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- Herausgeber: John Wiley & Sons
- Kategorie: Ratgeber
- Sprache: Englisch
In Myth of Money: Breaking Out of the Failing Financial System, renowned finance, crypto, and economics thought leader Tatiana Koffman delivers an insightful and informative take on the past, present, and future of money, and the rise of cryptocurrencies as a transformative force in the financial world.
Koffman has witnessed multiple financial collapses firsthand—beginning with the fall of the USSR, when her family lost everything, followed by the subprime mortgage crisis that marked the start of her new career, and then the economic fallout of COVID-19. As Bitcoin gains its footing globally, she has observed its meteoric rise and catastrophic falls with a keen understanding that these are early steps of a system poised to redefine finance.
Navigating her way from traditional finance and into the realms of venture capital, crypto, and digital assets, as she writes about fintech, Koffman's journey takes us from Eastern Europe to Canada, to Bitcoin Beach in El Salvador, to Lebanon, Dubai, Africa, Necker Island, and back to the States. Along the way, she shares hard-earned lessons about the myths surrounding money, even those emerging in the new digital era.
Throughout the book, her stories are paired with clear explanations and discussions of technical aspects of finance, in her trademark voice of clarity, incisively cutting to the core of complex topics in a relatable and easy-to-digest manner.
Koffman's unique perspective, drawn from her global experience and deep understanding of economic upheavals, makes Myth of Money an essential read for anyone interested in the future of finance and the potential of cryptocurrency to take the place of a system we can no longer rely on to create and safeguard wealth.
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Veröffentlichungsjahr: 2024
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Acknowledgments
Introduction: My Journey to Freedom
1
Drawing Back the Iron Curtain
Roots of Resilience
The Fall of the Soviet Empire
The Birth of Property Rights in the East
Childhood Lessons: It’s a Hard-Knock Life
Russian Run on the Banks
Go West: Starting a New Life in North America
College Years: A Philosopher’s Chair
2
The Modern Boiler Room
Girl on the Trading Floor: The Lows of High Finance
David and Goliath: Navigating the Investment Banking World
Sweating the Swap Desk: Fixed Income
Big, Smart Money: Stocks and Equities
Stepping Off the Merry-Go-Round
3
The Culture of Money
From Linkin Park to The Chainsmokers: Music and the Art of Venture Capital
Y Combinator and the Venture Capital Framework
Unicorns, Kardashians, and the NFT Revolution
4
The Money Printer
The Journey to My Parents’ Basement
Key Schools of Economic Thought
A Creature Awakes: The Federal Reserve Steps In
The Money Printer Goes
Brrrrr
The K-Shaped Recovery
Flight to Safety
5
Once Upon a Time in El Salvador
The Birth of Bitcoin
A Love Story: Bitcoin’s First Circular Economy
The First Country to Make Bitcoin Legal Tender
6
Lebanon on Fire
A House of Paper
A Brief History of Money
WWII: A Financial Systems Overhaul
Crisis in Beirut: Hyperinflation Rocks the Boat
Hyperinflation: Triggers and Consequences
7
The Art of a Ponzi Scheme
Vegas of the Middle East
I’m Rich, B*tch: Lessons from Larry’s Crypto Suite
The Genesis of Cryptocurrencies
Washed Up in Monaco
Cashing In and Cashing Out
8
Leapfrogging to a Decentralized Africa
The Fourth Industrial Revolution
The Camp David of South Africa: A Presidential Visit
A Detour to Necker Island
Into the Lion’s Den: Blockchain Applications Kenya and Nigeria
9
Breaking Point
When Your Mind and Body Fail: Retreat to Bali
Market Collapse: A (Block)chain Reaction
The Contagion
Soft Landing in a Pool of Quicksand: Quantitative Tightening
Behind the Vault Door: There Is Less than You Think
Protect Yourself from Economic Turbulence
10
Waking Up from the American Dream
The Beginning of the End
The American Debt: A Downward Spiral
Global De-Dollarization
Behind the Battlefield: The Economics of War
Bitcoin Is a Silent Protest
A Path Forward
About the Author
Index
End User License Agreement
Guide
Cover
Table of Contents
Title Page
Copyright
Acknowledgments
Introduction: My Journey to Freedom
Begin Reading
A Path Forward
About the Author
Index
End User License Agreement
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MYTH OF MONEY
Breaking Out of the Failing Financial System
TATIANA KOFFMAN
Copyright © 2025 by Tatiana Koffman. All rights reserved.
All chapter opening graphics are used courtesy of Lena Xiao.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permission.
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Library of Congress Cataloging-in-Publication Data is Available:
ISBN 9781394226863 (Cloth)ISBN 9781394226870 (ePub)ISBN 9781394226887 (ePDF)
Cover Artwork: Denisa Zaionciuc | Cryptopunks © 2017 Yuga LabsCover Design: Wiley
Acknowledgments
Writing a book has proven to be far more challenging than I ever imagined. Choosing to write is choosing to bring a piece of yourself into the world, something that will stand the test of time and reflect who you are in that moment. It demands attention to countless details, each capable of derailing the project. Moreover, it requires daily introspection, questioning whether you have what it takes and whether anyone will care to read it once it’s finished. It’s a self-imposed existential crisis that lasts the entirety of the journey.
The creation of this book would not have been possible without the support of incredible people along the way, each playing a pivotal role in this journey.
First, I extend my sincere appreciation to everyone who helped bring this project to life: Bill Falloon and the entire Wiley team, Molly Pisani and Katherine MacLellan for their exceptional editing support, and my team at Moonwalker Capital, Saif Shaikh and Axel Broks, who made space for this project and helped refine it along the way.
This journey of my life and career would not have been possible without many friends who have supported me and brought joy to every occasion. While including a full list is nearly impossible, I wish to mention a few names that come to mind. A heartfelt thank you to Eyal Baumel and Corey McGuire for keeping me inspired and motivated, Trevor Koverko and Q Dhalla for always inviting me on new adventures, many of which were content for the stories I share, Nataliya Kotlyarova, Lauren Bissel, Teodora Atanasova, and Kate Kallot for being my real-life “Charlie’s Angels” as we explored the world, Sir Richard Branson for helping me discover my hidden talent for backgammon, Rob Rhinehart for pushing me to write, Chris Pan and Brett Leve for believing in my potential, Ben Zion and Loro Masnah for rekindling my passion for art, and my dear friends Analise Roland and Ebeneezer Bond for showing up with kindness during the toughest moments of this journey.
Additionally, I extend my gratitude to the great mentors in my life: Professor Jim Crimmins, who taught me about philosophy and the workings of the world, Senator Jerry Grafstein, who taught me to believe in myself, Jay Rosenzweig for his loyal support and encouragement in all my endeavors, and Rabbi Lori Shapiro for always leading with light.
Finally, a deep thank-you to my parents and my family for giving me a story worth telling.
Myth, n:/miTH/
a traditional story, especially one concerning the early history of a people or explaining some natural or social phenomenon.
a widely held but false belief or idea.
Adapted from Oxford Languages
Money, n:/ˈmə-nē/
any item or medium of exchange that symbolizes perceived value.
the assets, property, and resources owned by someone or something; wealth.
Investopedia
Introduction: My Journey to Freedom
The only true wisdom is in knowing you know nothing.
—Socrates
I started writing this book in April 2020, amid the beginnings of the COVID-19 pandemic. By that point, it was dawning on me that money might be a myth, in either or both of the common senses of the term. Was money anything more than a story we tell ourselves, and had been telling ourselves since we first traded cowrie shells on the beaches of prehistory? And was the story based on anything inherently true, real, or within our power or control?
It has been a personal four-year odyssey as the world changed around me. Countries and economies closed down for weeks, months, years. Social upheaval spread throughout the West as police brutality sparked mass demonstrations and riots that led to further police brutality. Wars in Ukraine and the Middle East—and armed conflicts in dozens of other places—ignited, reminding us that humanity has a long way to go when it comes to achieving equality, justice, and peace.
At the time this journey started, I was 32 years old and residing in Los Angeles. My life looked perfect on the outside, but everything was quietly, or not so quietly, falling apart. As a highly educated professional holding degrees in political science, law, and business, I had spent the previous decade working in the finance industry, from stuffy trading floors of banks to the penthouses and closed-door parties of Los Angeles, California.
My career encompassed investment banking, derivatives trading, and venture capital investments for celebrities such as the iconic band Linkin Park, and the Chainsmokers, ranked among the top five highest-paid DJ acts in the world. This line of work took me to glamorous destinations such as New York, London, Dubai, and Monaco, offering Instagram-worthy experiences that were far from my humble origins in Ukraine and the financial instability of most of my early days. I felt a sense of pride in my life.
Yet by early 2020, as the pandemic appeared on the horizon, I was also feeling consistent pangs of anxiety and dissatisfaction. I realized that despite the seemingly glamorous exterior, my career in finance had left me empty-handed—I couldn’t afford to buy a home or a car and was living paycheck to paycheck, struggling under the burden of over $50,000 in credit card debt. I was surrounded by wealth, I created it for others, and yet I felt unmistakably (for lack of a better word) broke.
I share this information upfront because our worldview is inherently subjective and shaped by our life experiences, and it is important to be honest about our circumstances when we present our stories and opinions. The views expressed in this book are no exception, encompassing elements of history, analysis, and innate biases. If our minds were a blender, the resulting mixture would consist of childhood memories, education, media exposure, and dinner table discussions with friends and family, as well as a healthy dose of fear presented by our current life circumstances. My mind is no exception. Had I been writing from another part of the world, or with a different set of experiences, my story might have been vastly different.
Nevertheless, this book is a collection of knowledge told from my perspective: knowledge of the financial world I was forced to reckon with and market catastrophes that shaped my path. It recounts everything I’ve learned about money over a lifetime, detailing my journey to achieve financial independence and become the first self-made millionaire in my family, and to no longer feel blindsided by the daily effects of the financial system that governs our lives.
I started working on this book during the pandemic, and thus, at times, I try to answer a somewhat existential question: How did we get here?
On March 11, 2020, United States President Donald Trump made a late-night announcement during a press conference. In an unprecedented move, he declared that the American border would be closed to travelers from Europe. Within a week, the travel ban was extended to Canada, Mexico, and the rest of the world. Panic filled the air—fear, uncertainty, and doubt. Many people wondered: Could we trust the information presented to us by those in power?
Returning to Los Angeles on the last flight from JFK, I went to the store and stocked up on a six-month supply of nonperishable items—rice, buckwheat, ramen, and canned corn—still without fully grasping the scope of this emerging crisis. I couldn’t help but wonder whether this situation mirrored what my Jewish great-grandparents experienced during World War II, or what my mother experienced while anxiously waiting for hours in line, clutching her food coupons in the Soviet Union. To this day, I believe my reflex to hoard supplies was a genetic memory encoded in me by the traumas of my ancestors. After all, I was the only one among my friends with enough sanitizer to last the season.
In the following weeks, businesses in major cities closed their doors, schools and universities sent students home, and cruise ships and planes were grounded indefinitely. To curb the virus’s spread, people refrained from going to restaurants, shopping in stores, and taking vacations. Concerns over paying rent and other expenses escalated as money became a top priority for everyone.
The US wasn’t alone in its self-imposed isolation, as countries worldwide implemented their own lockdown measures. Russia threatened to imprison those leaving their homes without permission, while China employed sophisticated tracking technology to monitor citizens’ movements. With a population of 1.3 billion, India mandated that all residents stay at home for 21 days, leading to millions cramped in tight living spaces with poor sanitation and limited access to supplies. After decades of globalization and free trade, the world was abruptly silenced.
The 2020 pandemic had a significant impact on the US economy, plunging it into a state of panic. On March 12, the Dow Jones saw its steepest one-day drop since 1987, falling by over 10%, while oil prices plummeted by 34%. By May, over 30 million Americans had filed for unemployment, and all new jobs created since the 2008 financial crisis had vanished, with unemployment rates reaching levels akin to those of the Great Depression. Tens of thousands of Americans began dying each week, and morgues in some places were filling so quickly that hospitals were forced to resort to storing bodies in refrigerated trucks.
And then, just when we thought 2020 couldn’t get any worse, the world was rocked by the wrongful death of George Floyd at the hands of police on May 25. Outrage surged across the globe, leading to protests in more than 140 cities around the world. Peaceful demonstrators, children among them, were maced, beaten, shot at, and even driven at by police vehicles, all of which was captured on video and shared on social media platforms such as Instagram. Small business owners saw their storefronts looted by opportunists who exploited the political unrest during violent riots in Minneapolis, Atlanta, Chicago, Los Angeles, and New York, among other places.
My heart ached.
Although I am an outsider in American life in some ways—Jewish, an immigrant, a non-native English speaker—over time, I have become more integrated; new friends don’t always realize I was born abroad. And being white, I never had to worry about being mistreated by teachers or the police, nor did I have to fear being denied a job because of my skin color. Most significantly, I never understood what it was like to live in a system designed to hurt me rather than protect me. I had yet to witness firsthand a society turning on itself.
The ongoing economic and racial crises in our society reminded me of the philosophical principles I had studied in my college days. In his 1651 book The Leviathan, English philosopher Thomas Hobbes posited that every democratic society is founded on a social contract—an agreement we all implicitly enter into to cooperate with state regulations in return for social benefits. Simply put, citizens consent to follow the rules and express their opinions through peaceful means in exchange for services such as roads, hospitals, security, education, economic welfare, and more. Naturally, there are those who opt not to participate—they avoid taxes, live off the land in remote areas, or emigrate elsewhere. However, for most of us, the benefits of being part of an organized, democratic society outweigh the sacrifices.
In 2020, the American government fell short in three key areas of its obligation under the social contract. The first and most obvious area was that of security, as evidenced by the growing discontent over police brutality. We rely on our government and police to protect us and to be on the side of the innocent. What happens when communities no longer trust law enforcement and start self-policing? Do we still agree to a social contract with a state whose law enforcement we no longer trust?
The second notable area of governmental failure was health care. Health care should be a basic human right, yet America is the only developed country in the world that does not offer public health care to its citizens. Instead, it requires citizens to buy into an overpriced insurance system that makes health care unaffordable for the majority. Meanwhile, not only does the US have the lowest life expectancy among developed countries, but we also have the highest rate of avoidable deaths. While the pandemic may not have cared about borders or differences in economic status, it revealed that our system definitely does: those in lower socioeconomic brackets—who more often relied on communal transportation, lived in close quarters, and had preexisting health conditions—suffered the most from COVID-19. Of course, they were also the exact people who were less likely to be able to afford health care in the first place.
The third and most significant government failure during the pandemic was economic, and this is the failure that takes precedence in this book.
As hard experiences have taught me, there is light at the end of the tunnel, but only for those who seek it out and persevere in their quest. In this book, I offer a ray of hope for anyone tangled in financial confusion or disillusioned by the financial system that so often seems rigged against us. I unfold my personal odyssey—a journey that spans the political spheres of the East and West, ventures through the high-stakes world of traditional finance, and dives into the realms of entertainment and venture capital in the heart of Los Angeles. I recount my deep plunge into the Bitcoin vortex, my ringside seat at a colossal cryptocurrency scheme in Dubai, and my explorative sojourns across the diverse landscapes of Africa. Alongside, I bring to light the firsthand experiences of others through the financial upheavals and breakthroughs in Lebanon and El Salvador. In the wake of it all, I am left with one overarching belief: if money is a myth, it is a story you had better write for yourself.
Throughout this book, you’ll find a recurrent theme emphasizing Bitcoin and decentralized financial systems. This isn’t by accident. I aim to offer a comprehensive perspective on our financial ecosystem and its historical pitfalls, as well as a glimpse into our potential future trajectory. Bitcoin, in my eyes, is not just a digital asset; it’s our strongest economic safeguard against what lies ahead.
This is not a personal finance book.
What lies within these pages is a mosaic of stories and hard-earned lessons from the past decade, a period that saw me outmaneuver the financial system, carve out my own version of success, and navigate the amusing, sometimes painful detours life threw my way. My aspiration is that as you turn these pages, you’ll experience eye-opening revelations and, at the very least, find some entertainment in the recounting of my journey.
But this book is more than a memoir; it’s a critical analysis of the world’s shifting economic currents, a candid look at the challenges America grapples with globally due to its economic strategies, and, most crucially, a guide on how to navigate the financial storm of the coming decade. This book is crafted not only for my contemporaries, but also for a new generation eager to learn, as well as the generation of my parents, who find themselves struggling to keep pace with the ever-shifting financial landscape.
I hope that as you make your way through the following chapters, you forge your own journey to demystifying the myth of money, and gain a little inspiration to join me on a path less travelled.
1Drawing Back the Iron Curtain
Happiness and freedom begin with a clear understanding of one principle: Some things are within our control, and some things are not.
—Epictetus
In the summer of 2023, as I pieced together this chapter, an invitation arrived to deliver a guest lecture at Pepperdine University, nestled in the tranquil mountains of Malibu, California. Pepperdine, a prestigious Christian institution renowned for its rigorous academics and spiritual ethos, draws students from affluent American families and international elites, all shelling out upwards of $60,000 per year for tuition.
Though it wasn’t my first lecture, this particular engagement carved a lasting impression on me. Fresh from riding the tumultuous yet rewarding wave of the latest cryptocurrency bull cycle, I arrived on campus with an air of newfound status. A string of astute investments and strategic deals had catapulted me into a life I once only dreamed of: living in a serene oceanfront home in Malibu, driving the sleek, quiet hum of a brand-new Tesla, and wearing the subtle gleam of a presidential Rolex. I moved through the world with a sense of poise, as if I’d deciphered life’s most cryptic codes, especially those concerning wealth.
Yet, I was mindful of never giving off that “new money” stench. Those who come from very little, like me, experience substantial psychological changes when they first step into wealth. It’s part of the myth of money. Most times, the feelings are a mix of imposter syndrome wrapped up with guilt. Why do I have the fancy new car and the expensive watch, while others have so little by comparison? I’m no better than my sweet cleaning lady from Venezuela, who cleans my house for $20 an hour, and yet she earns her living through physical labor, while I get to travel the world and work on multimillion-dollar deals. I’d worked hard to achieve my newfound success, yet the pointed feelings of guilt continued to bubble up as queasiness in my weak stomach.
These feelings accompanied me as I prepared for my lecture on cryptocurrency, facing a hundred or so guests and students, most of whom hailed from established, wealthy families—families unlikely to have experienced the brink of poverty like mine or the imposter syndrome that accompanies newfound success. I wondered: Will they see right through me? Will they think I’m a fraud?
Still, being invited to impart wisdom to the bright, eager minds at Pepperdine was not just an honor; it was an affirmation of my journey, a tangible marker of having “made it.” As I stood before those students, I felt a sense of completion, a moment of reflection and recognition that what I had achieved was truly mine, a testament to the journey, the decisions, and the relentless pursuit of success that had brought me to that moment. It was a poignant reminder that some milestones in life are not just about arriving but about understanding and embracing the path that led us there.
Roots of Resilience
A few years ago, I explored my ancestry through 23 and Me, uncovering a kaleidoscope of European roots that span Ukrainian, Hungarian, Polish, Russian, and Ashkenazi Jewish heritage, with a surprising hint of 1% East Asian descent. I was born on February 9, 1988, in the Ukrainian city of Cherkasy, of not quite 300,000 people, or at least it was before Vladimir Putin invaded Ukraine in 2022. My birthplace was not entirely a matter of choice but rather a last-minute decision. My mother, ever resourceful, opted for Cherkasy because her father lived there; with her due date fast approaching, she sought familiar surroundings and some semblance of support as she embarked on her labor solo.
There’s a term for children like me: “wedding night babies.” My parents’ love story was a whirlwind romance—a courtship of just five dates—culminating in my father, a soon-to-be-deployed captain on a Soviet ship, proposing marriage. They had mere days to make things official before he was set to sail from Severomorsk, a port high above the Arctic Circle, home to the Russian Northern Fleet. He would be at sea for nine months.
To this day, my father laughs about how, on their wedding day, every cosmic sign urged him to flee. First, the taxi was late, making them late for the ceremony. Second, both witnesses came down with an inexplicable virus and couldn’t attend. Third, my father received an urgent call that his ship had disappeared—a false alarm, it turned out, as the ship had been moved for maintenance without proper reporting. All in all, their wedding day was a fiasco. The details of the wedding night remain a mystery, except for one undeniable fact: it was the night I was conceived.
Years later, in my 20s, my father handed me an album. It wasn’t filled with baby pictures or mementos from family outings—those couldn’t exist, as my father wasn’t part of my childhood. Instead, the album chronicled my parents’ relationship during his post-wedding deployment. Within its pages were the letters exchanged between the young newlyweds. Initially, their correspondence was filled with love and the excitement of building a life together. The joy of impending parenthood brightened their exchanges, as my mother shared her first inklings of my existence.
However, the tone of the letters soon shifted. Financial strain crept in, emotional commitment wavered, and the dream of a cohesive family began to unravel. By the time my father’s ship docked, I had already been born, and my mother wanted nothing to do with him. When he arrived at the hospital, he was served with divorce papers and asked to exit my life until my 21st birthday.
Yet, genetics had its own sense of humor. Despite my mother’s dominant blue-eyed, blonde lineage, I emerged a stark contrast: my father’s brown eyes, a mop of dark, curly hair, and porcelain skin—a nod to my paternal Ashkenazi heritage. Throughout my childhood, my mother and I often drew quizzical looks from strangers; we made an odd-looking pair.
The Fall of the Soviet Empire
In 1989, when I was one and a half years old, my mother remarried, and we moved to Moscow. Two years later, on December 25, 1991, Mikhail Gorbachev delivered his final speech as the leader of the USSR, explaining his decision to resign. “The reason was evident—society was suffocating in the grip of the command-bureaucratic system. Doomed to serve ideology and to bear the terrible burden of the arms race, it had been pushed to the limit of what was possible,” Gorbachev asserted. “All attempts at partial reforms—and there were many—failed, one after the other. The country had lost direction. It was impossible to go on living that way. Everything had to be changed fundamentally.”
That New Year’s Eve, the atmosphere in our Moscow living room was charged with more than the usual suspense and anticipation. Every television set across the vast expanse of the Soviet Union was tuned to the same channel. Boris Yeltsin—the newly elected president of the Russian Soviet Federative Socialist Republic (RSFSR) and the first popularly elected head of state in Russian history—was about to announce the beginning of a new era for Russia, and its satellite republics, as an independent state. Yeltsin also promised to transform Russia’s command economy into a capitalist market economy; in other words, he planned to finish the job that Gorbachev began. And indeed, Yeltsin’s presidency was marked by significant political and economic reforms in Russia. He would soon implement economic shock therapy, floating the ruble on the free market, instituting nationwide privatization, and lifting price controls.
With a gravity that matched the historical weight of the moment, as the clock struck midnight that New Year’s Eve, Yeltsin declared the USSR, a behemoth that had stood unyielding for decades, dissolved. Yeltsin finished his speech with the following words: “We, the multinational people of Russia, united by a common fate on our land … declare our sovereignty.”
I was on the cusp of turning four. While children my age in the West took the stability of their governments for granted or didn’t think about government at all, I witnessed firsthand the disintegration of the structure that formed the very basis of our lives. For most people, governments are seen as eternal, their permanence as certain as the rising sun. As my earliest memories formed, my eyes were opened to a profound truth: even the mightiest of structures can crumble. Perhaps the only Americans who would have similar memories from childhood are those who lived through the assassination of JFK in 1963.
The realization that governments and their leaders are fallible left a permanent scar on my psyche. While the world around me continued, and continues to this day, to evolve, this new understanding of impermanence became a cornerstone of my worldview. The knowledge that foundations can shift, and that the familiar can become unfamiliar seemingly overnight, shaped my perspective in profound and lasting ways. I questioned everything and everyone, including the adults around me. After all, if the leader of one of the greatest superpowers on Earth couldn’t hold it together, what gave anyone else any authority?
Contrary to how it seemed to me then, the downfall of the Soviet Union was not an abrupt event but a culmination of several critical factors. Foremost was the escalating cost of the Cold War, a draining, decades-long contest of military and ideological supremacy with America that stretched both nations’ resources thin. Mounting international pressures, with other global actors prodding at the superpower’s stability, exacerbated the situation. Additionally, an internal ideological crisis simmered within the heart of the Soviet Union; there was growing disillusionment and skepticism among its people and leaders about the sustainability and morality of communism. Doubts about whether the nation’s economic system could continue to provide for its people and compete on the world stage led to a weakening of belief in the communist path. Collectively, these elements eroded the foundations of the Soviet giant, leading to its eventual, historic dissolution.
At the heart of Soviet disillusionment was the age-old debate between communism and capitalism, ideologies that have shaped the course of nations and economies throughout modern history. Most nations navigate a middle path, integrating elements of socialism and communism with the principles of capitalism to various degrees. The United States, for instance, is often seen as the bastion of capitalism, a system underpinned by market-driven economics and individual entrepreneurship, yet these are interspersed with certain social safety nets and programs. In contrast, China functions under a nominally socialist system that has, over recent decades, largely embraced state-sponsored capitalism, characterized by robust state intervention and guidance, including the implementation of “five-year plans” (a concept reminiscent of the central planning so essential to communist ideology).
Experiencing both systems firsthand, I’ve come to be a proponent for less government and more individual freedoms and opportunities. But living through Russia’s transition from rations to riches was an incredibly bumpy ride.
Systems of Government
There are several main political systems of government, each with its own structure and principles for governing a country. Here are some of the most common political systems:
Democracy:
In a democracy, power is vested in the people. Citizens have the right to participate in the decision-making process, often through free and fair elections. Representative democracies, such as those of the United States and many Western countries, involve elected officials who make decisions on behalf of the people, while in direct democracies people make those decisions themselves. Democracies can vary in structure from republics to parliamentary systems. Examples of democracies include the United States, Canada, France, and Israel.
Monarchy:
In a monarchy, a single individual, the monarch, holds supreme authority; the position is typically inherited. There are two main types of monarchy:
Absolute monarchy:
The monarch has virtually unchecked power. Examples include Saudi Arabia and the United Arab Emirates.
Constitutional monarchy:
The monarch’s powers are limited by a constitution or laws, and there may be an elected legislature alongside the monarchy (e.g. the United Kingdom, Sweden, and Spain).
Authoritarianism:
In authoritarian systems, power is concentrated in the hands of a single leader or a small group. Political opposition is suppressed, and civil liberties may be limited. Authoritarian governments have little or no accountability to the people, with limited political competition and restrictions on free speech. Examples include modern-day Russia and Syria.
Totalitarianism:
Totalitarian regimes exert extreme control over all aspects of society, including politics, the economy, culture, and even personal life. These governments often use propaganda and censorship to maintain their grip on power. North Korea is a frequently cited example of a totalitarian regime.
Theocracy:
In a theocracy, religious leaders or religious institutions hold political power, and government decisions are heavily influenced by religious doctrine or principles. Iran is an example of a modern-day theocracy.
Communism:
In a communist system, the government controls all aspects of the economy, and property is commonly owned. The aim is to create a classless society where wealth and resources are distributed equally. In practice, communist regimes have often resulted in authoritarian rule; the People’s Republic of China and Cuba are examples.
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The 1990s ushered in a period of profound transformation in Russia, marking a departure from the Soviet era’s centralized control to an emerging landscape of fledgling capitalism. This was a time of vivid dichotomies, as the remnants of a rationed economy lingered amid the nascent signs of market-driven change. My recollections of those early post-Soviet years are etched with the stark realities of scarcity. I remember the empty aisles in grocery stores, the limited variety of cars that dotted the roads, and a collective resignation to the fact that desires most often remained unfulfilled.
Under the USSR—composed of fifteen republics, spanning 11 time zones, including Russia, Ukraine, Georgia, Latvia, and Estonia—citizens had been viewed more as functional components of the greater state than as individuals with personal aspirations. There were some benefits to this system: believe it or not, gender equality was more advanced under the Soviet system than here in the West; fully subsidized university education was available and encouraged for anyone who wanted it, regardless of gender. Indeed, women were a strong component of productivity for the Soviet collective; the state couldn’t afford to forgo the use of their human inventory.
Yet, there were evident drawbacks to the collectivist approach. Each autumn, for example, it was customary for professionals from various sectors to be mobilized to the agricultural fields, assisting in the harvest. I have tried to imagine myself finishing a round of fundraising for a technology start-up one day, and then being forced to pick grapes in the Sonoma Valley for wine harvest season the next. I can’t really see how this arrangement would make either practical or economic sense.
As capitalism began to infuse the Russian spirit, a transformation occurred. Choice, a concept previously foreign to most Russians, now took center stage. Businesses emerged, entrepreneurs flourished, and competition spurred innovation. Our streets, once lined with homogeneous Soviet-era Ladas, now showcased a parade of foreign cars. The monochrome fabric of our society was slowly being interwoven with vibrant new threads of diversity and opportunity.
The pent-up demand for the hallmark capitalist goods and luxuries among ordinary Russians became evident during the final years of the Soviet Union. It took 16 years of negotiations, but on January 31, 1990, George Cohon, a Canadian McDonald’s executive, finally opened Russia’s first McDonald’s in Moscow. In the bitter cold, people started lining up outside the restaurant at 4:00 a.m. According to the Washington Post, when the restaurant opened at 10:00 a.m., there was already a five-hundred-yard-long line of customers waiting to get in; an incredible 38,000 people got their first taste of Big Macs that day. I tasted my first McDonald’s Happy Meal a few years later, as a reward for earning all A’s on my report card—one of the happiest days of my childhood.
The Birth of Property Rights in the East
The drastic shift from communism to capitalism heralded the emergence of property rights. A well-known cornerstone of economic development, this concept was a game changer in Russia. Homes were no longer just assigned dwellings based on professional and societal contribution; they transformed into assets, a potential source of financial leverage.
Our family was fortuitously positioned when this shift occurred. My stepfather’s dad—whom I have always considered my grandfather—was a well-established engineering professor at Moscow State University during the Soviet era. Due to his contributions to the collective, he had the use of a lavish penthouse in the heart of Moscow. Under the new regime, we became the owners of that apartment seemingly overnight. This windfall to our family was a pivotal step in securing our financial future, or so we thought.
Ownership Laws: The Cornerstone of Economic Development
Property rights refer to socially recognized and legally protected claims or entitlements over assets, be they land, buildings, inventions, or other forms of property. They are crucial for economic development because they incentivize individuals to invest in, innovate on, and take care of their property, knowing they will benefit from any future returns.
For most families, their largest asset is their home, against which they can borrow to accomplish goals such as starting a business. The stronger the property rights in a country, the more likely it is that entrepreneurs will start businesses and foreign companies will be inclined to invest. This leads to job creation, increased economic activity, and overall GDP growth.
In his book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, Peruvian economist Hernando de Soto argues that the lack of clear property rights is a primary factor hindering the economic development of many countries. In Lima, Peru, for example, there are vast squatter communities, or shantytowns, where people built their homes on land they didn’t legally own. Meanwhile, just around the corner are homes built on land that is legally owned. Consequences arose from the discrepancy between informal and formal ownership.
Effects on Development and Investment:
Without formal property titles, people couldn’t use their homes as collateral for loans. This made it difficult for them to secure capital, hindering small business development and home improvement efforts. As a result, these homes often lacked basic services and infrastructure. On the other hand, those with legal title to their homes could access credit, leading to increased economic activity in their neighborhoods. Their ability to leverage their property meant they could invest in their homes, their businesses, and their children’s education.
Effects on Economic Growth:
Areas characterized by informal ownership often lag in economic growth because businesses are wary of investing where property rights aren’t secure. Additionally, the residents of these areas contribute less to the formal economy, reducing potential tax revenues. When property rights are secured in an area, it draws more investment and increases property values, aiding in the integration of these areas into the city’s broader economic life.
The countries of the former USSR experienced a seismic transition from informal to formal property ownership, with individuals enjoying property rights and their corresponding economic benefits for the first time in their lifetimes.
Childhood Lessons: It’s a Hard-Knock Life
For many children, early mathematical encounters revolve around counting toys, sharing candies, or maybe solving simple arithmetic problems in school. But growing up in a transitional economy, I was receiving firsthand the type of economic education that most PhDs read about only in textbooks. I vividly remember one morning, at the age of six, I experienced a math problem that no classroom had prepared me for. Since the start of first grade, my daily allowance for lunch money had been 5,000 rubles, a consistent figure that I had grown accustomed to. But on this particular day, my mother handed me a paper note that read, simply, “5.” The zeros had mysteriously vanished.
My mother tried to explain it away, hastily brushing over the subject: “Prices were skyrocketing, and there were too many zeros, so the government divided it by a thousand. Don’t worry, five is the same as five thousand.” But as a child with a keen eye for details, I couldn’t shake off my confusion. Why should the price suddenly change when the value of my lunch remained the same? The notion that money could be so easily altered bewildered me.
It wasn’t until my university years that I truly grasped the significance of what had happened to my lunch allowance. With the collapse of the Soviet Union, Russia plunged headfirst into a free market economy. Prices of goods and services soared practically overnight. In the early 1990s, hyperinflation gripped the nation, with annual rates surpassing 2,000%. This devastating inflation eroded the purchasing power of the ruble, devastating the savings of countless Russians. In response, the government redefined the currency’s value, slashing off three zeros. New notes were introduced, effectively scaling down the currency by a factor of 1,000.
Understanding inflation, a crucial thread throughout this book, is crucial to understanding economics, because it affects everything from the prices of everyday goods to strategic decisions made by governments and corporations. It’s a key metric that central banks monitor when setting monetary policy, and it plays an influential role in the health of any economy. Inflation is also often referred to as a “hidden taxation” on the people, as regular consumers are the ones who usually pay the price for inflation-management policies gone wrong.
What Is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power—the ability to buy these goods and services—to fall. Essentially, as inflation rises, each unit of currency buys fewer items and services.
There are several causes of inflation:
Demand-pull inflation:
Occurs when the demand for goods and services exceeds supply, for instance, when expansionary fiscal policies such as tax cuts boost aggregate demand—a classic case of too much money chasing too few goods.
Cost-push inflation:
Arises due to increased costs of production, causing producers to raise their prices in order to maintain profit margins. Cost-push inflation could be due to rising prices of raw materials, currency devaluation, or supply disruptions.
Built-in inflation:
Often termed “wage-price inflation,” it occurs when workers demand wage increases, and, if they get those pay raises, businesses then raise their prices to cover the higher wage costs they must pay.
Monetary inflation:
Caused by an oversupply of money, usually printed by a central bank.
The impacts of inflation can be both positive and negative.
Positive: Encourages spending and investment; reduces the real burden of debt.
Negative: Reduces the purchasing power of money, creates uncertainty in the economy, potentially leading to reduced economic growth, negatively affecting interest rates and international competitiveness.
Central banks and governments often use monetary and fiscal policies to manage inflation. Monetary policy includes manipulating interest rates, conducting open-market operations, and setting reserve requirements for how much cash financial institutions must hold at any given time. Fiscal policy involves adjusting government spending and tax rates.
What about Deflation?
The opposite of inflation, deflation is a decline in prices for goods and services. Prolonged deflation can be detrimental to an economy, as it increases the real value of debt and may lead to reduced spending and investment.
Russian Run on the Banks
Amid the shifting tides of Russia’s economy, my family astutely navigated the evolving terrain. Benefiting from the nation’s freshly instituted property rights, we now had ownership of a luxurious four-bedroom penthouse, which we decided to sell, moving our family into a cozier two-bedroom apartment. The returns from this sale were notable, particularly against the backdrop of the rapid inflation of the time.
Given the precarious financial landscape, my parents chose to shield our gains. They converted a significant portion of our profit to US dollars and entrusted it to a Russian bank, favoring a US dollar−denominated account. But as fate would have it, the impending Asian financial crisis cast its shadow on Russia. To our surprise and disappointment, when we sought to withdraw our funds, the bank notified us that the funds were “not available at this time.”
Our story was not unique. Similar economic turbulence has rippled through continents periodically, from the shores of Asia and the heartlands of Eastern Europe to the vast landscapes of South America and, in more recent times, the coast of Lebanon. Countless families have faced the twin specters of soaring inflation and locked bank accounts.
The Asian Financial Crisis
The Asian financial crisis began in July 1997 and was characterized by the devaluation of currencies, the collapse of financial institutions, and sharp declines in stock markets across several Asian economies, most notably in Thailand, Indonesia, South Korea, and Malaysia. The crisis started in Thailand with the collapse of the Thai baht after the government was forced to float the currency due to a lack of foreign currency on hand to support its peg to the US dollar. The economic turbulence was caused by overreliance on foreign capital, overinvestment in the speculative real estate sectors, and weak financial institutions.
When investors began to lose confidence and the speculative bubbles burst, capital started to flee these economies. As the crisis spread, it also affected other economies that had initially seemed more robust.
Impact on Russia and other Eastern European countries:
Russia, though geographically distant from the Asian economies most directly affected, was not immune to the repercussions of the Asian financial crisis due to several factors:
Commodity prices:
The Asian crisis dampened global demand, leading to a decline in commodity prices. Russia, being a major exporter of oil and other commodities, saw a drop in its export revenues.
Capital flight:
The crisis led to reduced investor confidence in emerging markets, resulting in capital flight from countries such as Russia. This put added pressure on the Russian ruble, as the exodus of money from a country leads to sharp drops in its exchange rate.
Debt and default:
In August 1998, Russia devalued the ruble and defaulted on its domestic debt, leading to the Russian financial crisis.
Foreign aid and the IMF:
Russia sought aid from the International Monetary Fund (IMF) and other international institutions to stabilize its economy.
In 1998, my mother made a momentous decision to part ways with my stepfather, marking the beginning of a new chapter in our lives. With a steadfast resolve, she set her sights on Canada, envisioning a brighter future for both of us in a land of opportunity. I remember vividly how she dedicated herself to English lessons during this period, tirelessly honing her fluency.
Meanwhile, I got a TV pass, albeit with a condition: all my viewing choices had to be American. It was her way of preparing me, ensuring that I would acclimate more seamlessly to the Western environment awaiting us and that my transition to English would be a tad smoother. Within that same year, her perseverance bore fruit as she was granted a “skilled worker” immigration visa to Canada—a testament to her resilience and the sacrifices she was willing to make for our future.
Go West: Starting a New Life in North America
October 31, 1998. We left Sheremetyevo International Airport in Moscow, bound for Toronto. Our past lives, keepsakes, and memories—all condensed into two measly suitcases. I clung to my Barbie, a relic of the capitalism I once knew. Mom wore the weight of our move like a cloak of concern. Her distant gaze mirrored the uncertainty in her heart. As the plane touched down in North America, her grip on our documents tightened, hoping they’d pass customs scrutiny.
Emerging from the maze, we were met with a surreal sight: Halloween in full swing. Witches, vampires, and mystical creatures roamed the terminal. It was a quirky intro to our new home.
Upon our arrival, a representative from an immigrant aid organization awaited us, our names scribbled on a placard he held. Gratefully, we followed him to what would become our first Canadian home, a modest one-bedroom apartment in a somewhat timeworn high-rise on Marlee Avenue. This street, served as a melting pot for immigrants from Eastern Europe, the Caribbean, and other parts of the world. I would later learn that Marlee Avenue stood as a bridge between two starkly contrasting worlds: the gritty and vibrant Little Jamaica and the opulent enclave of Forest Hill, where many wealthy Jews lived because for years they had been kept out of Rosedale, a tony downtown neighborhood populated by Toronto WASPs (White Anglo-Saxon Protestants).
In the initial weeks in our Toronto apartment, the echoes of our conversations bounced off the bare walls, filling the otherwise empty space. Our sole possession was a queen-sized mattress that became my mother’s and my shared sanctuary every night. As we scoured the city for affordable furniture and essentials, my mother’s gaze often betrayed her worries about my transition to this foreign land.
While I was generally adept at grasping new skills quickly, English was not among them. One evening, my mother presented a Harvard research paper she’d stumbled upon. It emphasized that children could attain fluency in a new language if immersed in it completely before turning eleven. I was on the brink—just four months shy of that pivotal age. So my mother made a challenging decision: I would speak English, and only English, even at home. The initial weeks were fraught with frustration, as I struggled to express myself in the most basic of ways. But soon enough, I could form coherent sentences, and things developed from there.
The following year, I transitioned to a middle school nestled in posh Forest Hill. Here, an evaluation for their gifted program yielded a conundrum: my math results were impeccable, but my English scores, although vastly improved, still narrowly missed the mark. Distressed, my mother made an impassioned plea to the principal: “You must let her in. She deserves this.” Moved by her earnestness, the principal conceded.
