Boomerang: Travels in the New Third World by Michael Lewis. W.W. Norton & Co, 2011.
Have you ever had the feeling that you’ve been going about your daily life, paying the phone bill, making dinner, and one day you look up and find all hell has broken loose? The U.S. government is bailing out banks, people are losing their homes, Iceland is bankrupt, Ireland is in crisis…. Really? Don’t they fish in Iceland? Wasn’t Ireland booming just the other day? If you have felt a bit dazed by it all, Boomerang is the book for you.
In Boomerang, Michael Lewis visits five regions hard hit by the financial crisis of 2008 and offers the reader some insight into just what has been going on over the last few years. The roots of the crisis can be traced to cheap credit. As Lewis tells it, a tsunami of cheap credit rolled across the planet between 2002 and 2007.
It offered entire societies the chance to reveal aspects of their characters they could not normally afford to indulge. Entire countries were told, “The lights are out, you can do whatever you want to do and no one will ever know.” What they wanted to do with money in the dark varied. Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak. Icelanders wanted to stop fishing and become investment bankers, and to allow their alpha males to reveal a theretofore suppressed megalomania. The Germans wanted to be even more German: the Irish wanted to stop being Irish. All these different societies were touched by the same event, but each responded to it in its own peculiar way. No response was as peculiar as the Greeks’, however.
In five engaging chapters, Lewis reports on Iceland, Greece, Ireland, Germany and America as represented by California. He begins with Iceland. I found it just amazing to read of how this tiny country suddenly became a major player in the world of high finance. Young men with little knowledge of investment banking became ‘experts’ virtually overnight and played with vigour…right up until the stock exchange collapsed. Perhaps I find the attraction of investment gambling hard to grasp because I am a woman. Lewis notes:
One of the distinctive traits about Iceland’s disaster, and Wall Street’s, is how little women had to do with it. Women worked in the banks, but not in the risk-taking jobs. As far as I can tell, during Iceland’s boom, there was just one woman in a senior position inside an Icelandic bank. Her name is Kristin Petursdottir, and by 2005 she had risen to become deputy CEO for Kaupthing (bank) in London. “The financial culture is very male-dominated,” she says. “The culture is quite extreme. It is a pool of sharks. Women just despise the culture.”
Petursdottir quit her job in 2006 and started her own financial services business run entirely by women to bring, as she puts it, “more feminine values to the world of finance.” They’re doing fine, thanks, one of the few profitable financial services left in Iceland.
From Iceland, Lewis moves on to Greece and looks at their failed equation: Too much money moving out of government coffers, too little coming in. While government workers enjoy lush incomes and pensions, tax fraud is rampant. There are laws that make cheating the government of more than 150,000 euros a jailable offense, but they’re not enforced.
From Greece, it’s on to Ireland, where housing developers enjoyed a building boom that resulted in plentiful construction jobs and endless square feet of office space and housing units standing empty. When the bubble burst, the government picked up the tab for the bad investments and huge losses of Irish banks, a move that appears suicidal yet has prompted little protest by Irish citizens.
At the centre of the European crisis is Germany, the sensible sibling who is left cleaning up after the misdemeanors of the rest of the family. Not that Germany didn’t indulge in fantasies of its own. The German bankers miscalculated when they put their faith in the integrity of the U.S. banking system.
The global financial system may exist to bring borrowers and lenders together, but, over the past few decades, it has become something else, too: a tool for maximizing the number of encounters between the strong and the weak, so that the one might exploit the other. Extremely smart traders inside Wall Street investment banks devise deeply unfair, diabolically complicated bets, and then send their sales forces out to scour the world for some idiot who will take the other side of those bets. During the boom years a wildly disproportionate number of those idiots were in Germany.
Integrity got up and left the room quite a while ago, but it seems that not everyone noticed. The Germans were blind to the possibility that the Americans were playing the game by something other than the official rules.
Finally, Lewis returns to America and looks at state and local governments, which face a collective annual deficit estimated at roughly half a trillion dollars, with another huge bundle of nonexistent funds owed to retired workers. Lewis talks to former California governor Arnold Schwarzenegger about trying to bring some semblance of order to an out-of-control system. Finally, he visits the place where the buck finally stops, local government in the person of Vallejo’s new city manager, Phil Batchelor.
Batchelor suggests that the orgy of spending that ushered in the current debt situation is a result of our most primal instincts, our reptilian brain, the impulse for instant gratification and the innate desire to avoid scarcity. We’re minimizing the use of our ability to self-regulate using higher brain functions. I don’t think any such elaborate explanation is needed. It all just boils down to greed, the same impulse that stops us from acting to mitigate global warming. What a slimy, colossal, irresponsible and short-sighted waste of money.
Boomerang is highly recommended, an entertaining, enlightening and informative, witty and scary read.