Boomerang, by Michael Lewis


Michael Lewis is the author of The Big Short and a rare storyteller who can convey complex economic topics as stories with interesting characters and plots. Boomerang tells stories in and around the financial meltdown (a.k.a. Panic) of 2008-2009, but for Americans these are mostly the far less discussed stories of Iceland, Greece, Ireland, and Germany.

The fact that Iceland was able (within a single decade) to turn itself into a financial banking center demonstrates just how frenzy and bubbly the economy was prior to the Panic. Similarly, Ireland generated its own real estate bubble at the same time as the U.S., attracting investors from the UK, Germany, and across Europe.

Greece was a seemingly a totally different story, but step back from these three financial disasters and there is in fact a common theme, one that Lewis doesn’t wrap up at the end of the book, as the book was just stories with no wrap up or conclusion.

The lesson is that the search for a small boost in returns can lead to global-scale financial ruin.

It was the search for return that led U.S. investors to buy mortgage-backed securities (and their related derivatives) vs. accepting the market-rate for Treasury bonds, corporate bonds, and municipal bonds. That search in Europe led UK, German, and Scandinavian investors to fund the Icelandic and Irish banks, vs. sticking to investing in domestic bonds. That search led German and French banks to lend directly to the Greek government.

In hindsight, clearly the only due diligence (if any) on these investments was checking their ratings with the ratings agencies, and in hindsight we now know those firms failed to do their job. In hindsight the whole lesson from the Panic of 2008 is that if the returns are higher, then no matter what anyone says, your risks are higher too.

Back to the flow of the book. For some reason Lewis decided to jump from the series of European failures back to America to add two short chapters. They were interesting but should have been left out in the editing. One story was a bike ride with then-Governor Schwarzenegger of California and a final stop in Vallejo, California to visit a bankrupt city.

Compared to most of the economics books I’ve read, this one was a lot more entertaining, but not as enlightening.

By "Luni"


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