It opened with “loans for shares” auctions in the autumn of 1995 that did much to discredit even more the market reforms and Chubais as one of its main architects in the eyes of the Russian public. Under the pretext of an urgent need to raise money for the state budget, the last “heirlooms” of the Russian state sector were transferred into the hands of a few well-connected individuals.

The scheme was simple: the state transferred into temporary ownership of major commercial banks its controlling interests in attractive companies, such as Norilsk Nickel and major oil companies. In exchange for state shares, the banks were to give loans to the government to finance budgetary expenses. After an agreed period of time, the government had to return the loans to the banks; failing that, the state shares would become the property of the lenders.

To implement this scheme, dubious auctions were set up, at which valuations of state shares were set very low and only the bankers close to the government were allowed to bid. As a result, they gained control over state holdings in lucrative companies. As it turned out, the government had no intention to repay the loans, and the money-spinning enterprises were forfeited to the so-called oligarchs.

The “loans for shares” auctions were ostensibly designed to salvage the government’s budget, but they turned out to be a ploy that allowed the privatization of lucrative companies in circumvention of the parliament’s ban on the sale of state shares in such companies. The auctions boosted the oligarchs’ powerful economic structures, which now included oil companies, mines, and smelters, as well as vast holdings in the banking sector.