Boomerang: Travels in the New Third World

by Michael Lewis

The moment investor sentiment shifted, these governments would default. (“Once you lose confidence, you don’t get it back. You just don’t.”) And then what? The financial crisis of 2008 was suspended only because investors believed that governments could borrow whatever they needed to rescue their banks. What happened when the governments themselves ceased to be credible?

that every $1,100 bet would return $700,000. “There’s a disbelief that a developed country can default, because we have never seen it in our lifetime,” said Bass. “And it’s not in anyone’s interest to pay attention to this. Even our own investors. They look at us and say, ‘Yeah, you got subprime right. But you’re always out there looking for these extremely rare events and so you think they happen more often than they do.’ But I didn’t go looking for this position. I was trying to understand the way the world was working, and this came to me.”

withdrew them.” One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem.

When you borrow a lot of money to create a false prosperity, you import the future into the present. It isn’t the actual future so much as some grotesque silicone version of it. Leverage buys you a glimpse of a prosperity you haven’t really earned.

In Greece the banks didn’t sink the country. The country sank the banks.

the hardest thing to do in Greece is to get one Greek to compliment another behind his back. No success of any kind is regarded without suspicion. Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible; the collapse of civic life only encourages more lying, cheating, and stealing.

The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself.

The smart person accepts. The idiot insists. He got it, he says, on one of his business trips to the Ministry of Tourism. “This is the secret of success for anywhere in the world, not just the monastery,” he says, and then goes on to describe pretty much word for word the first rule of improvisational comedy, or for that matter any successful collaborative enterprise. Take whatever is thrown at you and build upon it. “Yes . . . and” rather than “No . . . but.”

ancient orator Isocrates: “Democracy destroys itself because it abuses its right to freedom and equality. Because it teaches its citizens to consider audacity as a right, lawlessness as a freedom, abrasive speech as equality, and anarchy as progress.”

Even if it is technically possible for these people to repay their debts, live within their means, and return to good standing inside the European Union, do they have the inner resources to do it? Or have they so lost their ability to feel connected to anything outside their small worlds that they would rather just shed the obligations? On the face of it, defaulting on their debts and walking away would seem a mad act: all Greek banks would instantly go bankrupt, the country would have no ability to pay for the many necessities it imports (oil, for instance), and the government would be punished for many years in the form of much higher interest rates, if and when it was allowed to borrow again. But the place does not behave as a collective; it lacks the monks’ instincts. It behaves as a collection of atomized particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There’s no question that the government is resolved to at least try to re-create Greek civic life. The only question is: Can such a thing, once lost, ever be re-created?

“There is an iron law of house prices,” he wrote. “The more house prices rise relative to income and rents, the more they will subsequently fall.”

A banking system is an act of faith: it survives only for as long as people believe it will.

THE SECRET OF SUCCESS IS TO UNDERSTAND THE POINT OF VIEW OF OTHERS. —Henry Ford

The people who had power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public-sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of people taking what they can, just because they can, without regard to the larger social consequences.

The human brain evolved over hundreds of thousands of years in an environment defined by scarcity. It was not designed, at least originally, for an environment of extreme abundance. “Human beings are wandering around with brains that are fabulously limited,” he says cheerfully. “We’ve got the core of the average lizard.” Wrapped around this reptilian core, he explains, is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. “The only problem,” he says, “is our passions are still driven by the lizard core. We are set up to acquire as much as we can of things we perceive as scarce, particularly sex, safety, and food.” Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now neuroscience does, too. “When faced with abundance, the brain’s ancient reward pathways are difficult to suppress,” says Whybrow. “In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.”

The effect on the brain of lots of instant gratification is something like the effect on the right hand of cutting off the left: the more the lizard core is used the more dominant it becomes. “What we’re doing is minimizing the use of the part of the brain that lizards don’t have,” says Whybrow. “We’ve created physiological dysfunction. We have lost the ability to self-regulate, at all levels of the society. The five million dollars you get paid at Goldman Sachs if you do whatever they ask you to do—that is the chocolate cake upgraded.”

The boom in trading activity in individual stock portfolios; the spread of legalized gambling; the rise of drug and alcohol addiction; it is all of a piece. Everywhere you turn you see Americans sacrifice their long-term interests for a short-term reward.

When people pile up debts they will find difficult and perhaps even impossible to repay, they are saying several things at once. They are obviously saying that they want more than they can immediately afford. They are saying, less obviously, that their present wants are so important that, to satisfy them, it is worth some future difficulty. But in making that bargain they are implying that when the future difficulty arrives, they’ll figure it out.

the effect of this new financial order is bizarre: capitalism for everyone but the capitalists. Ordinary workers remain fully exposed to the increasingly harsh collisions in the marketplace while the highest paid financial elites ride protected by a passenger airbag. This radical unfairness has already given rise in the United States to two extreme political movements, the Tea Party Movement and Occupy Wall Street—

The anger arising from the financial crisis finds no natural channel. In another era—an era before catastrophic experiments with radical socialism and nationalism—we would be watching market capitalism being displaced by something far uglier. But today there is no natural place for anger to flow, and so the anger flows haphazardly, like raindrops down a windowpane. The only political ideology that anger benefits these days is anarchy. From the point of view of those who enjoy political stability, it’s a stroke of luck that anarchists have no natural talent for organizing themselves. But how long will it take them to learn?