Boomerang: Travels in the New Third World
By Michael Lewis
Quick Summary
Michael Lewis travels to Iceland, Greece, Ireland, Germany, and the United States to investigate how the 2008 global financial crisis manifested differently in each country, revealing how each nation's distinct cultural character shaped its particular form of financial self-destruction. The book argues that when given access to unlimited cheap credit, entire nations behaved in ways that reflected their deepest cultural tendencies -- Icelanders became investment bankers overnight, Greeks concealed their debts, the Irish went on a property binge, and Americans feasted on subprime mortgages.
Categories
- Macro & Economics
- Financial History
Detailed Summary
"Boomerang: Travels in the New Third World" (W.W. Norton, 2011) by Michael Lewis is a 149-page collection of expanded reportage originally published in Vanity Fair. Lewis, author of "Liar's Poker," "The Big Short," and "Moneyball," applies his signature narrative journalism to explore how the global credit bubble of the 2000s crashed differently across cultures.
Preface: The Biggest Short connects the book to Lewis's concurrent project on American subprime traders. Lewis introduces Kyle Bass, a Dallas hedge fund manager who made a fortune betting against subprime mortgages, then turned his attention to sovereign debt, recognizing that the same dynamics of excessive borrowing and willful blindness that destroyed American homeowners were playing out at the national level across Europe.
Chapter I: Wall Street on the Tundra (Iceland) tells the astonishing story of how a nation of 300,000 fishermen became investment bankers. Three tiny Icelandic banks borrowed $140 billion (ten times Iceland's GDP) and invested it in assets they barely understood. Lewis profiles the few Icelandic skeptics who saw the collapse coming and the cultural dynamics -- extreme self-confidence, tight social networks, and a tradition of risk-taking inherited from Viking ancestors -- that made an entire nation blind to the bubble. When the banks collapsed, Iceland's currency and economy imploded overnight.
Chapter II: And They Invented Math (Greece) examines how Greece lied its way into the eurozone by hiding its true debt levels, then used cheap euro-denominated borrowing to fund a national lifestyle far beyond its means. Lewis discovers a society where tax evasion was nearly universal, public sector employment was a patronage system, and the government's own statistics were fabricated. The chapter reveals that every Greek institution -- the church, the military, the railroads, the hospitals -- was running enormous hidden deficits. The chapter is both darkly comic and deeply alarming in its portrait of institutional dysfunction.
Chapter III: Ireland's Original Sin traces how the Celtic Tiger, once Europe's great economic success story, was destroyed by a property bubble of staggering proportions. Irish banks lent recklessly to property developers, the Irish government then guaranteed all bank liabilities (a decision Lewis characterizes as perhaps the most catastrophic single act of governance in modern European history), and Irish taxpayers were left to pay for the bankers' losses. Lewis profiles the few analysts who warned of the bubble and were ignored or ostracized.
Chapter IV: The Secret Lives of Germans provides a counterpoint. Germany was not a borrower but a lender -- the primary source of the cheap credit that destroyed Iceland, Greece, and Ireland. Lewis explores why Germans, stereotypically disciplined and prudent, invested so recklessly in foreign assets they didn't understand. His answer involves a theory about German cultural psychology: an obsession with order and rules made Germans uniquely susceptible to the AAA credit ratings stamped on toxic financial instruments. If the ratings agencies said it was safe, the Germans believed it.
Chapter V: Too Fat to Fly brings the story home to America, focusing on the fiscal crisis of California municipalities like San Jose and Vallejo, where police officers and firefighters earned enormous salaries and pensions that bankrupt their cities. Lewis uses this as a microcosm of America's broader inability to restrain public spending and confront long-term fiscal obligations.
Lewis's thesis is that the global credit bubble was a natural experiment in human nature -- the same stimulus (unlimited cheap credit) produced different symptoms in different cultures, but the underlying disease (the inability to resist short-term gratification at the expense of long-term solvency) was universal.
