Lewis explores the developing debt crisis in three countries: Iceland, Greece, and Ireland. He also takes a look at Germany and their unique position in the European crisis. To bring the point home to Americans he looks at debt issues in the state government of California and a city that declared bankruptcy and has recently emerged from the process, Vallejo, California. What Lewis found through his research and interviews with officials, is each of these governments have become indebted to such an extent that their balance sheets look a lot like those found in third world economies.
One of Lewis’ main theses in Boomerang is that the large amount of seemingly free money handed out by banks in the late 2000s allowed countries and their citizens to perform a cultural experiment. The question this experiment answered was, “What might happen if people are placed in a dark room with a large pile of money?”
In Iceland, citizens ditched the stable fishing industry they had worked for centuries to develop in order to become investment bankers and currency traders in volatile global markets. In Greece, the culture that invented math and democracy decided they didn’t want to participate in either anymore. The government allowed its citizens to get away with not paying their taxes, but still gave millions away in pensions and other government hand-outs. The Irish decided they wanted to become property owners and inflated their housing market. Banks offered outrageous loans to buyers based on the inflated property values. When the market collapsed, home values returned to values well below the amount lent, causing homeowners to foreclose and banks to shut down. Sound familiar?
Lewis offers two possible conclusions to the global debt crisis. The first is found in the introduction to the book, and may be a bit cynical, though thoroughly entertaining: Prepare for the worst.
Lewis describes a colorful character who he interviewed in Dallas, Texas. He is a hedge fund manager who foresaw and was able to position himself to benefit from the American sub-prime mortgage crisis, and who is now betting that many governments throughout the world will become financially insolvent. His recommendation to Michael Lews was to invest in guns and gold (Lewis describes the man pulling a gold bar from his desk drawer and setting it down on his desktop while giving this advice). If banks collapse and governmental currency becomes worthless, this will probably be seen as sage advice.
The second possible conclusion Lewis offers is found in the last chapter of the book, and is more positive. Lewis describes a conversation he had with the Fire Chief of Vallejo, CA where budget cuts and a reduction of fire station employees and resources currently prevails. This man, rather than becoming stagnate due to a lack of resources, decided to become innovative. He set out to answer the question, “How can we still perform the services our community needs satisfactorily with less resources?”
Hopefully this is the direction the world’s governments choose to take in solving this current financial crisis: Honesty and innovation.