With the world going broke as a result of a tsunami of cheap credit extended between 2002 and 2008, some outstanding writers have stepped forward to provide a great many explanations of how it all happened. Andrew Sorkin's splendid Too Big to Fail is a tour de force of Wall Street meltdowns, House of Cards finds William Cohen detailing the last 10 days of Bear Stearns, while The Greatest Trade Ever is a look at John Paulson and his bet against home prime loans. As good as these books are, they lack world scope.
Offering a different approach is Michael Lewis whose Boomerang offers insight based upon national characteristics of a strange collection of world-wide financial experts whose inane antics provide the book's subtitle: Travels in the New Third World.
Lewis writes funny about a very serious subject; while it would be easy to pay too much attention to his devastating satire, he is far more significant while seeking out the why of the world's self-inflicted destruction.
Particularly damning is Lewis's sad hilarity about Greece where tax evasion is a birthright and where new governments immediately call off tax collectors. As with other nations of financial fools highlighted in the book--Iceland, Ireland, and the U.S--it is the author's point that a nation's fiscal recklessness is closely tied to the desires of its people. Both Greece and Iceland are particularly odd. A room full of the world's greatest writers of satire could not come up with the story of the bedlam that is Greece where Vatopaidi monks, energized by a Father Ephraim, were awarded a lake for a 700-year-old destruction of their land by Catalans. Even Spain got drawn into Ephraim's remarkable chutzpah and soon the monks were extracting money from a variety of sources. Grants and more reparations were brought into play; through it all, the Vatopaidi monastery did what no other did: cultivate relations (very effectively) with the outside world.
The monks then traded the lake for government-owned properties and it wasn't long before another coup was performed through prayer given for the prime minister's right hand who had a life-threatening illness. A miraculous recovery followed and, as the plot developed, the monks achieved further fiscal triumphs including the acquisition of property built for the 2004 Olympic Games. It became clear that the monks were either simple con men or the savviest businessmen extent. Peter Doukas, a Ministry of Finance official and Lewis' initial monk contact, estimates he helped create for them a nine-bill-dollar trading profit.
Author Lewis exhibits his own chutzpah when he gains audience with a monk named Father Mathew from Wisconsin. With the monks subjects of many lawsuits, Father Mathew tells Lewis: "Most people in Greece have this image of the abbot as a hustler."
Lewis' experiences in Iceland are almost as bizarre. A tip-off occurs on page 1 when a representative of The International Monetary Fund explains how a nation of extremely well-to-do, well-educated, historically rational human beings had organized themselves to commit one of the single greatest acts of madness in financial history. "You have to understand. Iceland is no longer a country. It is a hedge fund."
Stefan Alfsson is one of the more fascinating Icelanders. A fisherman, Alfsson quit at age 30 to become a banker specializing in currency trading. All the young people were doing it in the country whose population is 300,000 and Alfsson's customers were mostly fishermen. The good times rolled with a rollicking flourish and Iceland became an adviser to companies on currency risk hedging. When the kids were through with Iceland, three brand-new global-size banks had collapsed and the population learned its responsibility for $100 billion in banking losses works out to about $330,000 for each citizen. That's in addition to tens of billions of dollars in personal losses from their own speculations including a stock market down 85 per-cent. As Lewis points out, Iceland became the only nation on earth that Americans could point to and say, "Well, at least we didn't do that."
Another oddity is Ireland whose financial disaster, according to Lewis, "shared some things in common with Iceland's. It was created by the sort of men who ignore their wives' suggestions that maybe they should stop and ask for directions, for example." While Iceland's initial profit overflow bought foreign places like trophy companies in Britain, the Irish turned its profligacy inward. They bought Irish land from each other with disastrous results. Irish unemployment is at 14 per-cent, the budget deficit is now 32 per-cent of its GDP and the country's population is shrinking.
"Alone in a darkroom with a pile of money," writes Lewis, "Americans knew exactly what they wanted to do, from the top of the society to the bottom. 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 sub-prime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans."
States like California face problems similar to those of Greece with ballooning pension obligations and employment costs a major fctor. Lewis examines this nation's biggest state challenge by way of two interviews with former California governor Arnold Schwarzenegger plus a frightening visit to that state's Vallejo, a bankrupt community where drastic cuts in human services are making the town of 112,000 unlivable.
Considerable pause for thought is offered by Lewis' somewhat upbeat conclusion: "When people pile up debts they will find difficult and perhaps even impossible to repay, they are saying several things they can immediately afford. They are saying, less obviously, that their present wants are so important that, to satisfy them, they are implying that when the future difficulty arrives, they'll figure it out. They don't always do that. But you can never rule out the possibility that they will. As idiotic as optimism can sometimes seem, it has a weird habit of paying off."
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