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There is a cynicism in the relationship between Russia and the US, being played out in the Crimean crisis, which is deep, rooted in history and shows that the triumph of capitalism over communism wasn't the end of the power game between these two nations.

The depth of mistrust between the two was highlighted in the interview given by Hank Paulson, the former US treasury secretary, for my recent BBC Two documentary, How China Fooled The World.

The excerpts I am about to quote never made it into the film, because they weren't relevant to it. But they give a fascinating understanding of the complex relationship between Washington and Moscow.

Mr Paulson was talking about the financial crisis of the autumn of 2008, and in particular the devastation being wreaked on Fannie Mae and Freddie Mac, the two huge underwriters of American mortgages - huge financial institutions that had a funny status at the time of being seen by investors to be the liability of the US government, which in legal reality were not exactly that.

Start Quote

This person told me that the Chinese had received a message from the Russians which was, 'Hey let's join together and sell Fannie and Freddie securities on the market'”

End Quote

Here is Mr Paulson on the unfolding drama:

"When Fannie Mae and Freddie Mac started to become unglued, and you know there were $5.4tn of securities relating to Fannie and Freddie, $1.7tn outside of the US. The Chinese were the biggest external investor holding Fannie and Freddie securities, so the Chinese were very, very concerned."

Or to put it another way, the Chinese government owned $1.7tn of mortgage-backed bonds issued by Fannie Mae and Freddie Mac, and it was deeply concerned it would incur huge losses on these bonds.

Mr Paulson: "I was talking to them [Chinese ministers and officials] regularly because I didn't want them to dump the securities on the market and precipitate a bigger crisis.

"And so when I went to Congress and asked for these emergency powers [to stabilise Fannie and Freddie], and I was getting the living daylights beaten out of me by our Congress publicly, I needed to call the Chinese regularly to explain to the Central Bank, 'listen this is our political system, this is political theatre, we will get this done'. And I didn't have quite that much certainty myself but I sure did everything I could to reassure them."

In other words, China had lent so much to the US that Mr Paulson needed to do his best to persuade its government and central bank that China's investment in all this US debt would not be impaired.

Hank Paulson Former US treasury secretary Hank Paulson

Now this is where we enter the territory of a geopolitical thriller. Mr Paulson:

"Here I'm not going to name the senior person, but I was meeting with someone… This person told me that the Chinese had received a message from the Russians which was, 'Hey let's join together and sell Fannie and Freddie securities on the market.' The Chinese weren't going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship [the rescue plan for them, that was eventually put in place]."

For me this is pretty jaw-dropping stuff - the Chinese told Hank Paulson that the Russians were suggesting a joint pact with China to drive down the price of the debt of Fannie and Freddie, and maximize the turmoil on Wall Street - presumably with a view to maximizing the cost of the rescue for Washington and further damaging its financial health.

Paulson says this guerrilla skirmish in markets by the Russians and Chinese didn't happen.

But this kind of intelligence from China on Russian desire and willingness to embarrass the US in a financial sense may help to explain - in a small way - why President Obama shows little desire to understand Crimea as seen by Mr Putin.

And maybe if the US is being a bit more robust than the EU in wanting to impose economic and financial sanctions on Russia, that may not all be about America's much lesser dependence (negligible dependence) on Russian gas and oil.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 370.

    peston has another shot at a JP Morgan corner office next to flanders. Look, theres its one thing pitching for a job but who asked you to do play your small part in engineering WW3.

    Perhaps peston should have instead asked paulson why his alma mater Goldman Sachs drove AIG into a ditch with its toxic CDO's got the US govt to backstop the crime with the tarp money then covered the whole thing up.

  • rate this
    +1

    Comment number 369.

    Money is the root of all evil.Where did I hear that?What happened to the respect of morals?Everything, today, is simply reduced to 'lucre'.History has shown time, and again, that most physical Wars were made through greed.The desire to own another Country, and it's spoils.(Foot soldiers got what was left).Nothing, but nothing, has changed.The invasion of Iraq and Crimea? Same only less bloodied.

  • rate this
    0

    Comment number 368.

    margaret howard @366

    A divided world cannot consign to "myth" the temptations from mixed motivation. We can't be sure where emphasis will lie in mainly-happy Crimea and mainly-happy Russia, between repatriation of 'threatened' Russian speakers and re-building of splintered Russian security. Time being of the essence, why not savour success: but will more be craved by a people all made 'hungry'?

  • rate this
    0

    Comment number 367.

    "A proposal to end the criminal offence of failing to buy a TV licence is being considered for inclusion in a bill before Parliament"
    ==

    Might just have something to do with the apparently very obedient BBC reporting on such subjects as this.

  • rate this
    +1

    Comment number 366.

    365 Paul


    "his next move will be his "Sudetenland" - Eastern Ukraine.
    Some of you people should read a history book"

    It's a myth that one will follow another.
    Are we going to resurrect the British Empire again?

    As *361 says the referendum was supervised independently and declared fair.

    Is England going to do the same if the Scottish referendum doesn't go the way it wants?

  • rate this
    -1

    Comment number 365.

    If you think of Russia's invasion of Crimea as Putin's Anschlüss, then his next move will be his "Sudetenland" - Eastern Ukraine.

    Some of you people should read a history book.

  • rate this
    +2

    Comment number 364.

    UK / US Governments supported most of the 'Arab Spring' uprisings and also the recent 'protests' in Ukraine, leading to another regime change.
    But when Russia supports a similar process in Crimea, that becomes a heinous action?
    And isn't the Ukraine bankrupt, so not eligible for EU membership anyway?
    As so many people are saying - let's sort out our own problems first.

  • rate this
    +1

    Comment number 363.

    what's wrong with Crimea having self determination? This is what the UK has been backing in the African Spring. Sadly the West don't know how to handle this situation so do the usual thing of lots of words and posturing

  • rate this
    +3

    Comment number 362.

    305.U14334741
    Billy "14-pints" Hague has been sabre-rattling again today I see. Sometimes I think this is the most dangerous man the UK has known since Hitler. Determined to have his named etched in history through war. Libya, Syria now Crimea
    ~
    Most ineffective FS I can think of in last 30yrs. Should be sacked.

  • rate this
    +3

    Comment number 361.

    341.namdam13

    17th March 2014 - 21:07

    Those of you who say this was a fair referendum seem to miss two facts that make it undemocratic.
    ---

    There were hundreds of neutral observers such as MEPs there and they said it was 100% compliant. Of course BBC won't report these.

  • rate this
    0

    Comment number 360.

    Simply summed up as .......

    Payback Time!

  • rate this
    +2

    Comment number 359.

    #358 MH

    --Accept your losses and run --is sometimes the best decision.

  • rate this
    +2

    Comment number 358.

    345 Dragon

    "AH annexed the Sudetenland - look where that led when we did nothing"

    And look where it led after we did - millions killed, millions more displaced and stateless

    Stalin murdered his own people and millions disappeared into the gulag

    Europe ruined, French and British empires dissolved and the rise of two superpowers who threatened the world with nuclear annihilation

  • rate this
    +2

    Comment number 357.

    The suggestion that getting nations intertwined with trade will prevent wars appears to be true.

    Any sanctions against others -- strangles yourself.

    -- that trade prevents national suicide has not yet been evaluated.

  • rate this
    +2

    Comment number 356.

    Hmmm blame Russia at an opportune time

    More Cold War rhetoric.


    If the US/any country doesn't want to be financially dependent on another country then perhaps it's time to change strategy

  • rate this
    +2

    Comment number 355.

    I was under the impression that the main effect of Mr. Paulson's actions was to keep his ex-employers at Goldman Sachs out of trouble.

  • rate this
    +2

    Comment number 354.

    Do we really care what Hank Paulson thinks?

  • rate this
    +2

    Comment number 353.

    Hague

    "We are witnessing a clear attempt to pave the way for the annexation of part of the sovereign territory of an independent European state..."

    With the UK and Hague wanting ´our sovereignty back´

    -- he should make up his mind --or shut up and leave the EU.

  • rate this
    +1

    Comment number 352.

    339.
    ClementT
    "Maybe it would have been better for the world if China and Russia had carried out their plan to break Wall Street & the dollar."

    If sanctions upset Putin he could dump the US dollar as Russia's secondary currency and work with China, Iran and BRICS to crush the PetroDollar.

  • rate this
    +1

    Comment number 351.

    Crimea is lost to Ukraine -- If Putin´s speeches from 2001 and 2007 (at the German Bundestag and Munich) were really meant --now is the time to discuss them.

    The West must choke on its ´Nato Pride´and the EU must only do what its Treaties say and respect the original ideal.

    -- we are now beggars -- and not the ´Hubris filled´ choosers the USA, UK and NATO have projected.

 

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