[W.W. Norton; 2011]
The first few pages of Michael Lewis’s latest book, Boomerang: Travels in the New Third World, introduce us to Kyle Bass, a hedge fund manager fresh off a successful $500 million bet against the subprime mortgage market. Bass has invested his new fortune in thousands of acres of Texas hill country, where he spends his days playing with sniper rifles, anti-beaver explosives, and a Hummer customized with a button that coats the road behind him in giant tacks. He is also the proud owner of twenty million nickels. (The metal in each nickel is worth at least 6.8 cents, according to Bass.)
And yet, like so many of the bizarre characters that have accumulated in Lewis’s Rolodex in the past twenty years, Kyle Bass has “experienced the strange and isolating sensation of being the sane man in an insane world.” And in 2008, when Bass turned his attention to the dangerous levels of sovereign debt accumulating around the world, the figures he found stunned even the world’s leading expert on the history of sovereign defaults. “If you don’t know this, who does?” Bass asked the surprised Harvard professor. “Who is paying attention?”
Three years later, nations like Greece, Ireland, and Portugal are crippled under staggering debt, and it is hard not to wonder how so many smart people could do things that seem so obviously stupid.
In Boomerang, Michael Lewis is our tour guide to these financial disasters around the world. How does a journalist end up being more insightful than a host of experienced experts? Lewis asks common-sense questions and doggedly pursues those to which no one can give him a sensible answer.
This style also leads to great storytelling. Iceland caught wind of the global leverage craze in 2003, and by 2007, the value of the Icelandic stock market had multiplied nine times. Iceland never questioned the source of its transformation from tiny island nation into financial powerhouse, which primarily came from trading assets to each other at inflated prices. As a hedge fund manager explains, “You have a dog, and I have a cat. … You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners but Icelandic banks, with a billion dollars in new assets.” The citizens of Iceland — who are fewer in number than those of greater Peoria, Illinois — became responsible for paying off the debt from $100 billion in banking losses, over 850% of their GDP.
Lewis has always strived to make his obtuse topics engaging, and in Boomerang he uses ethnic stereotypes to explain national financial systems. He devotes considerable attention, for instance, to a cockamamie theory that Germans have a public obsession with cleanliness that masks a private obsession with feces. These claims have generated a considerable amount of justifiable criticism.
But as a narrative technique, Lewis’s armchair anthropology works. While I doubt Germans have any of the obsessions Lewis claims, the metaphor aptly summarizes the problems of their banking system. Germans became infatuated with financial checklists — “they say, `I’ve ticked all the boxes. There is no risk.’” — that encouraged them to invest in toxic assets in America, Ireland, and Greece. The grafting Greeks, on the other hand, dodged limits on public compensation by paying employees for months that don’t exist.
Worried that Americans may become too comfortable in their schadenfreude, Lewis closes with a frightening examination of the debt borne by America’s local governments. As an unfortunate confirmation of his warning, Jefferson County in Alabama just went bankrupt on roughly $4 billion in debt.
It’s worth remembering that although Lewis interviews prescient financial Cassandras, his own reporting before the crash of late 2007 was, at times, as bad as the people he now skewers. In a January 2007 article for Bloomberg, Lewis derided the “wimps, ninnies, and pointless skeptics” at the Davos forum who warned of coming financial peril. There’s “not a worrisome fact in sight,” he wrote. “They have no evidence that financial risk is being redistributed in ways we should all worry about. .… Davos is where people with no talent for risk-taking gather to imagine what actual risk-takers might do.” Nouriel Roubini, the most famous of the Cassandras, now calls Lewis a Monday morning quarterback.
Lewis is a storyteller, not an economist, and it wasn’t his job to predict the crash before it came. But his previous irrational exuberance takes some of the bite out of his black-and-white morality and his derision for the “idiots” who made “stupid bets.” From his first book, Liar’s Poker, Lewis has made his living pillorying Wall Street. He had every incentive to catch this crisis before it happened, and we can’t claim he missed it because of greedy self-interest or a circle of like-minded friends. As Ezra Klein writes about Lewis’s miss, “Ultimately, that’s what makes the financial crisis so scary. The complexity of the system far exceeded the capacity of the participants, experts and watchdogs.”
Nonfiction publishing has become increasingly sensational. It took barely a year after Obama’s election for Barnes and Noble shelves to switch from The Promise and The Bridge to Culture of Corruption and The Audacity of Deceit. Similarly, the year 2007 divides books like The New Era of Wealth and The Wealthy World from Aftershock, Too Big to Fail, A Colossal Failure of Common Sense, and, yes, Boomerang.
If the proliferating books “explaining” the crisis are only the product of narratives that already exist, are we really better off than we were before? Are we more likely to catch the next financial threat? Perhaps not, but we should still make sure we’re not caught then with the same systematic shortcomings.
Boomerang isn’t the smoothest read of Michael Lewis’s career — it’s cobbled together from a series of articles he wrote for Vanity Fair (all of which you can still read for free online), and his writing is more informal and profane than usual. But for trying to understand the current crisis of sovereign debt, Boomerang is the rare combination of gripping, hilarious, and required reading. Lewis’s ability to demystify a wickedly complex subject is matchless, and he is the rare author who can change your settled point of view.
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