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Boomerang: Travels in the New Third World Paperback – September 4, 2012
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Title: Boomerang( Travels in the New Third World) <>Binding: Paperback <>Author: MichaelLewis <>Publisher: W.W.Norton&Company
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In Lewis' latest book, "Boomerang," the subtitle is, "Travels in the New Third World." Lewis is not referring to Asian or Latin American countries here. He's talking about European countries that drank the elixir of seemingly endless and cheap credit prior to the bursting of the recent financial bubble. To say that cheap credit transformed the economies in Greece, Ireland and Iceland, for example, is to understate the impact of the financial bubble on these countries. Talk about a timely book--I am writing this during September 2011, and yet this book refers to the recent downgrade of U.S. debt, which occured only last month, beginning on page 171.
As in many of Lewis' books, there's a new person who you probably never heard of before to meet. In "Moneyball" it was Billy Beane, the general manager of the Oakland Athletics baseball team, and in "The Big Short" it was Steve Eisman, Michael Burry and others. This time it's Kyle Bass, the manager of a Dallas-based hedge fund, who Lewis makes sound both very insightful and eccentric. What would you call a man who owns a 40,000 square foot ranch located on thousands of acres in the middle of nowhere with its own water supply and an arsenal of automatic weapons? Or someone who would recommend "guns and gold" for his mother? Anyway, the gist of Bass' financial analysis is that mountains of shaky debt (arising from borrowings during 2002 - 2006 by people who couldn't repay) was essentially transferred from private institutions (like banks, etc.) to various governments, to the point that eventually markets would question the credibility of these governments. Put differently, the public debt of certain countries wasn't just the official public debt, but also that which came from supporting various private institutions.
Bass, Lewis tells us, visited Harvard professor Ken Rogoff (coauthor of "This Time is Different: Eight Centuries of Financial Folly," which I recommend), and found even Rogoff to be surprised by the magnitude of the public debt problems. Just as Bass bought credit default swaps on subprime mortgages prior to the financial crisis, Bass later bought credit default swaps on Greek government bonds, because he was convinced that Greece would be one of the first countries to experience real problems. Bass expected the swaps he purchased for 1,100 per year per million to eventually be worth 700,000.
Anyway, Lewis interviewed Bass years ago in preparation for writing "The Big Short," but he "left Kyle Bass on the cutting room floor." Lewis returned to Dallas two and a half years later, this time to find that Bass was betting most heavily against Japan and France at the time. Bass also had literally bought 20 million U.S. nickels (don't ask how), because he said the value of the metals in each nickel was worth 6.8 cents. The majority of this book is devoted to Lewis' travels in Iceland, Greece, Ireland and Germany, and to his discoveries during his travels. To get a flavor for the book and Lewis' writing style, here are some of Lewis' passages, in his own words:
Iceland: "Iceland instantly became the only nation on earth that Americans could point to and say, `Well, at least we didn't do that!'"
Greece: "As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was to turn their government into a pinata stuffed with fantastic sums and give as many citizens as possible a whack at it."
Ireland: "But while the Icelandic male used foreign money to conquer foreign places--trophy companies in Britain, chunks of Scandinavia--the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do was buy Ireland. From each other."
Germany: "Either Germans must agree to integrate Europe fiscally, so that Germany and Greece bear the same relationship to each other as, say, Indiana and Mississippi (the tax dollars of ordinary Germans would go into a common coffer and be used to pay for the lifestyles of ordinary Greeks) or the Greeks (and probably, eventually, every non-German) must introduce `structural reforms,' a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans."
Quoting Lewis quote UCLA neuroscientist Peter Whybrow in the book's last chapter (on California's financial problems, not European countries), Lewis writes, "'Human beings are wandering around with brains that are fabulously limited. We've got the core of the average lizard.' Wrapped around this reptilian core is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. 'The only problem is our passions are still driven by the lizard core.' Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now nueroscience does, too. 'In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.' ... Everywhere you turn you see Americans sacrifice their long-term interests for a short-term reward."
Love him or not, Michael Lewis is a talented writer, and I truly believe that most readers will have a hard time putting this book down. If you have enjoyed his earlier books, the decision to purchase this one seems to be a no-brainer. If you haven't read one of his earlier books, this one is worthy of your consideration.
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.