I liked the book The Big Short so much that after finishing it I started with another book from the same author – Boomerang: Travels in the New Third World. And I was not disappointed. The “new third world” are countries that overextended themselves during the economic boom and are now in recession. Each chapter contains stories of different countries and the deep, but very readable, analysis on what happened and how the people are feeling and react. A short overview of the countries and main conclusions:
– Iceland. Iceland is a small country (population 320,000) in tundra. Yet at the height of the economic boom, three Icelandic banks were among the biggest in the world. Everybody in Iceland was in finance or studying finance. The fishermen quit fishing and went to work for banks. The money inflows to the local banks were so big that the bank assets raised from a couple of billion in 2003 to more than 140 in 2007. Iceland was no longer a country, it was a hedge fund. Lewis enthrallingly describes how the mindset changed and what happened when the bubble finally burst.
– Greece. Lewis goes into the great depth to descibe what happened in Greece. Greece never tried to be a respectable country in the EU. They always, from the very beginning, tried to extract as much as possible from the system. As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was to turn their government into a pinata stuffed with fantastic sums and give as many citizens as possible a whack at it. They never had any inclination to repay their debt.
According to Lewis, everyone is a thief in Greece. Nobody pays the taxes as they should. Nobody. Medical services are for free, but if you go to the doctor, you have to bribe him or her to actually get the service. That is the local standard for everything. Lewis brings out a lot of examples, but the most remarkable one is a story of two poor monks who somehow through corruption and theft managed to get the ownership of real estate worth more than €1B (one billion euros). That was the story that even made the other greeks angry (or jealous). Reading the chapter about Greece you would not believe something like this happening in Europe in the 21st century (let alone in European Union). This is kind of sad.
– Ireland. When the “let’s get rich” scheme for Iceland was about building a Wall Street to tundra and for Greece stealing as much as possible, then for Ireland it was “For now on we are going to get rich building houses for each other”. Ireland experienced a real-estate boom fuelled by rapid increase of household debt, speculation and population growth (the latter aside, it was pretty much similar in Estonia). Everybody needed to have a house. Even today, Ireland’s 87 percent rate of homeownership is the highest in the world. The population growth came from migration, at the height of the market there were more than a quarter of a million Poles alone in Ireland. When the market finally crashed, the Poles and other migrants left the country leaving lot of houses empty.
– Germany. Lewis describes why there were virtually no boom and crash in Germany. He brings out the nature of a german that is just too conscientious and realistic to let himself be affected from the manias. At the same time, opposite from a local stereotype, german banks did take risks and lost a lot of money. Germans were also the last ones selling CDS-s (credit default swaps) to sub-prime mortgages when eveybody else on the market knew that these things were toxic.
– USA. Lot of the municipalities in the USA are close to bankruptcy. Lewis shows that for a lot of states (most notably California) there is nowhere to seen where the money to pay the pensions should come from. In the next decade, few of them will (not?) be bankrupt.
Overall a good book, at times a bit too slow to progress. I prefer The Big Short and if you really like it, then try this one, too.