and are financial, what
I’ve done has sometimes provided bankrupt governments with a light
at the end of the tunnel. As for me personally, I have used the riches
I have found among the ruins to build a theater and arts center at my
high school alma mater, the Roxbury Latin School in West Roxbury,
Massachusetts; to build a new student center at my college alma
mater, Bowdoin College in Maine; to renovate a synagogue in Bath,
Maine, my mother’s hometown; and to set up a foundation to support
research in mental illness, specifically schizophrenia. This isn’t an
excuse or a rationalization for wealth. At the end of the day, it’s about
doing well and doing good, and in my view everyone who has done
well has an obligation to do good.
In this book, I will take you to some of the most dangerous countries
on earth: dangerous economically and, quite often, dangerous
physically. In my search for riches among the ruins I often have taken
great personal risks, traveling to places where violence is always at
your elbow and Americans are not always welcome. Debt traders like
me do business where you have to hold on to your wallet and your
life. It’s not for the faint of heart.
What is a debt trader? The young Turks, the ‘‘Masters of the
Universe’’ as Tom Wolfe called them in The Bonfire of the Vanities,
the ‘‘Big Swinging Dicks’’ as Michael Lewis called them in Liar’s
Poker, who sit at bond-trading desks on Wall Street. They are one
species of debt trader because bonds, simply put, are debt obligations
of corporations and governments.
I am a rarer subspecies of debt trader than those who spend their
days on the telephone in a New York office tower. I specialize in
trading the debts of governments in the darkest corners of the global
economy, the so-called second and third tier credit countries on the
borderline of default or in urgent need of rescheduling their debt. In
my heyday, to do my job, whether in Guatemala, Russia, Nigeria, or
other developing countries, I had to be ‘‘boots on the ground,’’ as
they say in the military. I had to pound the pavement and ingratiate
myself with the people, many unsavory, who mattered when it comes
to doing the business I do. I had to make connections. I often had to
risk flights on substandard airlines, stay in no-star hotels, and eat
strange food. I sometimes had to dodge bullets and shake down artists.
It’s hard work compared to sitting at a trading desk in New York,
but I don’t have the attention span to sit long at a desk. In Yiddish
parlance, I have shpilkes, which, roughly translated, means ‘‘ants in
the pants.’’ I’m restless and I love to travel. I have craved adventure
in exotic places ever since I was eleven and my uncle gave me an
album filled with colorful stamps from countries in all corners of the
world. In my small room in my parents’ home in Brookline, Massachusetts,
I would look up those countries in the World Book Encyclopedia
and dream of seeing the world someday.
*Peter Marber, From Third World to World Class: The Future of Emerging Markets in
the Global Economy (New York: Perseus Books, 1998), 231.