Michael Lewis has a gift for explaining technology and finance through oddball characters and quirky humor. In Boomerang: Travels in the New Third World, the author of Liar's Poker, Moneyball, The Blind Side, Panic and The Big Short regales us with his adventures in what he calls "financial disaster tourism."
Photo courtesy of W.W. Norton
Lewis' reporting takes him to the struggling European countries of Iceland, Ireland and Greece, whose debt problems have been much in the news lately. He also visits Germany, whose potential to bail out its neighbors is Europe's last best hope, and returns, finally, to his native California, where high fixed labor costs and federal and state budget cuts have forced many municipalities into crisis.
Lewis segues from Icelandic fishermen-turned-bankers to savvy Greek monks and Irish real estate speculators as he tracks the financial follies that imperil Europe's economic stability. Borrowing money one couldn't pay back, it turns out, was not just an American disease; it was an epidemic that infected much of the Western Hemisphere, with adverse economic effects that are still being felt both here and abroad. Following the twists and turns of Boomerang, adapted from Lewis' recent articles in Vanity Fair, it's sometimes hard to know whether to laugh or cry.
AARP Bulletin spoke to Lewis about the book.
Q. What were the origins of 'Boomerang'?
A. I was working on The Big Short, about the subprime crisis in America. It was right after Lehmann Brothers failed and the U.S. government stepped in and basically said, "No more banks are going to fail." You could see the same sort of thing happening around the world, banks everywhere being backstopped by their governments. And I knew that the United States banking system, big as it was, was actually small compared to our economy. The U.S. could afford to bail out the banks, as miserable as it was to do it. Other countries could not. What did that mean? In other countries, the credibility of the countries was going to be called into question.
Q. Can you be specific?
A. If you take all the assets in the banks in the United States and divide it by the size of the gross domestic product, you get 20 percent. In Iceland, it was 800 percent. So the country was incapable of bailing out its banks.
Q. You describe yourself as a "financial disaster tourist." What does such a tourist look for?
A. He is looking at societies through the prism of money and the way they handle the temptation of money.
Q. You focus on three failing economies, Iceland, Ireland and Greece. What do they have in common?
A. What unifies these stories is the credit bubble. From there, they diverged pretty wildly. They each had different things they wanted to do with money.
Q. For instance?
A. Iceland wanted to create a global financial center in Iceland. They wanted to cease doing what they did for a living, which was fish, and become bankers. Almost overnight, the culture was transformed. The impulse was to conquer the world outside Iceland. The story they told themselves was essentially, "We are suited to be tycoons."
Q. What about the Irish?
A. The Irish took the money and turned inwards with it. The Irish frenzy was entirely focused on Irish real estate. What they wanted to do was to gain control of their own land, which is an atavistic impulse because their history with England left them dispossessed. They created a fantastic real estate bubble.
Q. Like an extreme version of what happened in the U.S.
A. I had a tour of a very nice, big upper-middle class home in Dublin, and this house had just changed hands nine months before: $80 million. The prices of Irish real estate went berserk. The story they told themselves was that this was the natural extension of their prosperity.
Q. The Greek case was different, wasn't it?
A. In Iceland and in Ireland, the banks fueled the mania. In both cases, the banks sunk the country. In Greece, the country sunk the banks. The banks were very sober and staid and boring. They're all about to be bankrupt because they own big government bonds. The Greeks took this money that was available and they bloated to a fantastic scale an already bloated government. In Greece, everybody thieves from the state: They take jobs they don't actually do and get paid for them. They don't pay their taxes. Greece is a case of a society in total moral crisis.
Q. What was the role of the Greek monks on Mount Athos?
A. The monks had apparently done what all good Greeks do and used the government for their benefit: They had persuaded the government to recognize an ancient deed that the Emperor Constantine had given to the monastery. Once they got title to the land, they engaged in land swaps with the government that left them holding a portfolio of commercial real estate that was worth a billion dollars. The Greek people were up in arms, [and because of this scandal] the conservative government fell two years ago.
Q. Is Germany's willingness to bail out its neighbors Europe's only hope? Or are there domestic solutions?
A. There are certainly no domestic solutions in Greece. Italy and Spain — unclear. Probably not. Right now, it's fair to say that absent the German people being willing to go all in and take on the debts of Spain and Italy and so on as their own, there's no solution to the problem.
Q. You mention Spain and Italy because they're the next dominoes?
A. Not only Spain and Italy, but France. The whole of European finance turns on whether the Germans are willing to step in.
Q. How is it that Germany has this capacity?
A. The Germans were not exempt from the boom and bust. The German banks behaved either really irresponsibly or stupidly. German banks made every possible bad judgment there was to make: They invested in Icelandic tycoons and in Irish real estate and in Greek government bonds and in U.S. subprime. They got taken every which way. They got themselves in unsustainable debt positions.
But the German people behaved very, very well. The German people left alone in a dark room with a big pile of money didn't want anything to do with it. They continued to make things and run trade surpluses. And their real economy has been very, very prosperous and healthy.
Q. What do you mean when you say that, for Germany, the euro is essentially another Holocaust memorial?
A. There's this feeling of wanting to atone for the sins of the past that's in the air. And their contribution to gluing Europe together in a peaceful union is a form of atonement.
Q. Will Germany's guilt over its 20th-century history prove decisive?
A. I don't know. It feels like a flip of a coin to me.
Q. If Germany decides not to help, what will happen to these countries?
A. They'll default.
Q. How will that affect the United States?
A. I don't know, and neither does anyone else.
Q. Similar financial problems are playing out in microcosm in American cities. Do you see any important differences?
A. One thing that's very similar is an erosion of faith in political leadership. The paralysis we're seeing in Washington and the Tea Party-engendered anger are both echoes of what's going on in Europe. The way America is structured, governments can push financial problems down to smaller and smaller units. And that is happening. The thing that's so different about American society is that we have this cultural difference, this idea of reinvention and renewal, and that's going to serve us very well. Because everybody's going to hit bottom; the question is how you behave when you hit bottom.
Q. You use Vallejo, Calif., as an example.
A. The city was bankrupted by the police and fire unions. The unions had a kind of Greek-like attitude towards the city. [More recently] the unions have realized that a good parasite doesn't kill the host, so there really has been honest reappraisal. There's a possibility of moral re-awakening, and in Vallejo you can see the beginnings of that.
Julia M. Klein is a cultural reporter and critic in Philadelphia and a contributing editor at the Columbia Journalism Review.