In 'Boomerang,' Cheap Credit Exposes Nations' Flaws
No two countries are experiencing the global financial crisis in the same way. And according to author Michael Lewis, you can tell a lot about each country by looking at its problems — and how they're being dealt with.
To research for his new book, Boomerang,Lewis went on what he has called a "financial disaster tour." He surveyed some of the most financially challenged countries in the world, from Iceland and Ireland to Greece and the United States.
As he tells NPR's Lynn Neary, Lewis found a fatal flaw deeply ingrained in each country's culture — which he says helps to explain how they lost their economic way when they were offered cheap credit.
"You can think about the credit bubble as one giant temptation that was laid before the developed world," Lewis says. "Anybody who wanted to borrow basically could, in virtually unlimited sums. And given that temptation, different countries wanted to do different things with the money."
"Fishing has been a source of wealth there. And they've used the wealth to buy lots of education — it's a highly educated population. And then you've got a problem. You've got a bunch of highly educated people who are left to fish."
"When all of a sudden their banks were offered unlimited credit by the rest of the world, every young Icelander was offered the opportunity to essentially become an investment banker."
"The losses were just breathtaking — you know, hundreds and hundreds of thousands of dollars in banking losses, for every man, woman and child in Iceland."
"Essentially what had happened is, the men in the society — the fishermen — had told the women they knew what they were doing. And for a brief period, they looked like they were successful. When I walked in, the women were busy taking back the country from the men."
"They basically walked away from most of their debts. So, they've kind of gone on their way."
"The Irish, left alone in a dark room with a pile of money, wanted to buy Irish land. And they drove the prices up absurdly. But nobody said it. They all sort of kept mum."
"Ireland is the nation on Earth that seems most willing to suffer to repay its debts to others. I think anybody who's been in an Irish family can explain this. There's a kind of suspicion of happiness and a respect of suffering."
"There was a moment, just after Lehman Brothers failed, when Ireland really could have walked away from its obligations — justifiably. It wasn't the Irish government that borrowed all this money; it was Irish banks."
"The Irish banks could have been allowed to fail; they could have at least said to the bondholders, 'We're not repaying you.' And the Irish government made a decision to basically nationalize this obligation. And the amazing thing is that the Irish people did not protest. The Irish people just said, 'Yep, we have to pay it back.' "
"Greece is in some ways the mirror image of Ireland. Because in Ireland, the banks sunk the country; in Greece, the country sunk the banks."
"What happened in Greece — when the Greek people were left alone in a dark room with a pile of money — what they really wanted to do was bloat the state. Because they had this very perverted relationship to their own government — it was a kind of pinata filled with goodies that everybody got a crack at."
"And the Greek state borrowed huge sums of money to do things like run the world's most unprofitable state railroad, and pay people huge sums of money not to show up to their job, their government job — I mean, enormous graft and corruption. All the Greek people basically participated in this event."
"And yet, when they're called out on it, when they're told, you know, it's time to pay — they're furious. They took to the streets instantly. They're rioting; they're rioting, basically, against their own culture, in some ways. Their response is, 'We don't want to change; we don't want to pay back the money.' "
"The IMF and the European Union has been in Greece, trying to reform Greece. There are actually Germans in Greece, trying to collect taxes from Greeks — who don't pay their taxes, don't want to pay their taxes, don't have a culture of paying taxes."
"The problem with Greece: It's a very deep problem, it's a moral problem — a moral, cultural problem. There's no real sense of civil society. It's sort of every man for himself."
"And nobody actually trusts the state enough to give their money to the state. And their mistrust of the state is actually very justified. When you're robbing the state with one hand, it's hard to justify handing the state money with the other, because you see how corrupt it is."
On the United States
"A few months ago, Standard and [Poor's], the credit-rating agency, downgraded U.S. Treasury bonds. When that happened, the markets responded by buying Treasury bonds. The fear that created caused a stampede into Treasury bonds."
"It's like a monster walked into the room, and half the people in the room went to kind of hug the monster."
"What that tells you is that the financial crisis in this country is not going to strike first at the level of the federal government, because it's the last thing people are going to lose faith in — that we can get into even worse straits than we are now, and people are going to be willing to lend to us at very low rates."
"The federal government has the ability to push its problems down to the states. The states — like the state I live in, California — have enormous ability to push [their] financial problems down to the level of the city."
"Cities, at the local level, are in crisis. In California, there are cities that are bankrupt, there are cities that are on the verge of bankruptcy."
"And the way this crisis is going to express itself is much like Greece: It's going to be a gut check about what kind of civic life we want. Do we want to live in a city where there's just a skeletal staff, and the fire department and police department is inadequate and so on — or a city that actually walks away from its debt obligations.
"I think lots of cities are going to be facing that question — and some are right now."
"It's pretty clear that the sense of common purpose is fraying. There's less of a sense that we're all in this together, and more of a sense of every man for himself."
"What this creates is kind of a life-raft mentality, with shrinking provisions. People look at each other and evaluate each others' behavior more harshly."
"One day, Indiana may wake up and say, 'We're not paying for New Jersey anymore.' Or, people in California who are in solvent communities will wake up and say, 'We're not paying for Vallejo, or San Jose, or Oakland anymore, because they behaved badly.' I think what's happening is a kind of fragmentation."
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