The latest capers to hit the world economy flicker across the screen in the lobby of the former noblemen's palace. The Moscow Stock Exchange has dropped by 19 percent. It has lost 66 percent of its value since its all-time high in May. No other major stock market has been so severely affected by the financial crisis since then. Russian banks are also ailing, and the expansion of large Russian companies has come to an end.

Alexander Lebedev strolls into the reception room with a broad smile on his face. He is something of an oddball among Russian oligarchs, with his black jeans, black tennis shoes and a black leather vest over a white shirt. Lebedev, who Forbes estimates is worth $3.1 billion (€2.26 billion), holds a stake in Aeroflot, has transformed the National Reserve Bank into a flourishing business that even appears to be liquid today, and owns the newspaper Novaya gaseta, which is often critical of the government. He has also invested in Germany, where he owns 48 percent of the airline Blue Wings and plans to buy a 76-percent stake in Öger Tours, a travel agency.

In the United States, newspapers like the New York Times have reported that the oligarch has lost half of his fortune in recent weeks. He laughs and says: "Well, their calculations are wrong. For many years, I have been investing more in factories than in the market." He shrugs off the crisis. For Lebedev, a former KGB man turned wealthy investor in the years of capitalist excess under former President Boris Yeltsin, crises are a good thing.

"We have a stock market crisis in Russia, but not an economic crisis," he says cheerfully. Lebedev attributes this to the relatively stable ruble, which owes its stability mostly to the €380 billion in foreign currency reserves that the Russian treasury has left over now that the government has spent €65 billion to bail out the country's banks.

Czarist aristocrats used to live in his palace when they were in the city. There are no folders on the desk in Lebedev's upstairs office, where he keeps track of plunging markets on all continents. The newspapers are reporting that two of his competitors among the oligarchs, Mikhail Fridman and Pyotr Aven, are having trouble servicing a $1.5 billion loan with Deutsche Bank. Oleg Deripaska, an aluminium magnate believed to be Russia's richest man, has been forced to return his debt-financed share of Canadian automotive supplier Magna, worth billions, to the bank.

Lebedev remains in good spirits. "The oligarchs have lost money in the stock market? No problem," he says. They are slipping a few notches down the rankings of the world's billionaires? Then, says Lebedev, they should reconsider their next purchase of a yacht, a palace or a private jet.

The world economic crisis? A piece of cake for the government and for Russia. Capitalism, according to Lebedev, is loud confusion in the markets in Europe, North America and Asia -- that is, other parts of the world. Things are different in Russia. The Kremlin has instructed the country's three leading television networks not to use expressions like financial crisis or collapse in their analysis of conditions in Russia.

It is disturbing to see a country like Russia act as though the crisis in the global economy were passing it by like a mild autumn storm. This strange ignorance probably has to do with the fact that Prime Minister Vladimir Putin truly believes that the country's abundant natural resources and vast foreign currency reserves have made Russia immune to this virus, which is jumping from continent to continent, bearing down on one country after the next, triggering plunging stock markets and causing the biggest banking crisis that the world has seen since 1929 and the world economic crisis.

The men who sought to fashion China into a world power, first economically and then politically, probably entertained similar illusions. But global capitalism means that a major crisis can pull everyone into the abyss.

Part of the irony of the free-floating crisis is the idea that economic systems are slowly becoming more alike. Government capitalism is already a reality in Russia and China, and now Great Britain and America, the birthplaces of free enterprise, are flirting with mixed economy models as they nationalize some banks and economic sectors. Meanwhile, other countries in the West are poised to perform similar emergency operations. The crisis has been especially dire in the small island nation of Iceland, where the government is taking over the financial sector and faces the prospect of national bankruptcy, a first in postwar history.

Wall Street brokers have a saying that aptly describes the reversal of conditions: "The West is down and the state is up."

The International Monetary Fund (IMF) offers an insight into this depressing trend. According to its assessment, the worst phase of the escalating crisis is still ahead. IMF experts predict that a number of industrialized nations will either experience minimal growth or fall victim to a recession. Even worse, says the IMF, the real economy -- the companies that produce goods or provide services -- will not feel the full brunt of the crisis until later on. No one dares to speculate what this could mean for consumption, unemployment and pensions.

The downturn, the IMF writes in a study on the condition of nations, will affect the whole world. In fact, it already has. However, the consequences for growth will vary. In the most advanced industrialized nations, a best-case scenario puts growth at between zero and two percent. Growth is likely to decline from almost 12 to eight percent in China, from 5.5 to 3.5 percent in Brazil and from eight to five percent in Russia.

Consistent with this gloomy picture is the fact that, by the end of last week, the desperate efforts of governments had been relatively ineffective. They had done everything but bring calm to the major securities exchanges in New York, London, Tokyo and Frankfurt. Global companies like Chrysler, Ford and Daimler were suddenly up for grabs for next to nothing.

The big unknowns in this frenzied game are the financially sound sovereign wealth funds in China, Singapore and the Persian Gulf. They can invest now or wait for prices to fall even further. They are the global players whose thoughts and plans could prove to be critical.

The crisis has unleashed a political revolution that is sending shock waves around the globe. With its economy weakened, the rate of the US's relative decline as a superpower is accelerating as the country gradually loses its dominant position . Should China, India and Russia emerge from the global crisis relatively unscathed, the center of the world economy will in fact shift to the East in the 21st century. Asia will become synonymous with growth and the West with debt.

Last week seven central banks, including those of the United States, the European Union and China, attempted to bring rationality into the careening financial markets, hoping to soften the effects on the real economy. They lowered interest rates to create confidence. A similar thing happened after Sept. 11, 2001. Just as the towers of the World Trade Center collapsed more than seven years ago, a few pillars of the world economy could be collapsing today.

The Gulf states are the epitome of a booming region. They produce about 25 million barrels of crude oil a day. The United Arab Emirates (UAE) is earning money hand over fist. In 2007, with an average oil price of $69 a barrel, UAE revenues amounted to $63 billion and, with oil currently at about $100 a barrel, 2008 revenues are likely to be even higher. The sovereign wealth funds in the UAE and Saudi Arabia manage about $1.2 trillion in combined assets. The Abu Dhabi Investment Authority controls a portfolio worth $875 billion, making it the world's richest sovereign wealth fund. Its headquarters are in a 38-story glass tower designed to evoke the gentle waves of the Gulf and the sand dunes of the Arabian Desert.

According to the financial blog Global EconoMonitor, it is hard to tell exactly what makes up these funds, which stock and capital markets they focus on and in which currencies they speculate.

The funds and financial institutions in the Persian Gulf region are oriented primarily toward the domestic market. Few banks had ties to the investment bank Lehman Brothers, for example. Nevertheless, stock prices have also dropped considerably on the Abu Dhabi and Dubai exchanges, as the bear markets in Asia, Europe and North America have spilled over into the Gulf.

The indirect consequences of the crisis are gradually becoming apparent. Foreign investors have withdrawn capital needed elsewhere. International banks are withholding the loans needed to fund the region's giant construction projects, which are either underway or in the planning phases -- and worth $2.3 trillion. An estimated $158 billion was lost in the stock markets throughout the Gulf. "The Gulf states have enough reserves to offset turbulence," says Eckart Woertz, chief economist at the Gulf Research Center. "Only Dubai is in a bad position. Dubai has no money and has to borrow."

Unlike Abu Dhabi, Dubai is financing its luxury high-rise buildings, shopping malls and new urban neighborhoods with loans, often using what a banker calls the "quick-flip model:" a 10 percent down payment before ground is broken, 10 percent when construction begins, 10 percent at the topping out ceremony and the rest when the project is complete. All of this is money borrowed from banks, and the loans are secured by other real estate built with similar funding. "The day could come when the sheikhs of Dubai turn up at the doors of their oil-rich neighbors in Abu Dhabi and ask for money," says Woertz.

The Downturn Hits Asia

The temporary zenith of the global crisis last week coincided with the awarding of the Nobel Prize in Physics in Stockholm. Three scientists from Japan and the United States received the award for developing a theory that could almost be read as a commentary on current events. The theory relates to broken symmetry and the lack of equilibrium in subatomic physics -- in other words, the imperfections in which life originates. "Our world represents a broken or incomplete symmetry," says US physicist Heinz Pagels, explaining the principle.

For far too long, Japan and China clung to the illusion that broken symmetry and lack of equilibrium were problems of the West, and that they did not affect Asia, because it had disconnected itself. But those days are gone. Last week, Tokyo newspapers printed special editions to inform passersby that Japan's Nikkei Index had suffered the third-biggest percentage loss in its history. In Seoul and Shanghai, incredulous traders and investors watched their monitors as prices plunged, wiping out entire fortunes. In Jakarta, the stock market was so flooded with sell orders that trading had to be suspended temporarily.

Toyota, the world's largest automaker, provides an example of how severely the crisis is affecting Japanese industry. Toyota is a truly global corporation, boasting more than 500 subsidiaries and about 300,000 employees. In the United States, its largest market, the company recently shut down assembly lines in several plants. Following a year in which sales reached $230 billion, profits this year are likely to drop by fully 40 percent.

Japan, in fact, has already endured its own banking and real estate crisis. What happened in Japan in the 1990s is happening, in more severe form, internationally today. In Japan, companies and private citizens borrowed money at low interest rates to buy stocks and real estate. But the entire model collapsed when the central bank raised interest rates, first leading to a stock market crash and then an implosion in the real estate market. The state pumped billions into the market, just as governments are doing today, and quickly brought interest rates back down. But none of this was effective because, for a long time, the government neither allowed the banks to fail nor nationalized them.

It took 10 years for the bad loans to be paid off and for stagnation and deflation to finally come to an end. After mergers, only three of the 21 large commercial banks remained in business. Recently Nomura Securities, now streamlined and debt-free, was able to acquire significant parts of the failed investment bank Lehman Brothers.

The growing global crisis is catastrophic for the Japanese economy, which is in the process of sliding into recession. In Tokyo, 217 companies went out of business in September alone. The country's dependence on exports has been especially problematic, given the sharp decline in demand in markets for Japanese products in the United States and Europe.

Because of the financial crisis, investors are exchanging euros and dollars for yen. This increases the value of the yen, especially against the dollar, making Japanese exports more expensive. The effect was quickly felt on the stock market, which saw sharp declines in the stock prices of Japanese companies that rely heavily on exports.

Japan is currently the largest lender to the United States, followed by China. Ironically, its central bank is among the world's largest investors in the US mortgage banks Fannie Mae and Freddie Mac. The Bush administration bailed out the two traditional lenders, which were created to provide ordinary citizens with low-interest mortgages to finance their houses, by quickly nationalizing them. Rumor has it that US President George W. Bush called the Chinese leadership to explain exactly what he planned to do to prevent the two mortgage giants from going under.

One of the great mysteries of the day is whether and to what extent the Chinese Communist Party exerted pressure so that its shares in Fannie Mae and Freddie Mac would not be lost. China is an important power, even in the United States, where it has an estimated one-third of its $1.7 trillion in foreign currency reserves invested in US treasury bonds.

Lou Jiwei, a shy bureaucrat with carefully parted hair and thin-framed glasses, looks like the typical Chinese party official. The head of the CIC sovereign wealth fund, Lou spent $5 billion to buy a stake in Morgan Stanley, the venerable US investment bank. He also spent $3 billion on shares in the Blackstone hedge fund.

CIC is funded with the country's foreign currency reserves and is under government control. Through a special investment arm, the fund controls most domestic state-owned banks, helps them pay off bad loans and prepares them to become publicly traded companies. The CIC is a huge, mysterious octopus, and no one knows exactly how high its profits and losses in the US market are.

When the American real estate market collapsed and the crown jewels were suddenly to be had for bargain-basement prices, the communist CIC reacted like a shrewd capitalist. But then the markets dropped precipitously, as they continue to do, suggesting that both the CIC and other Chinese investors must have lost vast amounts of money. Morgan Stanley capitulated and had to give up its special status as an investment bank. Blackstone is now worth less than half as much as it was a year ago.

On the one hand, China is already an important force in America today, and the recovery of the financial markets also depends on whether the CIC -- or the central bank or the China Development Bank -- will support this course or allow it to crash. On the other hand, China is deeply involved in the crisis of capitalism -- in for a penny, out for a pound. One can only guess how closely today's and tomorrow's superpowers are cooperating in this crisis, both of them acting out of pure need and self-interest.

Last Wednesday, President Hu Jintao honored the heroes of the May earthquake in Sichuan Province at the Great Hall of the People in Beijing. It was the usual ostentatious ceremony, in which the party celebrates the people but in reality is celebrating itself. At the same time, Hu sounded as though he were preparing his people for tough times ahead.

Judging by the green display panels at the Shanghai Stock Exchange, hard times have already arrived. The key index has lost close to two-thirds of its value. China's GDP is expected to grow by only eight percent in 2008, a figure Western capitalists can only dream about. But it had China's economic reformers alarmed, because they must provide 10 million migrant workers with jobs each year.

'Most of us Are in the Red'

Jack Ma is one of China's most successful Internet entrepreneurs. He runs a sort of clearinghouse for small and mid-sized companies on his Web site Alibaba. He's not optimistic. "It seems clear to me that there will be a sharp drop in exports to the United States," he says. "Winter is coming, and it could be a cold one."

Carlos Slim, a Mexican entrepreneur and multibillionaire, is the world's second-richest man. He owns banks and investment houses, insurance companies and mining operations, construction and automobile companies, a mobile phone business and restaurant chains. "This is going to last for a few years," he says, commenting laconically on the crisis. Slim believes that countries with large foreign currency and gold reserves will be better off than those that are intricately tied in to the US economy, like Mexico and Canada, which send most of their imports across the border. Part of the healing process, according to Slim, will be to strengthen domestic markets and reduce dependency on exports.

Brazil is in a comparatively strong position, because the bulk of its exports go to Europe, China and Latin America. It is an emerging economy with abundant natural resources, like China, India and Russia, and it is now blessed with a government that understands how to use the country's strengths to turn a profit. Gone are the days when Brazil was "not a serious country," as Charles de Gaulle is once believed to have said in the heat of the moment. If all goes well, Brazil will remain on track to become part of the elite circle of advanced industrialized nations.

Are things going well for Brazil? Because the major banks have not incurred significant debt with risky investments abroad, Brazil has remained more or less immune to the enormous upheaval in the financial markets. Nevertheless, the stock market in Sao Paulo has suffered, with the market index declining by 15 percent since early October. As in Russia, trading in Sao Paulo has been temporarily suspended several times. A handful of mid-sized and smaller banks are faltering. Domestic and international investors have taken refuge in the American currency. "The market for dollars has been swept clean," the owner of a currency exchange in Rio de Janeiro complains.

The Brazilian currency, the real, has lost one-third of its value within one month. Last week the government of President Lula da Silva sold, for the first time in five years, a portion of its foreign currency reserves of about $200 billion. Brazil is also drifting back into inflation, a nightmare from the 1980s. Imported goods, from cars to electronics, are becoming more expensive, and the price of bread is rising because wheat is imported at dollar prices. The Brazilian economy is expected to grow by 3.5 percent in 2009.