This is an extremely informative and entertaining book, a combination which is quite surprising when you consider that is deals with the essentially scary and boring topic of entire countries going broke.
The title, "Boomerang" is very intriguing and I could not find any explicit reference in the book where Mr. Lewis clarifies this for the reader. My own interpretation (currently being of a somewhat critical mind vis-a-vise my adopted home, the U.S. - see "Death of Democracy in America", published as an e-book on Amazon Kindle) is, that "what goes around comes around". Or, more explicitly, the excesses and heedless risk-taking of America's financial industry, also know as "Wall Street", set in motion a series of financial collapses around the world, each exposing some unique weaknesses and idiosyncrasies in the affected countries, but ultimately enabled by America's greed-driven behavior, and triggered by the collapse of that anything but rational financial industry, and ultimately will come home to roost.
The Preface, describing the genius and idiocy of Kyle Bass, the hedge fund manager who first identifies, and found a way to profit from, the catastrophic mortgage meltdown, and is now positioning himself to profit from the cataclysmic financial collapse of many, if not most of the advanced countries around the world, is, to me, very chilling. Mr. Bass is quite obviously convinced that the world, including the U.S., will collapse into anarchy, requiring him to build a fortress in rural Texas, assemble an arsenal of weapons, stockpile food and other survival supplies, and yet he is still focused on "profiting" from this Armageddon-like world collapse by stockpiling gold and Nickels - what in the world for? And ultimately Mr. Bass' strategy requires that the U.S. is the last of the dominos to fall - and then what? Mr. Bass has obviously watched one too many of the popular Hollywood Armageddon movies and has come to believe that he is Arnold Schwarzenegger, or one of the other "mechanized heroes", who will manage to survive.
Since Mr. Lewis seems to like assigning "general characteristics" to entire countries with cute and pithy little one-liners, I will take a stab at it here and say that Kyle Bass personifies at least one typical American characteristics - WIN AT ALL COSTS!
Whatever the foibles of Kyle Bass, the Preface aptly describes the process of initially hurtling the Boomerang of financial excess into space - America, duck, because it's coming back to knock out your teeth.
The Boomerang effect is important to keep in mind when reading the fascinating accounts of all the financial disasters described in Mr. Lewis' book. Aside from exporting toxic debt in the form of "packaged" (as in the fancy packaging of many of the products for sale in America, which, once unpacked, prove to be worthless, or even dangerous) in such a way as to obscure the worthlessness and toxic nature of their contents, America has also over many years exported a large number of MBA degrees. Not only does this export the knowledge about tools and methods for being "successful" in the business and financial world, but it also exports attitudes typical of American-style business practices: recklessness and shortsightedness.
Michael Lewis does a wonderful job of describing the completely incongruous story of Iceland trying to become a financial market powerhouse to rival London. It is both entertaining, instructive and frightening to follow the descriptions of the diverse cast of characters interviewed by Mr. Lewis. It is frightening because, despite the obvious uniqueness of Iceland's collapse, the parallels with, and the influence of the U.S., are everywhere.
The central character in Iceland's rise and fall, David Oddsson, is a disciple of Milton Freedman and his mania for deregulation. And the other American economic lesson the Icelanders took to heart was to leverage to the hilt, that is, buy as many assets as possible with borrowed money. Thus, many of the ingredients of Iceland's disaster are not only vintage American, but are also very much present in America. Even the phenomenon of greenhorn traders, recently converted fisherman in Iceland's case, is not that uncommon, given all the brash young traders so typical of the American financial industry. The important difference, however, is that tiny Iceland, once the dominos started falling, was completely overwhelmed by the incomprehensible scale of the gambles which their banks took, while in the US, huge as the losses were, the economy was big enough to largely absorb the initial shock, even though the jury is still out if that "rescue" only served to set the stage for the next, even bigger disaster.
Mr. Lewis next turns to Greece, where the underlying cause, rather than "temporary insanity" of an entire small, very inbred country, is seemingly seated in a long history of "gaming the system" for survival. That's how Greece survived long periods of foreign domination, most notably the Ottoman Empire. The road to survival was to ignore and subvert authority in favor of personal survival and advantage. This lesson of history, unfortunately, has carried over into their attitude towards government, even when it is "their own" government - pay taxes, or you crazy?
Gaming the system to get into the EU and the Euro zone was just another natural expression of their long experience with foreign rulers. Sadly, although virtually every citizen in the other Euro countries at the time of the negotiations knew that the Greeks were lying, the bureaucrats and politicians were basically looking for an excuse to believe them and allow them in.
Frighteningly, this excuse came via American "know-how". Even in this essentially Greek tragedy, there is this unholy connection with America's vision of the "free markets" - one of the biggest and most "respected" investment firms, Goldman Sachs, makes millions of dollars in profit conspiring with the Greek government to help them hide the real numbers from the Euro bureaucrats. What we need in this modern age of globalized financial institutions is the international equivalent of the RICO laws to fight this modern version of the Mafia, which are the international financial companies.
Mr. Lewis' story-telling talent really shines when he weaves the story of the Byzantine Abbots and their real estate ventures into the tale of the Greek financial disaster. Like the traditional Greek tragedy, a seemingly innocuous property trade between the Abbots and the Greek government exploded into the public and caused the government to fall. The new government discovered discrepancies in the budget they took over from the previous government, which in turn brought to light the huge budget deficits. And all this because two very clever Abbots wanted to raise money to restore the monasteries, which had over the centuries fallen into disrepair, to their old splendor.
The Boomerang next heads to Ireland, a country which Mr. Lewis describes as one of the poorest in Europe, even before it became an independent country, and well into the 1980's. Sometime in the 1990's things started turning around for Ireland. Nobody is quite sure what exactly allowed this turn-around, but my personal experience tells me it had something to do with tax changes to attract foreign investment. Working for Oracle Corp. at the time, we suddenly heard that large development and support organizations had been relocated to Ireland. Many other US firms were doing the same things, and at the time it just seemed like another example of outsourcing, which was rampant at the time.
When subsequently the news of the Irish boom became big news, I remember thinking, "wow, this really worked for the Irish". And I began hearing from acquaintances, directly and indirectly, that people were buying property in Ireland, often people with some Irish in their family tree. Nothing too unusual about that: the Irish economy was picking up, people had good jobs and more money, and were buying homes.
And that might have been the happy ending to a story. But then in the early 2000's came cheap credit, and the Irish banks and real estate developers went crazy, just about literally. Just as in the U.S., the Irish convinced themselves and others that the value of real estate would ALWAYS go up, and that the demand for housing and commercial property was virtually limitless. But in comparison to the U.S. the explosion in Irish real estate prices and new development projects, both residential and commercial, were absolutely astronomical, fueled by cheap money borrowed by the Irish banks from foreign investors and banks, and then almost literally shoveled out to any developer with any and all development proposals, the banks competing with each other for who could make the most loans - sound familiar?
And then the U.S. housing bubble burst and the world economies went into a tailspin. The supply of cheap money suddenly dried up, and just like any Ponzzi scheme, the real estate craze in Ireland started to unravel. At first the Irish banks tried to calm the waves by calling it a short term liquidity problem, but it soon became obvious that the problem was truly monumental. The three largest banks in Ireland were on the brink of collapse.
Again, the difference between Ireland and the U.S. was not in the mistakes that were made (irresponsible lending of banks and other financial institutions based on ridiculously low interest rates and the insane belief that the demand for real estate wast infinite), but in the relative size of the whole economy compared to the financial losses of the banks. The U.S. could indeed treat it's own bursting real estate bubble as a liquidity problem, and by using the $700 Billion TARP "bailout", was able to (at least temporarily - we still have the "too big to fail" banks, who are now even more encouraged that the government will not let them commit harakiri) stave off full scale meltdown of the financial system. By comparison, the bank debts in Ireland were astronomical, and the government decided its only course of action to avoid complete failure was to directly assume the liabilities of these three banks, that is, with one stroke of the pen, the private debts of the banks became Irelands national debt.
Michael Lewis' story-telling skills again shine in this chapter, weaving together the tales of various actors in the Irish horror story in a very entertaining, while at the same time very informative fashion.
An then comes his chapter on Germany. For full disclosure, I came to the U.S. as an immigrant from Germany, so my reaction to this chapter may just be a remnant of being thin skinned when it comes to a negative portrayal of Germany.
Mr. Lewis brackets his discussion of Germany's role in these national and international financial disasters with an attempt to define THE German character on the basis of folklorist Alan Dundes' paper entitled "Life is like a Chicken Coop Ladder", which actually is a German saying (Das Leben ist wie eine Huehnerleiter, beschissen), which I've used myself on occasion. Mr. Lewis quotes extensively from this paper to make his point that THE essential character of Germans is expressed by a fixation on shit, fecal matter and other nastiness, and uses this to set the stage for his (Lewis') quest to visit a wrestling match between women, carried out in a mud pit, supposedly very popular in Hamburg's Reeperbahn. Mr. Lewis does finally make it to Hamburg only to find that "the last one shut down years ago. It was too expensive". By contrast, mud wrestling in the U.S. is readily available on TV Reality shows and in many cities across the country as live spectacles.
One could just as easily argue that the Anglo-Saxon, and thus largely American, character is DEFINED by the prolific occurrence of sexual and violence based expressions, especially curses, in the English language. I remember being quite surprised by this phenomenon when I first moved into the freshman dormitory after arriving in the U.S.. Although this certainly does not define THE American character, it might help explain Americans' ambivalence about sex - is it good and fun, or is it vile and dirty.
Anyway, framing his discussion of Germany in this way, in my view, is really a serious intellectual lapse in Michael Lewis' otherwise obvious intelligence and story telling abilities.
Otherwise, Mr. Lewis' discussion of the German role in the financial disasters is just as insightful and entertaining as his other chapters. And moreover, some of the characteristics typical of Germans (orderly, and liking to establish and follow rules and instructions, etc.), which he describes, are indeed accurate and well known, in both their positive, and unfortunately primarily their negative implications.
The upshot of the German role is, as I understand Michael Lewis' description, that some German bankers strayed from their traditionally very conservative "rules", to be completely taken in by the skill of unscrupulous, winner-take-all, greed-fueled (which unfortunately, are characteristic revered in America in business, sports and many other endeavors) salesmen from American financial institutions. Thus, so the storyline seems to go, seeing that German banks are very exposed to shaky sovereign debts, the German government must primarily endeavor to protect their (the banks') interests in its response to the Euro crisis.
In the last chapter the Boomerang, very appropriately in my mind, comes sailing back to the U.S.. Mr. Lewis focuses on California, San Jose and Vallejo as example of how California is indeed much like Greece is in Europe. OK, Michael Lewis does not equate California with Greece, but the parallels, it seems to me, are obvious.
Like Greece, California and its municipalities like San Jose and Vallejo became accustomed to a certain level of services when times were good and money was cheap. Like Greece, they allowed the public service sector to ride roughshod over the budgeting process. Powerful unions, like the Prison Employees, strong-armed concessions from the government which everyone knew were unsustainable. Like Greece, California and its municipalities looked the other way when public pension funds were plundered and what remained was invested irresponsibly. And the people of California, like the Greeks, repudiated their government when the Governor actually tried to reign in the problems.
Economists like Paul Krugman continually make the argument that the relationship between the States and the Federal Government is not like the relationships among the various Euro countries, and certainly there are Constitutional, legal, administrative and social differences. Prof. Krugman, for example, makes the argument that federal taxes "automatically" flow to states which are experiencing economic difficulties, such as with Unemployment Benefits. However, for California, as for Greece, there is no automatic mechanism for the Federal government to allocate "rescue" funds to bail California or its municipalities out of their budget deficits, as the Euro partners are now being asked to do. And Prof. Krugman bemoans the fact (and argues that this is a weakness of the Euro zone), that Greece and Ireland and others are being forced into drastic austerity measures by the richer Euro partners. However, California and especially its municipalities, are forced into very painful austerity measures, cutting funding for vital public services such as firemen, police and schools, and I don't see any mechanisms the U.S. Federal government to alleviate this.
There is a reason why the Boomerang has come back to the U.S., because, like it or not, the U.S. set this disaster in motion and it will come back to haunt us. The insidious influence of America in all of these various national disasters is obvious, from the explicit world-wide sales of the toxic financial instruments and the connivance of the Ratings Agencies (S&P, Moody's, Fitch) in hiding the worthless nature of these "investments, to the less obvious and longer term export of its high-risk, ruthless and shortsighted business strategies via the ever popular American-style MBA's.
The conventional wisdom currently (early 2012) is that the U.S. mastered its financial crisis by taking bold actions to bail out the too-large-to-fail financial institutions, and that now the U.S. economy is threatened by the problems of Europe. And Europe certainly is not without blame. The Euro itself was an initial compromise on the road to an as yet undefined closer Federation within Europe, with built in limitations to dealing with these kinds of national financial calamities. However, the more honest assessment of the situation is (as Michael Lewis implies) that this Boomerang was launched from America, has managed to do severe damage to several national economies in Europe, but is now heading back to the U.S., where the root problems have certainly not be addressed, much less solved.
