Driven by his ever-growing animus toward the United States, Vladimir Putin is using the global financial crisis as yet another opportunity to fire a rhetorical shot at America. “This is not the irresponsibility of some people but the irresponsibility of the system, which as it is known, claimed to be the leader,” the Russian Prime Minister said in a speech late last month. Dmitri Medvedev, Putin’s handpicked presidential successor, seconded his mentor’s sentiments.  “The times when one economy and one country dominated are gone for good,” he declared at a conference is St. Petersburg.

So unseemly was the Russians’ schadenfreude that even the New York Times felt compelled to observe: "While it is hardly a new sentiment, in Russia there is a gloating quality, as the American crisis deepens." But even as Putin and his friends take delight in America’s difficulties, their own markets are going down the drain – so much so that at the end of last week Russian stocks were down more than 75 percent from their all-time high earlier this year.

To be sure, part of that plunge can be explained by the global financial turmoil that has affected every economy in the world. The Russian losses, however, have far exceeded those of other countries. On Friday last week, for example, when world markets were up 2-3% on average, the Russian bourse fell by 5%. This followed the double-digit drop the day before which was only halted when trading was suspended in mid-session. That was the third market shutdown in four days. By the end of that week, Russian equities had lost two thirds of their value in less than six months.

Things could have been even worse had it not been for the suspensions and frantic stock buying by the Kremlin in an effort to prop up the price. That means that as far as investors are concerned, shares of Russian businesses are close to worthless.

This says a great deal, especially since more than half of Russia’s publicly traded companies are either directly or indirectly involved with extraction and processing of valuable commodities. These include not only oil and gas, but also other natural resources and raw materials such as nickel, coal, wood, iron ore, aluminum, and gold. Given the extraordinarily low valuations of these businesses, one would expect to see investors moving in to grab the bargains. But there are few takers for now, and understandably so.

Rampant corruption, all-pervasive bureaucracy, complex regulations, an arbitrary judiciary, and a belligerent foreign policy do not make for an investment-conducive environment. But what scares investors most is the Kremlin’s looting of the private sector. Once the Kremlin targets a company as undesirable there is not much that can be done. Undue resistance and protestations by the owners can easily culminate in jail time. Earlier this year, media magnate Rupert Murdoch pointedly addressed this point:

“We have great growing business there [in Russia] but…the more I read about investments in Russia, the less I like the feel of it. The more successful we’d be, the more vulnerable we’d be to have it stolen from us, so there we sell now.”

Because of Russia’s unhealthy condition, investors began fleeing even before the credit crunch arrived. Russia was, in fact, already experiencing an outflow of private capital in January of this year. The hemorrhaging gained strength in the wake of the Russo-Georgian war in August when billions flowed out within weeks. Contrary to the claims of the Kremlin’s defenders, the seizure of the global credit markets was not the cause of the country’s equities fiasco; it merely exacerbated the problems endemic in the Russian system.

Like all totalitarians, Putin and his henchmen thought they could get away with their corruption. But there is always recoil to wrongdoing and now they are reaping the fruits of their misconduct. Even as we speak, the troubles in the financial and equity markets are inexorably spilling into the wider economy. Jobs are being cut as companies go under and many small retailers are closing shops. There is a general sense that something is not right and people are beginning to hoard food and withdraw cash. The perpetually tried Russian citizenry may get hit hard once again. If this happens, murmuring and discontent will set in. Marshall Goldman of Harvard University's Davis Center for Russian and Eurasian Studies thinks that Russia may be in for some serious socio-political tumult. "If oil prices continue to drop, there could be political unrest because all this prosperity and self-assurance we have seen [under Putin] will disappear," he said recently.

So far Putin has refused to acknowledge that there is a problem. Even as the Russian stock market crashed, the state-controlled media focused their coverage on the United States and other western democracies. But if events continue along the downward incline, Putin will eventually have to give account. No doubt he will blame everything on America, but shifting responsibility on someone so far away has only limited usefulness when jobs get scarce and bread too expensive.

Notwithstanding the hopes of some, the current regime is not about to fall apart. Thanks to the Kremlin’s vast oil-fed cash reserves – over $500 billion – the clique in power has enough cushion to weather this storm. The question is whether they will learn their lesson. Given their hubris and past record, it is not very likely. In fact, the present turmoil may only further cement their errant ways. Nikolai Petrov, an expert with the Carnegie Center in Moscow, certainly thinks so:

“A huge redistribution of property is taking place due to the crisis. The political elites in the Kremlin are sure now that they've been right all along about the need for greater state control, and believe that even the West is now coming around to their point of view.”

Moscow’s rulers even have a euphemism for their authoritarianism calling it “Kremlin capitalism.” Accordingly, most of Russia’s recent rescue package has gone to state-controlled companies. Topping the list are the giant gas monopoly Gazprom and the state oil firm Rosneft. Other state firms that produce “strategic goods” such as aircraft and weapon systems are being given priority.

Oleg Buklemishev, chief analyst for MK Analytica and a former economic official in the government cautions against the dangers inherent in such “rescue” efforts. “Putin has re-nationalized key industries and expanded the state's role in the economy, but the state sector remains corrupt and inefficient, and the emergency measures will result in the state controlling even more,” he warned.

Yevgeny Gavrilenkov, an analyst with Troika Dialog, a Moscow-based investment bank puts an exclamation mark on this point: “It's understood that the state will first support its own companies. In Russia, the state is a megaoligarch.”

If Putin keeps pursuing his statist approach, there will inevitably be more crises ahead, each one worse than the one before. Sooner or later his government will run out of reserves and there will be no more cash to keep the faulty ship afloat. The sudden collapse of the Soviet regime is still vivid in the memory of the Russian people. Should things get too painful, they will begin to wonder whether the present regime does not deserve the same fate. And this would certainly not be good news for Mr. Putin and his friends.