Michael Lewis on ‘Boomerang’ and the Global Financial Meltdown
Michael Lewis, acclaimed author of "Moneyball", "The Big Short", "The Blind Side", "The New, New Thing" and the iconic "Liar's Poker" is now out with his latest book, "Boomerang: Travels in the New Third World"- an illuminating look at the global financial meltdown.
The book is a compilation of a series of Vanity Fair articles. Inside, Lewis describes his year spent covering "financial disaster tourism, traveling to Iceland, Ireland, Greece and beyond," in order to explain how nations could lose their economic way, when offered cheap credit.
In a first-on CNBC, Lewis talked about his new book and the current financial crisis.
Is the carnage that we're seeing lately in the financial and stocks overall, is this like 2008 all over again? Or is there a big difference between now and then?
In my mind the financial crisis never ended. And this is Act Two. Act One was the collapse, and loss of faith in the financial institutions, because they leveraged themselves up to such an extent. Then governments came in and said they would stand behind the banks and not let them collapse. But now governments are under the microscope which adds yet another level of suspicion and its all very unsettling to the markets.
Has the leverage been transferred from individuals and institutions to sovereign governments?
Yes, exactly. Greece could be seen as a harbinger of what's to come, the first of several governments whose solvency is called into question. I think that in my view, we're watching Act Two of the same exact story. And uncertainty weighs heavily on markets. In some ways, the U.S. does not deserve to be in as good a shape as it is in right now. We're sitting here, after been the cause of many problems in a relatively secure spot.
Greece: Drip, Drip, Drip…
Been doing pretty much nothing for eighteen months now, and underneath the news, you have radically different cultures trying to wed themselves together. The problem with Greece is profound. A society in total moral collapse. Not competitive at all. The State has been treated as a pinnate for the population. Its less there to serve the people in a meaningful way than to be robbed by the people. Greece is a giant patronage state. And to shift a culture that won't change, is incredibly difficult and in the process, Greece has been unable to deliver to a truculent population. The books had been fiddled to get into the Euro in breathtaking fashion.
This is one case where the problems originated in the public sector, not the banking sector. The country sunk the banks, rather than the banks sinking the country. And absent a total fiscal union, this experiment with Greece will not last and Germans seem unwilling to foot the bill.
"A banking system is an act of faith: it survives only for as long as people believe it will."
"In 2001, Goldman Sachs , engaged in a series of apparently legal but nonetheless repellent deals designed to hide the Greek government's true level of indebtedness. The machine that enabled Greece to borrow and spend at will was analogous to the machine created to launder the credit of the American subprime borrower - and the role of the American investment banker in the machine was the same."
Iceland…Just Like Wall Street
Lewis characterizes Reykjavik, Iceland to that of Wall Street at the beginning of the financial crisis
"Walking around just before the collapse of Lehman Brothers, you saw empty stores, empty streets, and, even when it was raining, empty taxis; the people had fled before the bomb exploded. Reykjavik had the same feel of incipient doom. "Foreigners entrusted their capital to Iceland, and Iceland put it to good use, but then, on September 15, 2008, Lehman Brothers failed and foreigners panicked and demanded their capital back."
When Irish Eyes are Crying.
"Ireland is the nation on Earth that seems most willing to suffer to repay its debts to others. I think anybody who's been in an Irish family can explain this. There's a kind of suspicion of happiness and a respect of suffering."
"Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another...And they drove the prices up absurdly. But nobody said it. They all sort of kept mum."
Lewis; Pay Close Attention to Kyle Bass!
Hedge fund manager Kyle Bass, Managing Partner, Hayman Capital Mgmt., is featured prominently in the first chapter of "Boomerang" He is one of a handful of folks who made millions correctly betting against the sub prime market, and is now betting on the collapse of entire European countries.
"Bass was so early in the trade convinced that Europe would come unglued and from here on, he said it reads like fiction, and we're heading towards a day of reckoning."
"Then the financial world began to change again - and very much as Kyle Bass had imagined it might. Entire countries started to go bust. What appeared at first to be a story chiefly about Wall Street became a story that involved every country that came into meaningful contact with Wall Street….Once again a hedge fund manager had been more or less right and the world had been more or less wrong."