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An American in Russia
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February 4, 1999: 8:51 p.m. ET
A financial consultant rode the tide of economic reform, but the wave crashed
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NEW YORK (CNNfn) - He was a young man who could have been a millionaire. He is now a wiser man, reluctantly leaving Moscow with more memories than money … more souvenirs than successes.
Buck Wiley is heading home to America. The economic miracle that once was Moscow is now a shambles.
His story tells a larger story of what went wrong for Americans in Russia.
Moscow was once a place where there were no Big Macs … no Marlboro Men or Mickey Mouse … no Nikes or Nintendo …
But when this city of cathedrals and Communists finally threw open its gates in 1991, the invading capitalists carried with them billions of dollars, introducing the excesses of the marketplace and the exorbitance of the West.
Moscow was engulfed in head-over-heels euphoria … a reckless, unrestrained love affair with fast living, big spending and hard partying.
But now the party is over, and the hangover is a doozy.
Buck Wiley made -- and then lost -- a small fortune during his five years as a financial consultant, investor and entrepreneur in Moscow.
Fresh out of school with a law degree and an MBA, Wiley first passed through Moscow in 1992.
A couple of friends had talked him into checking out a possible investment in a Siberian sawmill.
"And we came back to Moscow, and I ran into another friend of mine from home who had just moved here, and he said, 'You gotta come here. There's all kind of opportunity. Plus, the place is just so interesting!' " Wiley recalled.
Wiley had arrived just as Wall Street was warming up to emerging markets, and none of the big financial firms wanted to miss out on the promise of a big bonanza.
"I called up some of the Big 6 accounting and consulting firms. And KPMG actually hired me over the phone," Wiley said with a chuckle. "I don't think that would happen in any other city on the planet."
He quickly moved from desk jobs with big firms to a partnership in his own small investment company, Russia Equity Partners.
Like many American entrepreneurs, Wiley made money by teaching Russian companies the basic skills of capitalism … skills like business plans that made sense to investors, and how to turn a profit.
Wiley invested his -- and other people's -- money in ventures as diverse as chocolate, communications and natural gas.
Although he was young, Russians paid attention to his advice about how the free market operates.
"Being an American is a great advantage," Wiley said. "Whatever the legacy of the Cold War, and whatever the Soviets used to think about Americans, they are always very excited to meet Americans and Americans have a reputation for having a business savvy that they definitely respect."
Perhaps Wiley 's favorite investments were breweries.
He figured early on that young Russians might be more interested in beer than vodka.
But Russia had no concept of something beermakers in America take for granted -- brand loyalty.
"Sausage would be called sausage, not Jimmy Dean sausage. Beer was called beer, not something like a Budweiser or a Miller," Wiley said. " So in the new economy, there's a lot of room for brands and development of brands, and that's extremely valuable."
No one can say for sure just how many Americans have come to Russia this decade to seek their fortune, nor can anyone say for sure just how much money they've gained or lost. But this much seems certain: Those who've come to Russia and stayed are some combination of smart, adventurous and/or naïve.
Young entrepreneurs were pulling down six-figure incomes.
For Wiley , his business partner Mike Ross, and his friend Albin Gielicz, even a holiday like Halloween became an excuse to go overboard.
"We chartered a Russian plane, and about a hundred Americans went to Transylvania from Moscow, and we rented Dracula's castle," he said. "Out of these hundred Americans that went on this Halloween trip to Transylvania, I would say almost none of these live in Moscow anymore."
On Aug. 17, it all came crashing down.
"I remember that morning, someone called me at breakfast on my mobile phone and said, the entire government has been sacked, Kiriyenko's out, and no one knows what's going on."
Gielicz remembered the analysis the Americans made of the situation: "Oh, this bank will survive, that bank won't, this bank will … and everything we said was completely -- no one was right, 'cause we were too optimistic."
On Aug. 17, the Russian government defaulted on $8 billion in short-term bonds.
That caused a run on the banks.
The government had been borrowing money at interest rates approaching 200 percent -- a strategy that eventually overwhelmed the depleted federal treasury.
Russian bureaucrats and their business cronies had been robbing the country blind, channeling billions of dollars intended to modernize Russian industry into their own private bank accounts in Western cities.
"Everybody knew they were corrupt. But they weren't just corrupt, they were petty embezzlers and thieves and crooks," said Mark Ames, an American, co-editor of a biweekly Moscow newspaper called The Exile, an irreverent alternative tabloid that warned about corruption and the possible crash of the Russian economy long before most mainstream media. "I don't think it's really sunk in to most people -- well, to most Russians I know -- how bad it is."
In the blink of an eye, the value of a Russian ruble plummeted by two-thirds. It took almost 20 rubles to buy a dollar, up from only six rubles a few hours earlier.
"And as the exchange rates started going crazy, brokers were sending us e-mails every couple of hours." Wiley said. "And they were sending runners down the street to see what the exchange rate was in the different exchange booths. And then they would say, 'From Arbat Street, our man on the scene tells us that these are the exchange rates at the kiosks.' "
The Russian stock market plunged to almost zero. There were shortages of everything, including money.
"You couldn't find a dollar in Moscow. We went out of town two different times to go get dollars to come back and pay our rent," Wiley said. "Went to Copenhagen once, and went to Switzerland once, to find dollars, 'cause they were not here."
"We laid off about a third of our staff here and the remaining staff we cut their salaries by 50 percent," said Doug Steele, co-owner of several Moscow businesses where Wiley and his friends hang out, including the Chesterfield Café and the Hungry Duck nightclub.
Asked about his profits now, Steele said, "Well, we're making some -- I shouldn't say that, but I -- if you took everything the way it is now between this and my other businesses, we'll probably lose $4 (million) or $5 million this year. … Not lose …That's profit we would have gained. We will be lucky this year to make $150,000, instead of making almost $6 million. There's a difference."
But as bad as it is for Americans like Steele and Wiley, it is worse for Russians who were headed for a more comfortable life in the new middle class.
Well-paying jobs disappeared overnight, and those who still work are often not sure when and how much they'll be paid.
With that much change, there was a lot of pain, and a lot of people -- for a lot of people, the change wasn't good for them," Wiley said.
So, what went wrong?
The biggest mistake may have been assuming that capitalism would instantly flourish in the absence of Communism.
"The one thing that a lot of people are thinking right now is that we made the transition too quickly. Russia made the transition too quickly," Wiley said.
And that's what happened at the brewery north of Moscow.
The rush to switch from being state-owned to privately run may have made the investment look unreasonably rosy.
The plant needs millions of dollars in repairs, and while there have been some improvements, it is still infested with inefficiencies.
"As is typical of a lot of the older factories here, it's probably over-employed, there are probably too many people here," Wiley said. "In the West, this would have about half as many employees."
There are many in Moscow who think Americans got their just desserts.
Many were asleep at the switch -- making too much money too fast, partying too hard and missing the warning signs.
"It should have happened a year ago. It was always propped up. The markets were false, anybody that was there knew that," Steele said. " The way-over values and nothing was real, and the money just kept being pumped here and the banks just kept stealing it."
"And they rode this wave, I mean '96 and '97, I think Russia was the biggest stock market gainer in the world for two years in a row," Ames added. "And this year it's fallen 90 percent, so they've all gone home, I suppose."
And now, that includes Buck Wiley, a guy whose friends say had more savvy and smarts than most.
He could not run from the reality that Moscow is an extremely expensive place to live … especially if your income drops to almost zero.
"We used to say that here you live like dog years, and that one year in Moscow is equal to seven years in the West, in America somewhere. So, yeah, it definitely takes its toll," he said.
Wiley is headed back home to Atlanta, where he'll try to find American support for his Russian ventures … or simply find a new job.
He says he's not bitter.
"For a lot of us, including me, Russia was easy come, easy go."
Wiley thinks it may take two years for Russia to recover. Many of his friends are far less optimistic.
He knew he was gambling, and sometimes gamblers lose.
"You know, we all knew what we were doin', basically, and I figured that I was young enough, single, no family, no mortgage. And it was a time in my life when I could really afford risk, and Russia was the ultimate risk."
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