Want to know how we got into this mess? One of the best ways to find out is to read The Big Short, Michael Lewis’s last book, in which he profiled the very few people on Wall Street and elsewhere who had the vision (or the numbers) to see that the American mortgage market was built on a foundation of nitroglycerine, and to bet millions (or billions) of dollars that the whole thing would come crashing down.
Talking to one of those far-sighted traders in the wake of the predicted disaster, Lewis found him enthusing about another opportunity. The massive debts that had been transferred from banks to governments in order to save the system would, Kyle Bass believed, bankrupt many of them in short order. So Lewis embarked on a bout of “financial-disaster tourism”, visiting those nations – Iceland, Greece, Ireland – whose behaviour had been particularly extravagant, and the Germans who got landed with the bill.
Barely three years on, the boom times already feel so remote that it is well worth the reminder of how lunatic all of our behaviour really was.
There was the Greek monastery that managed to persuade the government to parlay a worthless lake into a billion-dollar property empire, the Icelanders who walked off the trawlers and straight into making million-dollar currency bets, the Irish who built more shiny new homes than there would ever be people.
Fortunately, it is impossible to imagine a better guide to this terrain than Lewis.
Possessed of rare gifts for explaining statistics and markets, winning the trust of fascinating people, and marvelling at human folly, he has been a peerless chronicler of irrational exuberance ever since his days as a Salomon Brothers trader produced Liar’s Poker, the story of how Eighties Wall Street really started to get out of control. Lewis’s central theory is that, while everyone went a little mad, everyone went mad in their own way: each nation responded to the carnival of free money according to some dark facet of its own character.
The Greeks, for example, decided to “turn their government into a piñata … and give as many citizens as possible a whack at it”. State jobs paid three times those in the private sector (with no work required), while tax collection was a joke: two thirds of the country’s doctors reported an income of less than €12,000 a year.
The Germans played prim and proper in the domestic markets, but happily wallowed in filth when investing overseas. And when the music stopped, each responded differently: the Irish sighed, and started picking up the tab; the Greeks washed their hands and blamed the government.
In the final – and most alarming – chapter, Lewis looks closer to home, highlighting the extent to which America’s national debts are now matched (even eclipsed) by those of its states and cities. As one analyst he meets points out, the amounts owed to public-sector workers across the country are larger than it will be able to pay.
Worse, as a chat with ex-California governor Arnold Schwarzenegger reveals, the political system could almost be designed to frustrate sensible, non-partisan attempts to fix things. The gloomy prospect is not just a world, but a nation, divided between the solvent and insolvent, aka the quick and the dead.
Yet while I cannot recommend these essays highly enough, actually buying this book would be a mistake of subprime proportions.
It’s not just its extraordinary brevity, which the wide margins, large fonts and double-line spacing can only barely disguise. It’s that each of these admittedly excellent pieces has already appeared in Vanity Fair, and all are still freely available on its website.
By asking £20 for what essentially amounts to a hasty cash in – rather than bulking out the book by, say, inspecting the new economies of the East, to get a truly global picture – Lewis has fallen into the same trap as so many of his subjects, and taken the easy money. Here’s hoping for an expanded edition – in paperback.
Boomerang: the Meltdown Tour
by Michael Lewis
250PP, Allen Lane t £18