Boomerang: Travels in the New Third World by Michael Lewis

In 2001, a study entitled “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment” appeared in MIT’s Quarterly Journal of Economics analyzing the financial trading habits of men versus women in 35,000 households. In the end, the authors found that the less female presence in a trade, the less rational the approach to trading in the markets. For example, single men traded less sensibly than married men, but married men traded less sensibly than single women.

In documenting the global debt crises in his 2011 book Boomerang: Travels in the New Third World, Michael Lewis interviewed a woman CEO of an Icelandic bank who told Lewis that just a few days earlier, she had heard banging on the front door of her bank. When she opened the door, she found a little old man. 

“I’m so fed up with this whole system,” he said. “I just want some women to take care of my money.”

The general disdain for the “whole system” by many people came as a result of the 2008 financial crisis, the start of which is depicted in the movie The Big Short based off the book with the same name by Michael Lewis. In the movie, a group of investment bankers decide to bet against the United States’ housing mortgage market despite being made out to seem crazy by both investors and banks. 

The first person to notice that the market was unstable was Michael Burry, played by Christian Bale in the movie, who invested over $1 billion in his bet against the housing market. After having to pay long-term premiums on his credit default swaps against the housing market, Burry eventually had to controversially restrict people from withdrawing their money from his fund. However, in the end, it all paid off. When the market collapsed, Burry’s hedge fund’s value increased by 489 percent and collected an overall profit of over $2.89 billion. 

I thought that the movie did a good job depicting the attitudes of some of the traders when they realized if their predictions came to fruition, so many people would lose everything while the traders themselves would be incredibly wealthy. Some cared more than others. 

“One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem.” – Michael Lewis

Another person that noticed the housing market was unstable was Kyle Bass, a native Texan and alum of Texas Christian University. In 2006, Bass raised $500 million and created a hedge fund and made a massive wager against the mortgage bond market in the United States. By 2008, Bass was now incredibly wealthy and famous within investment circles. However, in Kyle Bass’s opinion, the financial crisis wasn’t over—the collapse of entire countries loomed in the near future. After talking with Kyle Bass during research for the book The Big Short (and dismissing Bass for being a little crazy), Michael Lewis went back to talk to him during research for a new book: Boomerang: Travels in the New Third World.

Kyle Bass came to hold the belief that entire countries were on the verge of collapse through his research that showed people were rapidly borrowing money that they couldn’t afford to repay. The research showed that worldwide debts, both public and private, had more than doubled from 2002 to 2008, from $84 trillion to $195 trillion. As a result, they believed that there was another financial crisis waiting to happen. The only issues were when and where the crisis would start. Bass’s first bet was Greece, in which for every $1 million bet against Greek government bonds, he had to pay $1,100 of premium payments every year. However, once the Greek government defaulted on their debts, each $1,100 bet would return $700,000.

Two years later, in 2011, entire countries had begun to collapse. Bass’s prophecies were coming true. The only issue was the chronology of events that were to happen.

“Greece was about to default on its national debt. Ireland and Portugal had required massive financial massive bailouts; and Spain and Italy had gone from being viewed as essentially riskless options on the brink of financial collapse.”

Once Bass’s prophecies started to really materialize, Michael Lewis found himself asking the question, “how did a hedge fund manager in Dallas even think to imagine these strange events?” 

The answer: the board game Risk. 

Lewis: How did it even occur to you to start spinning theories about the financial future of these distant countries?

Bass: It was Iceland that got me going. I’ve always been interested in Iceland.

Lewis: But why?

Bass: Did you ever play Risk as a kid? I loved playing Risk. And I would always put all of my armies on Iceland. Because you could attack anybody from there.

The book then includes chapters on Lewis’s travels through the “new third world,” reporting on the financial crises in Iceland, Greece, Ireland, Germany, and the United States. In Iceland, people just decided one day that they would be investment bankers instead of fishermen. Icelandic investment bankers then invested heavily in Japanese yen before investing the yen back into their own currency, drastically, but artificially, boosting their country’s wealth. In Greece, nobody pays taxes. Despite often times making millions, every surgeon in Greece reports an income under $12,000 with the rest of the wealth coming from cash bribes. Also, Lewis spent time at the Vatopedi Monastery in Greece, where in 2014 a group of monks were indicted criminally in a land swap scandal with the Greek government. On Mount Athos, no women are allowed—no female animals of any kind, except for cats for some reason. The land swap with the Greek government allowed this group of monks, who spend 10 hours a day in church, to swap a practically worthless lake into a commercial real estate empire. In 2017, all 14 people indicted in the land swap scandal were acquitted on lack of evidence. In Ireland, the government decided to guarantee all the debts from the 2008 financial crisis of the biggest Irish banks—putting the burden on the Irish taxpayer to repay the debts of the banks. 

“These is an ancient rule of financial life—if you owe the bank 5 million bucks, the bank owns you, but if you owe the bank 5 billion bucks, you own the bank—that newly applies to Ireland.”

In the United States, local municipalities are finding themselves operating at losses, becoming more and more in debt. In the U.S. section about cities operating at unsustainable rates, Lewis writes about any possible solutions to the various dysfunctions in America’s society. In doing so, Lewis writes about Dr. Peter Whybrow, a British neuroscientist at UCLA with a theory about American life. Whybrow believes that the dysfunction in America’s society comes directly from America’s success. In America, the richest society ever has gotten its wealth by inventing clever and better wats to give people what they want. However, Whybrow believes that Americans have lost their ability to self-regulate, constantly sacrificing their long-term interests for a short-term reward. As a result, if Americans continue to refuse to regulate themselves, the only regulator is the environment around us that has to administer the necessary level of pain to get everyone’s attention before real change can occur. While the majority of the book seemed dire, I liked how Lewis ended it writing, 

“As idiotic as optimism can sometimes seem, it has a weird habit of paying off.”

I picked this book up because I've liked other books by Michael Lewis in the past and I always see and hear headlines related to America's national debt but I never really understood what went into the problem—the number just keeps rising with every mention. I’ve heard people say before things along the lines of, “Who cares? Nobody is going to ever make us pay back any of it because everyone else is too dependent on America in their own economy.” But what happens if a country like Greece just can’t afford to maintain itself? Would Greece just have to sell land to different entities like its giving up properties after landing on Boardwalk in Monopoly? In a very real scenario, what happens if American cities can no longer afford to pay the necessary number of firefighters or police officers to maintain the safety of the city? 

After reading the book, Michael Lewis continues to be one of my favorite authors. At the very least, now I know to have women handle my money. 

And that's the way I read it.