Little is more depressing than reporting about how four countries populated with bright, energetic people became victims of their own short-sighted and self interested behavior. In his very well-written book, “Boomerang,” Michael Lewis gives a lively narrative of how Iceland, Greece, Ireland, and Germany coped with the disastrous financial crisis which reverberated around the globe beginning in September 2008. Here is a sobering account of the convergence of several human weaknesses that wreaked havoc and misery on so many.
Using a “boomerang” as a symbol was an intended link to the likenesses of the boomerang’s behavior with that of many investors. A boomerang is designed to return to the person making the throw. As Lewis sees it, “money thrown out in hope, comes back in anger.” There is yet another story — posed as a parable —by which Lewis wishes to apply to many operators in the world of investments. He borrowed the story from a British neuroscientist, Dr. Peter Whybrow, who used this story to point out the consequences of the human failure to practice self regulation.
Accordingly, a flock of pheasants made their nests in the fields near a large estate. They were of interest to local hunters searching for food. In time, only one pheasant survived the hunter’s guns. With no competition, this lone bird had plenty to eat and stuffed until it was obese. Now, too big to fly, it was an easy catch for a hungry fox and was promptly devoured. The failure of self regulation invited catastrophe.
Lewis begins his travels in Iceland by pointing out the primacy of the fishing industry and the culture of confidence required for success. A similar confidence took place when Icelanders became acquainted with Wall Street and the ideas of Milton Friedman. Led by their Prime Minister, David Oddsson, taxes were lowered, regulations reduced and banks and industry privatized. Before the collapse, Iceland’s three leading banks had assets of only a few million dollars which grew to over $140 million. While the U.S. stock market values doubled between 2003 and 2007, Iceland’s market rose by nine times. Meanwhile, debts mounted to 850 percent of their GDP.
A young professor of economics at the University of Chicago, Bob Aliber, had an interest in Iceland and courageously (and bluntly) warned them of their peril in May 2008. “I give you nine months. Your banks are dead. Your bankers are either stupid or greedy. And I bet they are on planes trying to sell their assets right now.” Only a few months before that prediction, a meeting was held in an Icelandic hotel where British and American hedge fund managers were “figuring out how much money was to be made betting on Iceland’s collapse.” One observation made about Iceland and Wall Street was the absence of women in the risk-taking jobs.
The next stop for Lewis was Athens. The Greek financial crisis was so threatening that it was actually thought necessary to sell some of its island possessions or even some of its ancient ruins. The International Monetary Fund and the European Central Bank had agreed to make a loan of up to $145 billion. The total estimated debt came to $1.2 trillion. There seemed to be a general agreement that Greece has the most serious debt problem of the four countries studied.
There is also general agreement about what the most evident cause of Greece’s financial problems. The shortage of revenues is now claimed to be the result of a widespread cultural acceptance of cheating on taxes. It is estimated that two-thirds of doctors in Greece are under-reporting their incomes. Also, “every single member of their parliament is lying to evade taxes.” With a new government in power since 2009, there have been some efforts for reform. There is a stark realization that a default on its debt would trigger huge repercussions throughout Europe.
Though we cannot report on all of the countries visited by Michael Lewis, we can get a glimpse of the magnitude of the crisis. Perhaps we can learn a lesson from “Boomerang.” It is designed to behave a certain way. When a boomerang is thrown, it is predictable that it will repeat itself and return to the thrower.
There is mounting evidence that unregulated speculators will repeat themselves regardless of where they live. If they, like the pheasant, lack the conviction or power for self regulation, society must impose both.
Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.