Michael Lewis possesses the rare storyteller’s ability to make virtually any subject both lucid and compelling. In his new book, Boomerang, he actually makes topics like European sovereign debt, the International Monetary Fund and the European Central Bank not only comprehensible but also fascinating — even, or especially, to readers who rarely open the business pages or watch CNBC. The book could not be more timely given the worries about Europe’s deepening debt crisis and the recent warning issued by Christine Lagarde, managing director of the IMF, that “the current economic situation is entering a dangerous phase.”
Combining his easy familiarity with finance and the talents of a travel writer, Mr Lewis sets off in these pages to give the reader a guided tour through some of the disparate places hard hit by the fiscal tsunami of 2008, like Greece, Iceland and Ireland, tracing how very different people for very different reasons gorged on the cheap credit available in the prelude to that disaster. The book – based on articles Mr Lewis wrote for Vanity Fair magazine – is a companion piece of sorts to The Big Short: Inside the Doomsday Machine, his bestselling 2010 book about the fiscal crisis. It hands the reader a small but sparkling prism by which to view the debt crisis, this time from a global perspective.
Mr Lewis explains why the world is so worried that Greece could default: “If Greece walks away from $400 billion in debt, then the European banks that lent the money will go down, and other countries now flirting with bankruptcy” might easily follow, destabilising regional and world economies further. He also explains why taxpayers in Germany – the euro zone’s largest economy, with resources critical to a rescue plan – are reluctant to keep bailing out other countries they regard as profligate, indolent and irresponsible.
This is why, Mr Lewis writes, “European leaders have done nothing but delay the inevitable reckoning, by scrambling every few months to find cash to plug the ever growing holes in Greece, Ireland and Portugal, and praying that bigger and more alarming holes in Spain, Italy and even France do not reveal themselves”.
How did this situation develop? In Boomerang Mr Lewis captures the utter folly and madness that spread across both sides of the Atlantic during the last decade, as individuals, institutions and entire nations mindlessly embraced instant gratification over long-term planning.
Greece, Mr Lewis writes, ran up astonishing debts – from high-paying government jobs and generous pensions, as well as waste, bribery and theft – that came to “about $1.2 trillion, or more than a quarter-million dollars for every working Greek”.
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In the prelude to the 2008 economic meltdown, Mr Lewis reports, British investors, lured by the prospect of 14 per cent annual returns, “forked over $30 billion” to dubious Icelandic banks (“$28 billion from companies and individuals and the rest from pension funds, hospitals, universities and other public institutions”). And property-related bank losses in Ireland, according to one Irish economist cited by Mr Lewis, now come to roughly euro 106 billion; and since, Mr Lewis says, a “handful of Irish politicians and bankers had decided to guarantee all the debts of the biggest Irish banks,” those losses “alone would absorb every penny of Irish taxes for the next four years.”
At times Mr Lewis can sound a lot like Evelyn Waugh: shrewd, observant and savagely judgmental, dispensing crude generalisations about other countries, even as he pokes fun at himself as a disaster tourist. He asserts that Icelanders “have a feral streak in them, like a horse that’s just pretending to be broken” and suggests that Germans are “obsessed with cleanliness and order yet harbor a secret fascination with filth and chaos” which is bound to result in “some kind of trouble”. He is toughest on his fellow Americans, concluding that the 2008 economic meltdown stemmed in large part from “people taking what they can, just because they can, without regard to the larger social consequences”.
“Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom,” he goes on. “They’d been conditioned to grab as much as they could without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.”
In The Big Short Mr Lewis focused around a handful of investors who were aghast at how the dangers of the subprime mortgage market were being ignored by bank executives and government regulators, and who used their prescience to make a fortune betting against the stability of the system.
In the course of Boomerang Mr Lewis introduces us to other, “disturbingly prescient” people, like Morgan Kelly, a professor of economics at University College Dublin, who began noticing in 2006 that something seemed seriously out of whack with the Irish housing market. He also foresaw the collapse of Irish banks.
Among the other intriguing individuals in this volume there’s Stefan Alfsson, an Icelandic fisherman who in 2005 quit fishing and joined the stream of young people becoming bankers, setting himself up as “an adviser to companies on currency risk hedging” — without a day of training. And there are some canny Greek monks who built a vast real estate empire that set off a scandal that Mr Lewis says helped bring down the government of Prime Minister Kostas Karamanlis in October 2009.
Mr Lewis’ ability to find people who can see what is obvious to others only in retrospect or who somehow embody something larger going on in the financial world is uncanny. And in this book he weaves their stories into a sharp-edged narrative that leaves readers with a visceral understanding of the fiscal recklessness that lies behind today’s headlines about Europe’s growing debt problems and the risk of contagion they now pose to the world.
©2011 The New York
Times News Service
BOOMERANG
Travels in the New Third World
Michael Lewis
W W Norton & Company
213 pages; $25.95
