Michael Lewis

Michael Lewis’ new book "Boomerang: Travels in the New Third World", takes a look at the financial crisis in Europe that appears to be looming over the U.S.  According to his book it started in the United States, then moved to Europe, and now appears to be looping back to us.  Hence the title Boomerang.  For our assignment we are to look at articles from Vanity Fair written by Lewis talking about a certain nation involved in the crisis.  These stories are about Iceland, Greece, Ireland, Germany and California.  These are all places effected by the crisis.  Lewis calls them all a part of a financial disaster tour. 

            The first of the articles I read was called “California and Bust.”  Obviously it is about California.  The beginning of this article features a Wall Street analyst named Meredith Whitney. According to Whitney who correctly predicted Citigroup having to cut their dividend back in 2007 said that this crisis is something that the people of the United States should be worried about in the next 12 months.  Everyone is afraid that the U.S. won’t pay back the money they’ve borrowed.  According to Whitney there isn’t much of a chance of the actual states defaulting because they can always just pass their problems down to the county and city level.  Everyone freaked out in response to this and the municipal bond marked completely tanked.  According to the article from 2002 to 2008 the states debts had doubled.  According to the article “they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion.”  Underfunded health-care plans, a reduction in federal dollars available to the states, and the depression in tax revenues caused by a soft economy also contributed to the debts the states were amassing.  Each of these things was creating multi-trillion dollar deficits.  According to Whitney it wasn’t the states who would default it, because they had the option to get the money from the individual cities.  From what I can gather the problem is that in America we tend to borrow as much money as we can, without worries about how we are going to pay back.  The way we look at it the more money we borrow the more we can make.  According to Whitney the states would fair differently after the crisis really hits the United States.  She said that the companies would obviously head to the stronger cities because that would be where they would flourish the best.  If the companies moved, the people would follow for the jobs.  All the people leaving the weaker cities would only make the problems worse.  The people who could not afford to move to the stronger cities would really suffer.  This makes it so that the common people would suffer the most for the mistakes made by the states.  The article said that the states that hurt the most would be the ones that borrowed the most.  Whitney said that the scariest of all the states was hands down California. 

            The next part of the article moves from a normal boring article about finance, and changes the style to more of the travel writing style noted on the assignment sheet.  Lewis begins speaking of his meeting with Governor Schwarzenegger.  He paints this vivid picture of his meeting with the governor and their bike ride.   Before he even gets into their discussion Lewis gives you this great description of their bike ride, the people of Santa Monica beach, and their discussion.  Lewis’ talk with the governor revealed a lot.  As before the issue is how Americans borrow in order to live life a certain way, with disregard as to how they will pay it back.  This was shown perfectly when Arnold talks about how in 2011 the average Californian was in a debt of $78,000 up against an income of $48,000. 

            The next person interviewed was Mayor Chuck Reed.  According to Mr. Reed, San Jose owes city employees so much money that if it cut its debt in half it would still end up being broke.  Reed showed a little of glimpse of what the future would be like.  There are two solutions to San Jose’s problem default or drastically cut back on their public services.  This was shown by a few figures.   Reed told Lewis that when he came into office the cities pension cost was $73 million.  This year it would cost $245 million, and in three years time it would cost $400 million.  In order to afford this San Jose cut its city employees from 7,450 to 5400 employees.  This dropped the figure down to the number of people it was employing in 1988.  This doesn’t seem like that big of a deal until you read on to realize in 1988 the city had a quarter of the population.  Reed goes on to say that by 2014 the city will only be able to afford 1600 public employees.  Lewis even quotes him as saying “There is no way to run a city with that level of staffing.”  When asked if he could raise taxes Reed says no way.  He explains that this problem happened as a result of the city spending all the money that was there without any thought as to how they were going to keep it up.  No one wants to pay the money back so rather than doing this they just keep cutting public services such as days the library is open and laying off firefighters and police officers.  The interview with Mayor Reed really opened my eyes to what is going on and why this is such a hard problem to fix.  How can you make an entire culture of people change the way they live? This article was really well written; I especially liked how he put it into blocks, one for each interview.  It was almost like a compilation of a bunch of smaller stories. 

            The next article I chose to read was Wall Street on the Tundra.  This article is about Iceland.  According to the article, Iceland went bust on October 6, 2008.  It has apparently gotten so bad its debt is 8 and a half times the GDP, the people are hoarding food, and there are even reports of people blowing up their cars for insurance money.  Mr. Lewis interviewed a man who had been flown into Iceland to decide whether or not money could be lent to them, even though they are a bankrupt nation.  The man is used to doing work in countries in Africa that were somewhat 3^rd world countries.  For this man this was a whole new experience because unlike the 3^rd world countries he was used to Iceland is extremely well to do, well educated, and very rational nation.   The article says that Iceland’s three biggest banks had assets of only a few billion dollars, about 100 percent of its gross domestic product. Over the next three and a half years they grew to over $140 billion and were so much greater than Iceland’s G.D.P. that it made no sense to calculate the percentage of it they accounted for. It was, as one economist put it to me, “the most rapid expansion of a banking system in the history of mankind.”   From 2003 to 2007 the U.S. stock market doubled, while the Icelandic stock market multiplied itself times 9.  This figure alone is startling.  A professor at an Icelandic University was talking about how hundreds of students moved from studying whatever they had been studying to studying finance.  This doesn’t seem like that big of a deal until Lewis goes on to say that Iceland that has a population about the size of Peoria.
            I felt a strong correlation between the problems of the two places discussed in these articles.  It is a bunch of intelligent people who got caught up in making as much money as possible and didn’t think about the consequences.  This is one of the problems of capitalism, the human error.  It is human nature to be greedy and to keep grabbing up as much as we can without regard to how it is going to impact our financial future.  Lewis does a great job at writing.  This is a topic that seems to be somewhat boring at best to most people, yet the way he is able to put these stories together and to show what could come from this really makes for an interesting read.  Between his vivid descriptions of the culture of the places he is, or his ability to really open your eyes to what could happen as a result of the mistakes that were are making, Lewis is a very skilled journalist.