The world of Global Finance can be maddeningly frustrating to understand. Unfortunately, its complexity is not matched by its insignificance. Indeed, the effects of decisions and actions in banks, markets and government policy circles around the world are highly consequential. They can easily enrich and impoverish, uplift or condemn, unleash or constrain the peoples of our small planet. As we saw in the recent Great Recession, obscure and only recently invented financial instruments like “Credit Default Swaps” can suddenly become central to vast global economic shifts and changes. And decisions made in Central Banks around our globe can easily trump those made in the Parliaments and Congresses of even our most robust democracies.
Given these realities, we need good guides to this territory of global finances, journalists like Michael Lewis, author of Boomerang: Travels in the New Third World. Lewis’s smart, popular style help us cut through the complexity, and even better, tells us the frightening story of what actually happens when entire countries are empowered by easy money, such as happened in first decade or our new millennium. The author of The Big Short and Moneyball, Lewis is first and foremost a masterful storyteller and his narrative is funny and entertaining amidst his deeply disturbing recounting of the debt fueled hysteria that gripped so many countries in the last decade. His breezy and darkly humorous book is not a full accounting of our economic issues, but rather a travelogue of sorts, a recent tour through the financial disaster zones of the developed West. Like a Weather Channel journalist after big storm, he gives us an on-the-ground perspective of what happened, what was lost, what was learned, and what the future may hold. Through his eyes, we see the impact of the Great Recession on economies of Iceland, Ireland, Greece, Germany and finally back to the US.
Lewis is hardly the first to point out that one of the unintended consequences of the new Euro Zone was new access to easy (borrowed) money for much of Europe. Countries like Greece, whose currencies were once tied to the budget situation of their own country, were suddenly judged by the Eurozone overall. In practice, that meant they were judged by the pristine budgets of Germany. As crazy as it sounds in retrospect, the Greeks were able to borrow money as if they were the Germans, but spend it as if they were Greeks. And spend it they did. The result was massive accumulation of debt. And they weren’t alone. The overall theme was repeated across Europe and America with different cultural variations. As Lewis writes:
The tsunami of cheap credit that rolled across the planet between 2002 and 2007…wasn’t just money. It was temptation. It offered entire societies the chcance to reveal aspects of their chracters they could not normally afford to indulge. Entire coutnries were told, “the lights are out, you can do whatever you want and no one will ever know.” What they wanted to do with the money was dark and varied. Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak. Icelanders wanted to stop fishing and become investment bankers, and to allow their alpha males to reveal a theretofore suppressed megalomania. Germans wanted to be even more German; the Irish wanted to stop being Irish.
Very few things reveal character like easy money—lots and lots of it. This is true of individuals, but it also true of cultures. And that is perhaps the most fascinating part of Lewis’s book. Through stories, interviews, and he brings us deep into the cultural affects of what happened, and we see the fascinating, bizarre and strange rationalizations that led the Icelanders to think they were savvy investment bankers, the Greeks to think they could just lie to themselves and just about everyone else about the true state of their finances, and the Germans to wake up one day and realize, much to their dismay, that the rest of the world did not relate to money like the Germans. It is an amazing and dismaying journey and Lewis never allows the story to lag or to get bogged down in charts or numbers. The financial facts are thankfully easy to follow, but stories and the people and the cultural insight are what the reader is ultimately left with.
Boomerang is not a story with a simple beginning and ending. Today, the financial unraveling of that debt tsunami is still working its way through the global economy. And economists argue about the cultural costs of things like austerity on the European social fabric, and that easy money presents a moral hazard for the US banking and financial system. What one sees through Lewis’s journalism, however, is not just how economic policy influences cultural behavior but also the opposite: how the qualities of any given national character enormously influence their economic long term success and failure. Ultimately, he tracks the all too human tendency to profit handsomely from the bubble and then to point the fingers at others when the music stops. “Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans,” he writes, “and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.”
Lewis’s last concern is American municipalities, the cities and towns who have spent money with great profligacy in the good times, and are gasping for air not that times have turned tough. They have tied themselves into future pension obligations that are compromising existing budgets. As I read the news in my new hometown of Oakland, CA I see the reality of this every day, in budgetary challenges, for example, which have understaffed and decimated the police dept. in one of the more violent cities in the country. The nearby San Jose is the city featured in the book. It shows us that the mismanagement of government and of our budgetary policies is not a uniquely federal issue. But Boomerang is not a call for austerity, or for less government, but a call for greater rationality in economic lives, for living within our means, for being less avaricious in the good times, and for the human character and ingenuity needed to struggle through the bad.