Mark Rice's Reviews > Boomerang: Travels in the New Third World

Boomerang by Michael Lewis
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Nov 29, 11


In 2004, Wall Street's largest investment banks brought about the beginning of a worldwide financial downturn by creating the credit default swap on the subprime mortgage bond. The events that followed have been widely reported. Once-wealthy nations such as Greece, Ireland, Iceland and Germany accrued gargantuan debts, causing governments, banks and other companies to crumble. In 'Boomerang', Michael Lewis explains the details of how and why this happened, visiting the worst-affected countries and speaking with key players from both sides of the fence (those whose actions caused the damage, and those whose predictions - if taken seriously - could have prevented it). Lewis's snappy prose and incisive wit make this an enjoyable reading experience as well as an educational one.

In an amusing aside that could be viewed as a prophetic metaphor for Iceland's approaching financial meltdown, Lewis reveals that Alcoa, the biggest aluminium company in Iceland, encountered a problem unique to their nation when, in 2004, it set about erecting a giant smelting plant. Iceland's folklore is so all-pervasive that many Icelanders believe in 'hidden people', or, in other words, elves. Before Alcoa could build a smelter, it had to pay a government expert to examine the enclosed plant site and certify that no elves were on or under it. One Alcoa spokesman told Lewis that it had been a delicate corporate situation, as the company had been forced to pay hard cash to declare the site elf-free, but, as he put it, "we couldn't as a company be in a position of acknowledging the existence of hidden people."

Lewis cites a 2001 paper called 'Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment', published by MIT Quarterly Journal of Economics, which found that men trade more often than women, and from a position of worse judgement. The study found that single men trade more recklessly than married men, who in turn trade more irresponsibly than single women. The weaker the female presence, the less rational the approach to financial-market trading. One of the characteristics common to both Iceland's financial collapse and Wall Street's is the absence of women (only one woman occupied a senior position in an Icelandic bank), who weren't given risk-taking jobs. Interestingly, only one woman had a senior position in Icelandic banking in 2005. The woman in question, Kristin Pétursdóttir, quit her job in 2006 to set up a financial-services business run entirely by women, as she didn't like the reckless way men were running Icelandic banks. Her business is now one of very few profitable financial businesses in Iceland. An old man turned up at Pétursdóttir's door one morning with his life savings and the proclamation, "I'm so fed up with this whole system. I just want some women to take care of my money." (Please note that this approach is not foolproof - I once tried it with my wife and she spent the lot on cars, designer handbags and shoes. She's now my ex-wife, for obvious reasons!)

Greece's financial downfall was unique in that it was caused by bankers behaving ethically: they did not buy US subprime-backed bonds nor did they irredeemably leverage their assets or pay themselves inordinate sums of money. The Greek bankers made one fatal mistake: they lent 30 billion euros to the Greek government, where it was stolen or squandered. Michael Lewis points out that, "In Greece the banks didn't sink the country. The country sank the banks." (This reaffirms the increasingly popular belief that entrusting one's money to bankers or politicians is unwise...a bit like entrusting one's budgie to a hungry cat.) Unpaid taxes were another main contributor to Greece's financial troubles. No one has ever been punished in Greece for not paying taxes, which is seen as an option rather than a responsibility.

Ireland's post-millennial boom in property development led to debts that were unsalvageable. The Irish banks - most notably Anglo Irish Bank - lent billions of euros to property developers whose construction activities ran amok, despite there being no influx of buyers for these new properties, until the developers were broke and the banks went bust.

Germany's financial problems resulted from trying to bail out European countries which were in deep financial trouble. In doing so, they behaved in a way that was uncharacteristically unGerman (putting other nations' financial wellbeing before their own). Germany was dragged into financial descent, its downward spiral inextricably linked to the economic fate of the countries that simply couldn't afford to pay back the billions of euros they had borrowed from the Germans.

One factor was common to the worst-affected countries (United States, Greece, Ireland, Iceland and Germany): an insistence on burying their heads in the sand and repeatedly proclaiming that all was well, even though their financial foundations were sinking into oblivion. In each case, the dissenting voices of a few shrewd observers were hushed or ridiculed, granting the countries a short-term facade of financial wellness, but making them look foolish, conceited and financially immature when the truth finally came out and the brown stuff hit the fan.

'Boomerang' is an eye-opening book which gives the inside scoop on events that have been - for the most part - covered up. Lewis's world tour of financial destruction is an enlightening adventure for the reader. He tells his tale with a voice of wisdom, humour and humanity.

Well written, immaculately researched and told from a perspective of economic knowledge, 'Boomerang' is a must-read book.
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Comments (showing 1-5 of 5) (5 new)

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Mark sounds like a useful book. I may try to read this one as I find so many of the current crop of 'finance books ' are couched in such technical language that the only result for non-financiers like me is frustration and confusion


Mark Rice I reckon you'll like this book, Mark. It's written in the style of a road-trip thriller, which essentially it is. The book even has the subheading The Meltdown Tour. Michael Lewis has a deep understanding of economics (and an understandably intolerant view of reckless financiers), yet his writing style is clear, concise and lacking in technical jargon. He doesn't just regurgitate facts and figures that are available elsewhere (and are often skewed), but gets his information direct from the horses' mouths, so to speak. This information, combined with knowledge and insights from Lewis's keen economic mind, makes the book very readable and educational too. And while the subject matter is far from funny, Lewis's observations frequently are, which further enhances the book's readability.

Enjoy!


Mark cheers. You have sold it to me


message 4: by Chris (new)

Chris Your review has also added this to my "to read" list.

The paragraph on Alcoa reminded me to the trailer to this movie, which I'm looking forward to watching this Christmas season...

http://www.youtube.com/watch?v=9RQlik...

On a more serious note, the bit about gender and risk reminds me of something I read about the Grameen Bank. Apparently they originally made microloans to both men and women, but the percentage of loans repaid was much better when they loaned to women. As well as changing these women's lives, it made better business sense to only make loans to women.


Mark Rice Chris wrote: "Your review has also added this to my "to read" list.

The paragraph on Alcoa reminded me to the trailer to this movie, which I'm looking forward to watching this Christmas season...

http://www.y..."


Looks like my kind of film, Chris. I'll watch that for sure. It reminds me very much of the recent Norwegian movie Troll Hunter, which I hugely enjoyed.

Grameen Bank's loan experiences reflect MIT's findings from their gender study. Michael Lewis's section on the gender divide in Iceland, and its influence on the country's financial downfall, is enthralling. So I guess that if we want financial advice, ask a woman. Just make sure she's not my ex-wife! Good woman, reckless with money...

Enjoy the book!


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