Boomerang

Michael Lewis's latest book is called Boomerang: Travels in the New Third World. Here he discusses his travels to Europe to understand the aftermath of the financial meltdowns in several countries. Each country had a different path to downfall and thus provides a different window into modern financial pitfalls.

He starts with Iceland, the scene of a spectacular economic collapse in 2008. Iceland's three largest banks had accrued debts larger than the entire GDP of the country. When they needed more capital to keep running, even Iceland's Central Bank could not find enough money to keep them afloat. The end result was a huge crash in the value of the krona. The three banks went into receivorship. May foreigners had deposits on the banks that are still being worked out. Lewis looks at the transformation of a society based on fishing to one based on international finance.

Next is Greece, which has a completely different financial difficulty. After joining the EU, it was discovered that the Greek government had a much larger deficit than was known before, something like three times larger. Lewis finds fault in the culture of Greece, where the public workers do little work for high pay and benefits, including lavish pensions. Moreover, tax compliance is so bad that most people get out of paying their tax bill, even wealthy doctors manage to get paid in cash and avoid taxes. Lewis does a great job describing the culture, especially the Greek's relationship to each other and their government.

Ireland provided yet another type of collapse. Driven by demand for labor, Irish citizens and foreign workers flooded to the country leading to a real estate bubble. Funds were flowing in from the rest of Europe. According to Lewis, "By 2007, Irish banks were lending 40 percent more to property developers than they had to the entire Irish population seven years earlier." The typical part of the cycle happened when real estate values peaked, the banks finally slowed lending, and a credit crunch occurred. The ensuing run on deposits forced the governmnet to gaurantee all bank obligations, essentially putting the Irish taxpayer on the hook. Lewis describes the attempts of a economics professor named Morgan Kelly to get the powers that be to look at the dangers the economy was in in 2007. Obviously, nobody wanted to listen until it was too late. Confidence in the economy was entwined with patriotism, so to question the economic future was to show uncertain faith in one's country.

Lewis also examines Germany, the source of many of the funding for the bank failures and the possible salvation of the Greeks. He then turns his attention to the United States, and in particular California, which has a political system that has led to higher debt and worse credit ratings. He points out that the system in California, where politicians are constantly fighting, is actually good at giving voters what they want: social programs without having to pay for them. He examines the cities of San Jose and Vallejo. Vallejo is a warning sign to all municipalities; it went into bankruptcy and now has a bare bones government.

I found all of the segments illuminating, and none more so that the segment on the U.S. The themes of optimism and false hope are constant through all the world economies. The book shows the many pitfalls in running a large modern economy. Lewis provides detailed statistics and commentary on the culture to give a full picture of each collapse. It is educational as well as entertaining. A-