Boomerang

by Michael Lewis

 

In this semi-sequel to The Big Short, Michael Lewis travels across the globe to get a sense of how the real estate crash in the United States affected formerly solvent and prosperous nations. He calls it “financial disaster tourism,” and it’s a spot-on description. While the crisis began in the United States, it quickly spread across the world, eventually leading to a sovereign debt crisis in Europe. Lewis follows the money- or, more accurately, the debt- from country to country, meeting government officials and others to try to get a feel for what, exactly, just happened.

As Lewis explains in his introduction, he was tipped off by a man he was interviewing for The Big Short (who was subsequently dropped from the book) that the crisis wasn’t over just because governments bailed out the banks. The bailouts, in fact, only temporarily solved the problem; bank debt was merely converted into sovereign debt. While the United States is ostensibly much less likely to go bankrupt than a private company, bailouts provided only the illusion of solvency, in reality setting the world up for a bigger crash to come.

So Lewis travels to Europe, as the debt crisis unfolds in Iceland, Greece, Ireland, and Germany. He seems to take pleasure in noting that while the whole world experienced the same boom and subsequent bust, each nation handled itself differently. Iceland, for example, which Lewis notes has around 300,000 people- half the size of Washington, DC- almost overnight moved from a fishing economy to a banking economy. BoomerangIcelanders started studying finance and investing their money all over the world. While this may have seemed like a good idea at the time, the bubble eventually burst, and Iceland was rudely awakened to the fact that maybe banking wasn’t the most solid of foundations on which to build their entire economy.

When he makes it to Greece, Lewis can’t believe the amount of shenanigans going on at all levels. The government pulls tax collectors off the streets during an election year, and taxes are generally seen an inconvenience to be avoided if at all possible. Even monks are tied up in a national scandal, related to shady real estate deals. Nobody trusts each other, lying and corruption are rampant, and the country can’t decide whether it wants to reform itself or not. The phrase “It’d be funny if it weren’t so tragic” kind of applies here. Possibly more accurate: “It’s pretty hilarious, though I’d imagine it’s not so funny if you happen to be Greek.”

And, indeed, I felt a little worse about laughing at the Greeks when Lewis finally made it to America. One of Lewis’ sources, an analyst named Meredith Whitney, believes that American government finances at all levels are in shambles, but that the federal and state governments will be able to push the hurt down to municipal governments. Many of these cities would likely go bankrupt keeping all of their promises- mostly pensions- and this in turn would alter the fabric of American society. When Lewis asks Whitney where the worst will hit, she directs him to California.

His trek through the Golden State is startling, to say the least. Lewis first spends a day interviewing former Governor Arnold Schwarzenegger, though it seems more like an excuse to go on bike ride around the beach while Ahnold talks about his life (which admittedly sounds awesome.) After his romp with the Governator, he travels to the cities of San Jose and Vallejo, California. San Jose appears to be in a bit of trouble, what with an overpaid public sector and falling tax revenues, but Vallejo is downright scary. When Lewis shows up, the only thing going on in the city seems to be a massive property auction. City hall seems closed, but Lewis eventually locates the city manager and his staff of one. Through Lewis’ talk with the Vallejo city manager, it’s hard to shake the feeling that if this is where America is headed, we might be in trouble.

Lewis writes books about either sports or finance, employing the same combination of careful research and fantastic storytelling for both. This makes it odd to read Moneyball, about a man who shook up Major League Baseball by coming up with a cheaper way to win, and then read books like The Big Short or Boomerang, which deal with the worst economic disaster in my lifetime. The latter, specifically, forecasts an even worse crash to come, and doesn’t provide much hope that we can avoid it. It’s just a bit jarring for me, as if Lewis is saying, “There’s no way that society’s going to survive the coming calamity. Don’t even try to avert it. Now, let’s talk about football.” He’s telling us that the sky is falling, but he doesn’t seem too concerned, which is itself somewhat unnerving.

Even at his most depressing, though, Lewis always entertains and informs me. Boomerang isn’t a work of optimism, that’s for damn sure, but it’s hard not to be amused by Lewis’ travels. It’s also hard not to be terrified.

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The Big Short

by Michael Lewis

 

I think I was meant to like this book, for several reasons. First of all, I have read a couple of Lewis’ other books, The Blind Side and Moneyball. Both were excellent, and yes, I am the type of hipster that will tell you I read the books before the movies came out. (I never saw The Blind Side and I thought Moneyball was good, but not great; both films received Oscar nominations for Best Picture.) Lewis was able to blend histories of football and baseball with the personal stories of Michael Oher and Billy Beane to make entertaining, informative, and at times touching books.

I’m fascinated by Wall Street culture, at least as portrayed in films such as Wall Street and American Psycho, and I was hoping to see a bit of that and how it played into the subprime mortgage crisis. Although I sympathize with anti-Wall Street protests, it’s still fun to get a peek at their world. I mean, you don’t need to like gangs to enjoy The Sopranos or The Wire. Gordon Gekko is a great character, even though I hate what he stands for.

I was also curious about the collapse of the economy, which I blame for not having a good job and for everything else I don’t like about my life. I paid attention to the news a lot in 2008, and I still didn’t really have a clue as what set it off, how and why the government got involved, and how I would be affected. If anyone could explain it all in a way that I could understand, it would be Michael Lewis.

Well, The Big Short did show the Wall Street hubris I had been expecting (though I think that Lewis’ 1989 semi-memoir Liar’s Poker would have more of this). It also did an excellent job of explaining the crisis in a way that any idiot, like me, would understand. Essentially, the book tells the story of what happens when banks give home loans to people who almost certainly won’t be able to pay them back. The loans are packaged together and sold as a bond, which contains some loans that will be worthless and some that will be paid. This bond is then chopped up, combined with others, and sold as a CDO to disguise the fact that they often contained bad investments. Banks and huge Wall Street firms soon got knee-deep in other wacky derivatives that were so far removed from what they represented that investors never realized it was a house of cards. If you want an explanation that wasn’t written by an idiot, The Big Short should be very helpful. Though I had to refer back to Lewis even for my weak summary, I can assure you that I understand the economics of the crisis much better than I did before.

Understanding all these obscure financial concepts is never the problem here. The problem is that Lewis tells the story by focusing on the handful of people who saw the crisis for what it was and decided to bet against the subprime mortgage machine, directly and indirectly. Some are insiders, some are not, and some are more likeable than others. For me, just keeping them straight was hard, and I kind of wish Lewis had stayed away from their personal lives and focused on their involvement with the market. I never developed an emotional connection with any of them, and I think it doesn’t help that all were making money off of an apocalyptic scenario. Some of Lewis’ protagonists even admit this as well: all were feeding the doomsday machine and stood to profit substantially when the machine finally broke down.

I get it, or I think I do, that Lewis chose these people as the subjects of The Big Short because they were the only ones to see the mess coming, the only ones so confident that they were right that they were willing to put their money, hundreds of millions of dollars, where their figurative mouths were. They are not, however, the ‘good guys’. That they were right does not change the fact that they made money while failing to prevent millions of homebuyers from being taken advantage of. Perhaps if Lewis had included some of the 99% in the book, it would have had the emotional anchor that made his other work special.

If you want to understand the subprime mortgage crisis, this account is superb; seriously, if you’re curious at all, read it. But I don’t think they’re going to make it into a movie anytime soon.