Perhaps the only thing more chilling than the current condition of Europe’s banking and financial systems—and the threat of contagion—is the notion that some people saw this coming and did nothing. They played their hands rather than sound the alarms.
“One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem,” Michael Lewis writes in his new book, Boomerang: Travels in the New Third World.
Like the bets they made against subprime mortgages in 2008, some investors have taken similar positions now against government debt in Europe. If countries default on their loans, those investors stand to profit substantially.
At the beginning of this century, when money was so readily available, it’s as if countries were left in a dark room with a pile of cash. Aspects of each country’s national character determined the way it behaved: Icelanders fled the fishing industry for careers in high-stakes investment banking. Americans bought homes they couldn’t afford. Germans became even more German, and the Irish tried to be anything but Irish.
Lewis’ book offers readers a passenger-seat view of a global economy at risk of a financial collapse more severe than anything seen before.
Lewis is a financial journalist and contributing editor at Vanity Fair magazine. He has written extensively on the financial crisis and is the author of several books, including The Big Short and Liar’s Poker.
Of the boom—read bubble—years that fed so many gluttonous states, Lewis says, “All these societies were touched by the same event, but each responded to it in its own particular way.”
No reaction was as destructive as Greece’s.
One of the world’s oldest civilizations, Greece is all but financially ruined and socially bankrupt. Its fate was sealed, in part, by a series of inexplicable land swaps with the Greek Orthodox Church that screwed the state and turned monks into land barons.
Greece is described as a country that’s rigged to allow everyone to cheat on his or her taxes. “It’s simply assumed,” says Lewis, “that anyone who is working for the government is meant to be bribed.” Meanwhile, a state job pays almost three times more than one in the private sector.
The author recounts how mobs protesting austerity measures injured and killed Greek bankers last year. The protestors said they were angry at the bankers for showing up for work . Protestors shut down Greek ports, preventing cruise ships and tourists dollars from entering the country at a time when its economy needed the money the most.
Lewis lays blame for Greece’s problems squarely at the feet of the state—a government predictably more interested in sustaining its ranks of public employees than in stamping out institutional corruption.
Today, Greece’s debt stands at about $1.2 trillion, or roughly $250,000 for every working Greek.
“This question of whether Greece will repay its debts is really a question of whether Greece will change its culture,” Lewis writes, “and that will happen only if Greeks want to change.”
So proceeds Lewis’ account of a world teetering on the edge. The book, more sociology and anthropology than high finance, untangles the collision of debt and national character, explaining how the world managed to march right up to the edge of the void.
Ever since the recession struck in 2007, a handful of investors have forecasted worldwide financial catastrophe triggered by the collapse of governments overburdened by debt.
One such investor, Kyle Bass, bought 20 million nickels as an insurance policy against a global melt down. He bought the coins – $1 million worth – because he says they’re 36 percent more valuable as raw metal than as currency.
Bass said doesn’t know how any sane person isn’t preparing right now for the unimaginable: “It may not be the end of the world,” he told Lewis. “But a lot of people are going to lose a lot of money… I think it’s something we need to go through. It’s atonement. It’s atonement for the sins of the past.”
On his winding tour through debt-ridden countries, including Ireland, Iceland, Greece, and the United States, Lewis stops to examine Germany, the sober-faced middleman between toxic American assets and the buyers in Europe who went down with them.
The role of Germany as creditor to a host of “deadbeat European nations” fits with the country’s fixation on the interplay between filth and cleanliness, Lewis says.
“Germans,” Lewis writes, “longed to be near the shit, but not in it.”
Like its citizens who wear plastic bags on their heads to mud wrestling matches, Lewis says Germany “donned head condoms in the presence of their bankers, and avoided being splattered by their mud.”
The country “appears to have experienced a financial crisis without economic consequences,” says Lewis.
The book is a sinister romp through the “new third world.” Its blend of style and content creates a kind of masochistic experience: it’s a great read about our own financial doom.
“The world is now pocked with cities that feel as if they are perched on top of bombs,” Lewis declares. “The bombs have yet to explode, but the fuses have been lit, and there’s nothing anyone can do to extinguish them.”
Leave a Reply