Book Reviews | Feb 01 2012
By Greg Peel
The first thing that strikes the reader about Michael Lewis' new offering, Boomerang (Travels In The Third World) is its title. Australians might be forgiven for assuming immediately that the author of insightful and popular tomes exposing the folly of financial excess knows something we clearly don't about the trajectory of what is otherwise lauded as one of the world's most stable economies. We can nevertheless rest easy, for Boomerang is not about Australia at all.
Indeed, nowhere among Boomerang's limited but enthralling pages is mention of our own beloved Lucky Country. Rather the book – or more correctly collection of observations – is centred about as far away from the antipodes as might be possible: in the ancient lands of the Vikings and Celts, to the birthplace of democracy, to the northern land of frugality and rectitude, and finally to the once mighty but now crumbling empire across the Pacific. What's more, there is no reference made to the title in the text, nor the introduction, acknowledgments, dedication nor even the jacket summary.
Clearly Lewis intended that the reader deduce the implications of this otherwise abstract title themselves. Perhaps a clue can be found in this extract from the introduction:
“In Kyle Bass's opinion, the financial crisis wasn't over. It was simply being smothered by the full faith of credit of rich Western governments…They were no longer talking about the collapse of a few bonds. They were talking about the collapse of entire countries.”
In other words, Boomerang is about the GFC that came back.
The second thing that strikes the reader about this publication is that one is quickly reminded of Bill Bryson, arguably the world's most entertaining travel writer and observer of the human condition in parts otherwise unknown. Boomerang's subtitle is no abstract concept – it is indeed a travel diary of sorts – although where the no less witty and celebrated Lewis departs from Bryson's genre is in his specific choice of otherwise disparate destinations: Iceland, Ireland, Greece, Germany, and America. Why single out these particular locations?
“The Danske Bank report alerted hedge funds in London to an opportunity: shorting Iceland. They investigated and found this incredible web of cronyism: bankers buying stuff from one another at inflated prices, borrowing tens of billions of dollars and relending it to members of their little Icelandic tribe, who then used it to buy up a messy pile of foreign assets. Like any new kids on the block…they were picked off by various people who sold them the lowest quality assets – second-tier airlines, sub-scale retailers. They were in all the world's worst LBOs”.
“A single bank, Anglo Irish, which, two years before, the Irish government claimed was suffering from a 'liquidity problem', confessed to losses of 34 billion euros. To get a sense of how '34 billion euros' sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish Bank, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar invested”.
“The average government job pays there almost three times the average private sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece's rail passengers into taxicabs: it's still true”.
“In effect, lots of non-Germans had used Germany's credit rating to indulge their material desires. The Germans were the exception. Given the chance to take something for nothing, the German people simply ignored the offer. 'There was no credit boom in Germany,' says Asmussen. 'Real estate prices were completely flat. There was no borrowing for consumption. Because this behaviour is totally unacceptable in Germany. This is what the German people are. This is deeply in German genes'”.
“But they had done something far less common: during the boom Germans bankers had gone out of their way to get dirty. They lent money to American subprime borrowers, to Irish real estate barons, to Icelandic banking tycoons, to do things that no German would ever do”.
Germany, suggests Lewis, is a nation ridden by guilt. One only has to take note of Berlin's many memorials to the Holocaust, some quite recently established. Is this why Germany feels it must direct its leadership role towards holding Europe together, whatever the cost? Or is the German government's determination to save the eurozone simply an indirect way of saving Germany's banks from collapse?
Boomerang, like Lewis' earlier works, is as much an analysis of the human psyche as it is a laymans' guide to what the current disaster is all about. Why was Iceland's failed all-male government replaced by a party led and dominated by females? Why did the Irish government elect to guarantee the bonds of the country's bankrupted banks when bondholders across the globe had already resigned themselves to losses? Why the Greek obsession for cooking books and ignoring taxes? And why was “The Governator”, Arnold Schwarzenegger, unable to make any dent in the debt of America's “scariest state”.
Perhaps the most ominous (or perhaps farcical) observation made by Lewis in his book is the implicit flipside of the European crisis:
“On August 5, 2011, moments after the US government watched a rating agency lower its credit rating for the first time in American history, the market for US Treasury bonds soared. Four days later the interest rates paid by the US government on its new ten-year bonds had fallen to the lowest level on record…The net effect of a major US rating agency saying that the US government was less likely than before to repay its debts was to lower the cost of borrowing for the US government and to raise it for everyone else. This told you a lot of what you needed to know about the ability of the US government to live beyond its means: it had, for the moment, a blank check. The shakier the United States government appeared, up to some faraway point, the more cheaply it would be able to borrow.”
How many times can a boomerang come back?
From the 1st of February onwards (today) FNArena offers a free hard copy of Michael Lewis's "Boomerang. Travels In The New Third World" as bonus to every 12 month subscription. See the website for more information. (This offer runs until we change or amend our subscription offer and/or bonuses – see website for updates).
Michael Lewis. Boomerang. Travels In The New Third World. W.W. Norton & Co, New York-London. 213 pages.