Michael Lewis- Boomerang

     

     One of Michael Lewis’ notable traits as an author is his capability to simplify complex situations so that they are accessible to the average reader. In his book Boomerang, he not only puts things in understandable, easy to read terms, but he has mastered the art of useful and humorous similes and examples. Michael Lewis covers five recent history examples of financial turmoil in Boomerang: Iceland, Greece, Ireland, Germany and California. His essays include a traditional financial explanation of what caused each crisis, integrating social analysis of the key actors and their surrounding cultures. Although I believe the articles have been published separately, they all tie in very nicely together and make reference to one other.

     He begins the book by introducing Iceland, a country once known for its high Human Development Index, education, and rationality. Despite these characteristics, Iceland has allowed their market to blow up into a mess of historical proportions- partially due to their attitude, behavior, inexperience and blissful ignorance. The rapid expansion of the Icelandic banking system resulted in a bubble. People were buying assets with money that they had not earned, and also began to artificially inflate the values of those assets, so the banks could generate huge, but imaginary profits.  The Icelandic krona gained value, and the buyers were trapped with these assets as the currency fell again, and people rushed to trade in their kronur for foreign currencies. Lewis compares their willingness to take risks in the financial markets to their habit of dauntless fishing on the dangerous seas and their professional manner to their brutish everyday “male” interactions.

     Moving on to Greece, he conducts interviews with several interesting people, including strictly unidentified tax collectors and monks. Perhaps the most interesting part of the Greece story I had not known about was the amount of tax fraud and evasion- it seems more common than underage drinking in the US. Another somewhat obvious angle to the Greek story is the complete chaos that the “old” government was running- it is inefficient in most departments, poorly organized, corrupt, and mostly a result of sheer laziness and stubbornness. Finally, he delves into the Vatopaidi Monastery scandal- the story of how a bunch of monks basically scammed (they had “ancient documentation”) the government into giving them a ton of commercial real estate in return for a government owned lake that was deeded to them centuries earlier. Between the references of the ancient paperwork, trust and confessions and mystery of Lewis’ visit, it began to look a lot like a Dan Brown novel. He explains the importance of independence in Greece and how although everyone is friendly, they do not trust each other, causing a national tension that boil over into EU relations (later discussed in Germany section).

     The Ireland chapter is probably the most predictable of his sections. Foreign Direct Investment led to the explosive growth of the Irish economy, giving banks the option to lower interest rates. The banks then gave out irresponsible loans to developers, thus triggering the Irish real estate bubble. This period of economic prosperity, commonly referred to as the Celtic Tiger, attracted an influx of Polish and Eastern European migrant workers. Lewis likens the Irish real estate bubble to a family lie: “It was sustainable so long as it went unquestioned and it went unquestioned so long as it appeared sustainable” (91). In order to survive, the Irish banks had to take out loans from the European Central Bank. An interesting cultural note that Lewis includes is the national reaction to each respective crisis. When the Greeks were throwing Molotov cocktails through office windows, the Irish either remained quiet, optimistic, or sported apathetic signs that read “Down with this sort of thing” (123).

     While the Icelandic, Greek, and Irish stories all involve the complete downfall of their economies, the German case is if anything the opposite. He explains that Germany is the only country in this book where the financial sector was affected without many local economic consequences. He discusses the stereotypical German characteristic of “clean on the outside, dirty on the inside” to explain their performance in the collapse of other markets (136). They wanted to be involved with the catastrophe, however not the center of it. The Germans had not expected the need to bail out other countries when they became the keystone of the EU and seem annoyed at the Greeks’ inefficiency. The German economic stability is explained by the fact that the Germans, no matter how low the interest rates got, would not succumb to excessive consumption, simply because it is not their way- they find it tacky. They are not saying that the Germans are the shrewdest, as illustrated by their foolish purchases of sub-prime bonds. Perhaps Lewis sums up the main argument in our course- “The global financial system may exist to bring borrowers and lenders together, but over the past decade, it has become…a tool for maximizing the number of encounters between the strong and the weak, so that the one might exploit the other” (153). Some Germans have suggested splitting the Euro into two different currencies, one for the more reliable, stronger countries and one for the weaker countries in the EU.

     Lewis concludes that the world has an opportunity to bounce back (like a boomerang) from such situations in his case of the Americans in California. He discusses the realization that so many of the municipalities and states of the US had pension plans that were grossly underfunded (like Greece) that it put the state of California deep in debt. This is to show that imprudent financial decisions are not only affected on a national level, but also on the state/county/city level and the chain reaction that ensues. He closes the book by speaking about the ambivalence toward future consequences when valuing current rewards, yet oddly states that sometimes there is a solution and it is an optimistic one. This was a surprisingly cheesy ending when the rest of the book was so clever and punchy.