A Book Review: Boomerang, by Michael Lewis

For many people, the Global Financial Crisis in 2008 is a fresh memory. It has only been a decade since the day we learned there is no such thing as "too big to fail". 

GFC 2008 was a spectacular disaster, and today the world is still feeling the pains. What caused it? We know the culprit in the US was the subprime home loans. But what about in the other parts of the world? Why was the Greek government close to bankruptcy? Why did the real estate market in Ireland tumble? Why did the banks in Iceland fall down like dominos? Why did the German government have to rescue their banks? And perhaps most importantly, what is the lesson to learn from all of this, and will history repeat itself, only this time on a bigger scale?

In December my book club read Boomerang, by Michael Lewis. If you haven't heard of Michael Lewis, then perhaps you have heard of the 2015 movie, The Big Short. The movie was based on one of his previous books (a non-fiction book of the same name). Boomerang is a continuation from The Big Short, where Michael Lewis extended his investigations to the international waters, and unveiling what went on behind the curtains of those countries hit hardest by GFC 2008, namely; Iceland, Greece, Ireland, Germany, and then finally, the US.

In this book, Michael Lewis detailed how debt was the common denominator behind the economic downfalls in every country, but there is also a great diversity in the manner each country spent their cheaply borrowed credits. Between 2002 and 2008, it became very easy to borrow money. In Iceland, the entire country turned into a giant hedge fund, where the bankers used the money to engage in aggressive acquisitions of foreign assets, which they bought and sold at grossly inflated prices. In Greece, the government wasted the loans on a mass spending spree, thus dragging down the banks with their public debts. In Ireland, the loans fueled a construction frenzy, in which they built an oversupply of homes and sold them at hyper inflated prices. The German bankers, meanwhile, purchased mountains of subprime loans from the US and bonds issued by Greece, all the while thinking those were "risk free investments". Finally, in the US, they incurred mass public and private debts because people wanted to live above their means.

Boomerang described how each country spent their loans and created the economic bubbles, each in their unique ways. The author attributed the diversity of money spending to the national cultures. Some people criticized the author for cultural stereotype. I am not a scholar in this field, so I don't know the role of national cultures in these affairs. However, I do think there is a common theme behind it all – GFC 2008 was a result of people wanting to live above their means, and sacrificing long term interests and common good in exchange for short term gains.

Boomerang is funny, but it is also scary. The stuff that people did was nothing short of incredible, in a bad way. You would have expected to find this sort of stories in satires and parodies like Discworld, but not in the real life! Yet, the stuff mentioned in this book is our recent history. Truth, is indeed stranger than fiction! This is why the book is also scary. I mean, take a look around, and start paying attentions to news in the financial world, does it look like the world has learned the lesson?

I highly recommend Boomerang.