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Boomerang: Travels in the New Third World Kindle Edition
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Michael Lewis possesses the rare storyteller 's ability to make virtually any subject both lucid and compelling. In his new book, Boomerang, he actually makes topics like European sovereign debt, the International Monetary Fund and the European Central Bank not only comprehensible but also fascinating The book could not be more timely given the worries about Europe 's deepening debt crisis and the recent warning issued by Christine Lagarde, managing director of the I.M.F., that 'the current economic situation is entering a dangerous phase.' Combining his easy familiarity with finance and the talents of a travel writer, Mr. Lewis sets off in these pages to give the reader a guided tour through some of the disparate places hard hit by the fiscal tsunami of 2008, like Greece, Iceland and Ireland, tracing how very different people for very different reasons gorged on the cheap credit available in the prelude to that disaster. The book based on articles Mr. Lewis wrote for Vanity Fair magazine is a companion piece of sorts to The Big Short: Inside the Doomsday Machine, his bestselling 2010 book about the fiscal crisis. Like that earlier book its focus is narrow. It doesn t aspire to provide a broad overview of the debt crisis but instead hands the reader a small but sparkling prism by which to view the problem, this time from a global perspective. At times Mr. Lewis can sound a lot like Evelyn Waugh: shrewd, observant and savagely judgmental, dispensing crude generalizations about other countries, even as he pokes fun at himself as a disaster tourist. Mr. Lewis 's ability to find people who can see what is obvious to others only in retrospect or who somehow embody something larger going on in the financial world is uncanny. And in this book he weaves their stories into a sharp-edged narrative that leaves readers with a visceral understanding of the fiscal recklessness that lies behind today 's headlines about Europe 's growing debt problems and the risk of contagion they --This text refers to the hardcover edition.
About the Author
- File size : 1334 KB
- Publisher : W. W. Norton & Company; Reprint edition (September 28, 2011)
- Language: : English
- ASIN : B005CRQ2OE
- Print length : 165 pages
- Word Wise : Enabled
- Publication date : September 28, 2011
- Text-to-Speech : Enabled
- Enhanced typesetting : Enabled
- Screen Reader : Supported
- X-Ray : Enabled
- Lending : Not Enabled
- Best Sellers Rank: #60,597 in Kindle Store (See Top 100 in Kindle Store)
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Lewis insults everybody and mocks Europeans aspirations to imitate Wall Street. He visits Iceland (“they have a feral streak in them”). He pokes fun at the lack of sophistication among the country’s financial elites, not just the fishermen turned investment bankers, but the under-qualified regulators. Icelanders amassed debts amounting to 850 percent of their GDP.
Lewis claims the Greeks are selfish and can’t say anything nice about each other: “The epidemic of lying and cheating and stealing makes any sort of civic life impossible.” Ireland's property bust was caused by Irishmen using foreign money to buy Ireland from one another. He likes the Germans but is perplexed by their national obsession with excrement. He ends up in California, where the vast liabilities for public-sector pensions have started to turn a city authority such as San Jose into little more than “a vehicle to pay the retirement costs of its former workers.”
Lewis suggests that the Greeks brought their demise on themselves. He argues that Greece suffered a “total moral collapse.” He claims: "In Greece, the banks didn't sink the country. The country sank the banks." He discovered that the average government job paid almost three times the average private-sector job. The Greek public-school system is one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland. Nobody in Greece paid their taxes. The railway system cost €700m a year to run, earns revenues of €100m, and the average salary is €65,000. Why should taxpayers in other countries pick up the tab? Lewis is morally outraged and implies that the Greeks deserved to be punished. He does not focus on the role played by Goldman Sachs in advising the Greek government. They helped "cook the books" to get Greece into the eurozone. This enabled Greece to borrow a lot of money at very low interest rates.
Lewis explains why everybody was worried about a Greek default: “If Greece walks away from $400 billion in debt, then the European banks that lent the money will go down.” This would destabilize the regional and world economies further. He also explains why taxpayers in Germany are reluctant to bail out other countries they regard as profligate, indolent and irresponsible. In my experience, the Germans make great cars, but they are terrible bankers. The criticism on Wall Street, when I was there, was that they could not price risk and they were gullible. As Lewis points out the German banks were the last to stop buying sub-prime debt. He tells us they bought a lot of “toxic waste” from Wall Street and they did not evaluate the risks properly. A number of their banks went bust after the financial crises.
The 2010 Greek debt crisis was eased by an international bailout, which was primarily focused on saving the banks, not Greece. New money was lent by the infamous Troika (i.e., The European Commission, the IMF, and the European Central Bank) to pay off the old bills. The banks were consequently made whole, with 90% of the money from the new loans passing through Greece right back to the banks. Most of the banks were German. Greece was asked to spend less, tax more, and restructure the public sector. This led to an economic contraction. The Greeks lost 30% of their GDP and unemployment is still 19%. Poverty, homelessness, suicide—all rose. Greece became virtually a Third World Country.
While the Greeks suffered, the European banks mostly escaped punishment for their irresponsible lending. The welfare state was dismantled in Greece and old people had their pensions cut. It is a familiar routine. When lenders and borrowers are in conflict, it is the borrowers who suffer. European banks were doing what banks are supposed to do, lending. But by doing so without caution they were doing exactly what banks are not supposed to do, lend recklessly.
Lewis seems to sympathize with the banks and the Germans. The Germans believed that the solution to the 2008 financial crises in the eurozone was austerity for Southern European countries like Greece. They imitated Herbert Hoover during the Great Depression. According to Mark Blyth who teaches economics at Brown, the correct solution was probably a dose of Keynesian economics, which means more government spending during a recession. The Germans have forgotten that Hitler reduced German unemployment from 6 million to 1 million in the 1930s, by increasing government spending. For the Germans and Lewis, Greece became a morality play. The Germans also wanted to protect their incompetent bankers. Joe Stiglitz is a Nobel prize winner and Columbia economics professor. In his book on the euro, Stiglitz states that Greece became Germany's victim.
In discussing the euro, Lewis asks, "how did people who seem as intelligent and successful and honest and well-organized as the Germans allow themselves to be drawn into such a mess?" Lewis does not seem to understand that Germany gets significant benefits from a “cheap” euro. It has an export-led economy and has run-up trade surpluses with its neighbors and the U.S. Because Germany shares the euro with poorer countries like Portugal and Greece, its currency is cheaper than it would otherwise be. The Washington Post claims that a return to the old national currency, the Deutsche Mark, would mean an increase in valuation of about 20 percent. Germany has a $65 billion trade surplus with the U.S. because Americans are incentivized to buy German products, partly because they are made artificially cheap by a low exchange rate.
Lewis made his name as a writer with Liar’s Poker in 1989. It is based on his time as a bond trader for the investment bank Salomon Brothers. It is a brilliant expose on the excesses of Wall Street in the 1980s. It features characters like John Meriwether who was Salomon’s top trader at the time. In 1998, Meriwether and his former Salomon team nearly brought down the global financial system. They had founded a hedge fund called, Long Term Capital Management which went bust and was bailed out by the big American banks. A Wall Street veteran called Chris Arnade claimed that when he was a banker at Salomon in the 1990s that he designed and sold complex financial products which had huge profit margins for his bank. He sold them to small Japanese banks, which were eventually driven out of business. These derivatives were known as “toxic waste” on Wall Street. There was something antisocial about the "take no prisoners" Wall Street culture, where short term profits trumped the greater good.
Foreigners are now aware that they should be careful when American bankers offer to sell them financial products. Every few years, the banks threaten to bring down the world economy with their greed and irresponsible behavior. Lewis does not really blame the bankers, boys will be boys. However, something has to change, and we need stronger regulation.
Five nations are examined in the book. They are Iceland, Ireland, Greece, Germany and the US. In Iceland Mr. Lewis found overconfidence in its society to be at fault. This was due to the mentality, of overconfidence, of fisherman in that country that so permeated that nation’s psyche (after all, that nation is nation of fisherman). In Greece the problem was that society was unable to govern itself. It was a society so self-centered on the individual that no one was willing to sacrifice for the common good but each wanted to engorge himself/herself at the trough. In Ireland the problem was newly found wealth. Ireland has historically been a poor nation but with so much wealth being made so quickly society just did not know how to deal with. Naturally, as a result, it went on a spending spree. In Germany the problem was that society was so used to “follow” the rules. Hence its investors got burned when they carried this assumption to the international market. They assumed, for example, that the US bond rating agencies were still following the rules of ethically and effectively rating bonds. The reality turned out to be different and as a result of not being able to think outside the box (i.e., not being able to imagine others not “following the rules”) they ended up being badly burned. In the US the problem was consumerism run amuck combined with the fact that society wanted things without having to pay for them. Hence the explosion in private debt and government debt (in the latter everyone wanted to keep on and expand spending while simultaneously keeping or lowering tax levels) which, eventually, burst.
Albeit the stories only examine societal phychology in a pretty simple way, only through the rather narrow lens of relatively short trips (he stayed for only a few weeks in each country), the author seems to have hit the nail on the head. Plus each essay is very entertaining. Hence the book is highly recommended despite its dearth of a sophisticated analysis of macroeconomic issues contributing to each nation’s disaster.