Stimulating Conversation Blog

Title: Boomerang: Travels in the New Third World. Author: Michael Lewis Rating: 5 Lewis travels to Iceland, Greece, Ireland, Germany, and back to California. Each has a unique post-Sub-prime Meltdown story—and surreal in the Lewis retelling. Iceland males, according to Lewis, decided that they were in fact great investment bankers and jumped in using massive leverage and high risk, only to blow up in 2008. Greece showed no control in government finance, running up huge unreported deficits (very poor accounting) due to overspending and bad tax collection procedures. A Euro crisis developed requiring a massive bailout. Ireland had their own version of a housing bubble, involving Irish banks lending to commercial developers. The result was the same, a complete banking meltdown. German consumers had no interest in excessive borrowing, so German banks lend to other countries including Iceland, Greece, and Ireland—showing no obvious due diligence for evaluating credit risk. The collapse of German banks would mean the collapse of Germany and the rest of the Euro zone. Finally, California and the inability to fix the deficit problems. Schwarzenegger as governor could get no real reform. The problem seems to be that voters want government services and won’t pay for them. The major result is the collapse of California local governments. Lewis looks at San Jose and Vallejo. The results are not encouraging for potential reform in American public policy.