W.W. Norton & Company, 2011, 213 pages
From the #1 New York Times best-selling author of The Big Short, Liar’s Poker and The Blind Side!
The tsunami of cheap credit that rolled across the planet between 2002 and 2008 was more than a simple financial phenomenon: it was temptation, offering entire societies the chance to reveal aspects of their characters they could not normally afford to indulge.
The Greeks wanted to turn their country into a pinata stuffed with cash and allow as many citizens as possible to take a whack at it. The Germans wanted to be even more German; the Irish wanted to stop being Irish.
The trademark of Michael Lewis’s best sellers is to tell an important and complex story through characters so outsized and outrageously weird that you’d think they have to be invented. (You’d be wrong.) In Boomerang, we meet a brilliant monk who has figured out how to game Greek capitalism to save his failing monastery; a cod fisherman who, with three days’ training, becomes a currency trader for an Icelandic bank; and an Irish real estate developer so outraged by the collapse of his business that he drives across the country to attack the Irish Parliament with his earth-moving equipment.
Lewis’s investigation of bubbles beyond our shores is so brilliantly, sadly hilarious that it leads the American listener to a comfortable complacency: Oh, those foolish foreigners. But when Lewis turns a merciless eye on California and Washington DC, we see that the narrative is a trap baited with humor, and we understand the reckoning that awaits the greatest and greediest of debtor nations.
Economics books can be depressing, especially the more you learn about how the world's markets move. I read Michael Lewis's The Big Short a few years ago. In that book, he covered the subprime mortgage market that lead to the 2007 housing bubble collapse, and the most shocking takeaway there was not that people were greedy and short-sighted, but that all the "experts," the brokers, the realtors, the bankers, the Federal Reserve officials, the "Big Money Men" — didn't actually have a clue! You or I could probably have taken over one of those big, complicated "investment instruments" and run it with about the same chances of success or catastrophic failure.
Boomerang looks at international markets, but here's a spoiler: it's the same story! We like to think that somewhere up there there are actual grown-ups in charge. People who know what they're doing. Sure, they may make mistakes now and then, but they aren't really going to run the economy off a cliff because they're too stupid or greedy to know better.
As the Irish found out after their own housing market bubble burst: not so much.
"What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man," says McCarthy. "And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked."
Boomerang is basically a set of case studies, looking at Ireland, Iceland, and Greece, before turning back to the US.
Some of you may remember how, during the dot-com bubble era, Ireland was being called the "Celtic Tiger." Rising up from nearly third-world levels of poverty in the early 90s, Ireland boomed until the dot com bubble burst. But it was the recession of 2007-2008 that knocked Ireland back into the dirt, and as often happens when bubbles burst, they found that the fabulous wealth of the previous few years had been built on dreams and shell games.
Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was buy Ireland. From each other. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, has made a back-of-the-envelope calculation that puts the property-related losses of all Irish banks at roughly 106 billion euros. (Think $10.6 trillion.) At the rate money flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for the next four years.
But the fairly pedestrian housing bubble of Ireland is less fascinating than the banking speculation that did in Iceland. It all started when they decided they didn't want to be fishermen anymore. They had a lot of cheap geothermal energy, so looked around for a way to make money off of it, and decided on aluminum manufacturing.
Alcoa, the biggest aluminum company in the country, encountered two problems peculiar to Iceland when, in 2004, it set about erecting its giant smelting plant. The first was the so-called hidden people—or, to put it more plainly, elves—in whom some large number of Icelanders, steeped long and thoroughly in their rich folkloric culture, sincerely believe. Before Alcoa could build its smelter it had to defer to a government expert to scour the enclosed plant site and certify that no elves were on or under it. It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free, but, as he put it, “we couldn’t as a company be in a position of acknowledging the existence of hidden people.
As funny as that is, the second problem was a much bigger one — Icelanders didn't actually have any aptitude or desire to be aluminum smelters. So they wound up becoming investment bankers instead.
The absurdity reaches comical heights here as Lewis describes how literally anyone could (and did) become an investment banker in Iceland, during a period where all of Europe decided that Icelandic stocks were rock solid and guaranteed to keep growing in value. Icelanders in fact started out selling "shares" of fishing quotas, until somehow fishermen were getting rich by not fishing - only a small fraction of the supposed fishermen were actually catching fish, while everyone else was just trading in shares of fish catches. With frightening ease, this scaled upwards to bank and energy portfolios. Like every other financial bubble, it worked until it didn't.
Onwards to Greece, which was and is a real financial basket case. Here, Lewis surprisingly does not blame the bankers, but makes a compelling argument that the bankers were actually the grown-ups who were trying to manage the economy, while it was the Greek population, with no real tradition of civic duty or sense of communal obligation, that looted the entire country's economy.
It might be unfair to label an entire country's population as basically a bunch of money-grubbing tax cheats, but somewhere here is a lesson for both conservatives and liberals, about the dangers of regarding taxation as theft and something to be avoided, rather than a necessary means of funding vital public services, and also about the dangers of giving the electorate the power to loot the treasury.
The retirement age for Greek jobs classified as "arduous" is as early as fifty-five for men and fifty for women. As this is also the moment when the state begins to shovel out generous pensions, more than six hundred Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on.
Wrapped around the basically insurmountable financial woes of Greece is a story of a Greek monastery that somehow, because of historical government concessions, became a linchpin of the Greek economy and also blamed for all its troubles, when the monks were really just trying to keep the monastery open.
Then Lewis comes back to the U.S., and looks at the dire financial woes of San Jose and Vallejo, two California cities with income levels that would be the envy of many countries, and both of whom are also financial basket cases. Their main problems are public pensions for firefighters and police.
The relationship between the people and their money in California is such that you can pluck almost any city at random and enter a crisis. San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody’s and Standard & Poor’s, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt.
Lewis examines all these places, and goes on a bike ride with former California Governor Arnold Schwarzenegger, who comes off rather sympathetically here. According to Lewis, Schwarzenegger was basically an honest guy who tried to get things done without catering to special interests. Sure, he had his political biases, but he genuinely wanted to reform the state's finances. The response from California voters, when they voted down every one of his measures, was an unambiguous "Fuck you." And so Schwarzenegger finished his term in office essentially gelded. Now he's happy, unremorseful, and still rich... and California's economy is still screwed. Though not as screwed as Ireland, Iceland, and Greece.
This book won't really give you a deeper understanding of economics, and it doesn't really offer any solutions. (The solution is for people to stop being so short-sighted and stop buying things they can't pay for on a national scale. Hahahah right.) But if you want a closer look at economic trainwrecks, Lewis explains them in a very understandable way that will leave you with very little optimism about anything improving.
Also by Michael Lewis: My review of The Big Short.
My complete list of book reviews.