Will Byrnes's Reviews > Boomerang: Travels in the New Third World

Checking in with the whiz kids who predicted the Wall Street crash that he wrote about in The Big Short, his excellent look at the latest Wall Street meltdown, Michael Lewis finds that the next big bust will be on the nation-state scale. His construct for analyzing how nations deal with the economic environment of the 21st century is to imagine each of these countries in a dark room in which piles of money were dumped, the easy credit available in the first chunk of the 21st century. What would the different countries do, based on presumed national characteristics?


Michael Lewis - image from The Guardian - photo by Cody Perkins

The answer, obviously, varies from nation to nation. In the case of Ireland they used the money to buy up property, Irish property, and sold it to each other for increasing prices, generating a nifty real estate bubble that eventually burst. In Greece they used their largesse to continue what, in Lewis’s description, seems a corrupt, kleptocratic society in which the national cookie jar needed a much larger mouth to accommodate all the hands that were yanking out the koulourakia. Lewis looks at Iceland, Germany and the USA as well, each offering its own response to the sudden availability of great gobs of cash. His national portraits are very interesting, and at times amusing. It does seem a simplistic way to judge the behavior of entire nations though. Particularly when the problems that resulted were created, for the most part, not by working men and women, but financial high fliers, gambling with other people’s money. Perhaps a view of that smaller group might have been more illuminating.

OK, so suspend disbelief for a bit and go along for the ride. What Lewis finds is disturbing. It is only a matter of time before nations begin defaulting on their national debts. The likely result of such a failure would be a ratcheting up of interest rates in the defaulting nation, which would impair the nation’s ability to pay off the initial debt as investment would grind to a halt, reducing the government’s ability to cover its costs, thus increasing its need for debt, and so on in a lovely death spiral. In the USA there is a very specific way in which the debt crisis will find its way into your life and mine. That was, for me, the most interesting piece of the book. That Lewis got to hang with Ah-nold makes for a fun read, but his analysis is where the real beefcake is.

How did all this come to be? There are several reasons for this international debacle, but much of it comes down to simple greed. It may be comforting to know that the USA still exports something, even if it is a form of corruption. For example, that bastion of righteousness, Goldman-Sachs, or as Matt Taibbi prefers to call it, the Vampire Squid, did the Greek government the favor, for a stunning fee, of offering advice on how to lie to the European Community about the state of their economic affairs.

In a larger view, Wall Street monetization of assets, toxic and otherwise, took the western world by storm. Perfect. Not only are American companies drowning in lie-based securities, now investors and nations across the world are able to go glug-glug in the same waters. And in most cases, financial institutions (think AIG and Wall Street investment houses), and banks, private, public, or some combination, manage to externalize their debt, their greed and stupidity onto the national taxpayer and somehow keep themselves afloat. Thus working people in Ireland are being soaked to pay back loans made by German banks, among others, caught up in the mindless feeding frenzy. Why should the taxpayers of Ireland be stuck with that bill? American taxpayers have been hit with hundreds of billions of dollars in cost to prop up corrupt financial predators, while the hyenas continue to treat themselves to astounding salaries, bonuses, and stock options. Similar externalizations of cost have become standard operating practice, as governments step in to keep afloat too-big-to-fail corporate entities, often under the guise of keeping nations above water.

A significant point is made here about the fuzzing of the line between public and private indebtedness. As governments trend towards privatizing public assets they are increasingly on the hook for private debt, by guaranteeing private loans, or buying toxic assets. One result is a gross understatement of how much debt governments are truly responsible for, since not all the indebtedness shows up on the public ledgers. The numbers are staggering, and frightening. Big changes are needed, but all Lewis offers at the end is a feeble optimism that we (in the USA) will figure something out.

Boomerang is a fascinating read, rich with information, range and insight. It could have used a bit more analysis, and seems to refer to, without naming, a significant current trend, namely that governments are becoming little more than mechanisms through which private corporations can shift their indebtedness and failure onto the backs of taxpayers while keeping their profits nicely private. There is plenty of personal responsibility to go around. Yes, there are people who have taken on more debt than they can manage, bought more house than they could afford, but as often as not, they were misled when applying for their mortgages. (A subject that seems outside the purview of this book is that in the face of skyrocketing prices for medical care, housing, and energy, among other things, millions of people have taken on more and more debt, not to live large, but merely to be able to pay their bills) But the major culprits here are not middle class people trying to achieve or sustain a decent standard of living. Lewis, on the other hand, sees much greater responsibility lying with middle class folks, in tandem with big speculators.

The answer to so much of this is simple and clear. More fairness in our tax structure and regulation of our financial system that takes account of the street’s ability to go out of its way to create unregulated products and corporate entities.

In the United States the wealthy began kicking up the rate at which they were looting the nation in 1980. It has only gotten worse in the years since. How about we start by returning, more or less, to the tax rates extant before the Reaganauts took power? Even if we forget about trying to get back the money the rich stole from the rest of us since then, the increased fairness of the tax burden would make a huge difference in government’s ability to cover costs, including the cost of interest on the national debt that the looters incurred, and saddled us with, in order to feed their greed. How about the long-hairs at the top taking a haircut instead of them continually trying to trim the newly-bald middle class and making the lives of the poor even more intolerable.

A whole new financial economy has come into existence in the last few decades. And those making big bucks from it have paid off our legislators to keep those areas away from government regulation. It is the absence of such regulation that has allowed the madness to go on. Clearly there are more than just banks involved in the world of finance these days, and the regulators (and also the legislators that provide the laws that regulators enforce, or somehow manage not to) need to get serious about keeping up with the latest attempts to evade scrutiny. It might be nice if the financial regulatory agencies were run by people other than former Wall Street CEOs or their fellow travelers. And it is beyond ironic, into the level of evil, that those who push laws limiting government’s ability to raise revenue, and who rail against the horrors of regulation, are the very ones who gripe about the ineffectiveness of the governments they choose to starve.

Lewis doesn’t venture into such territory, but he does successfully give us a big-picture inkling of what lies ahead. As with civilization, the Greeks led the way. Will the rest of the world, the Western world anyway, follow in their steps?


==============================EXTRA STUFF

I would heartily recommend for any who have not yet read it, Naomi Klein’s great book, The Shock Doctrine. What is happening in Europe will make much more sense after you read that.

Confessions of an Economic Hit Man , by John Perkins, details how international debt is consciously used as a way of virtually enslaving entire countries.

Another outstanding analytical book is Matt Taibbi’s Griftopia , which looks closely at more domestic economic abominations

Gary Rivlin’s Broke USA shows how predatory lending practices affect our lives here at home.

November 9, 2011 - New York Times article: Crisis in Italy Deepens, as Bond Yields Hit Record Highs

January 18, 2012 - a Nation of Change article that looks into banks hoarding cheap public subsidy money while governments face increasing costs as a result of supporting private financial entities - Bailouts + Downgrades = Austerity and Pain

January 24, 2012 - Krugman on what is happening in Greece vis a vis German push for reducing the public sphere - Rooted in Politics, Austerity Worsens the Greek Tragedy

February 18, 2012 - a NY Times article offering a harbinger of things to come -
Budget Woes Prompt Erosion of Public Jobs, With a Heavy Toll in Silicon Valley

April 19, 2012 - TARP on steroids for the EEU furthers the demise of democracy - The European Stabilization Mechanism, Or How the Goldman Vampire Squid Just Captured Europe

May 17, 2012 - Relating to how Lewis sees local government as a major point at which austerity-driven service cutbacks and worse will be inflicted on regular folks, here is a Barbara Ehrenreich article on how local governments and the private sector are squeezing the poor. Dickens would find 21st Century America far too familiar.

June 18, 2012 - Joe Nocera's NY Times column on how ALEC-based programs are gutting democracy in Rhode Island

July 18, 2012 - What a Republican America looks like

July 28, 2013 - Tana French piece in the NY Times re actions and consquences in Ireland The Psychology of an Irish Meltdown