He starts with Iceland where a conservative nation went wild with speculation in assets around the world with borrowed money. Led by their banks they went on a buying frenzy. In 2007 Icelanders owned 50 times more foreign assets than they had owned in 2002. The banks made paper profits by selling to each other assets at over inflated prices.
Lewis sums up the process as “a handful of guys in Iceland who had no experience in finance were taking out tens of billions of dollars in short-term loans from abroad. They were then relending this money to themselves and their friends to buy assets – the banks, soccer teams, etc. Since the entire world’s assets were rising – thanks in part to people like these Icelandic lunatics paying crazy prices for them – they appeared to be making money”.
He provides an example of one of those guys in Stefan Alfsson who, having only working as a fisher, quit at 20 years of age to become a currency trader who spent two years selling “people, mainly his fellow fishermen, on what he took to be a can’t-miss speculation: borrow yen at 3 percent, use them to buy Icelandic kronur, ant then invest those kronur at 16 percent”.
Lewis points to interesting facts that applied to both the Wall Street and Icelandic disasters such as women had little to do with either calamity. He pointed to Kristin Petursdottir, the only women in a senior position at an Icelandic bank, who quit in 2006 because she did not like how Icelandic men were handling finances and set up a financial services business run totally by women. She wanted to bring feminine values to finance. Since the disaster money has poured into her business for investment.
From Iceland he moves to Greece and then Ireland and then Germany before concluding with the fast developing financial disaster of California especially at the municipal level.
The city of Vallejo went bankrupt and, when Lewis visited City Hall, the city manager had 1 employee to help him run the city. He said public employees ended up with 20 – 30% of what was owed them.
I would be very uncomfortable if I were a California resident in a public defined benefit pension plan. After reading Boomerang I cannot see where governments, state and municipal, are going to have the money to pay the benefits promised as they lack the ability to adequately fund the plans.
Humour is a part of the book. In the chapter on Germany he discusses at some length the national fascination with excrement, especially human excrement. Using cruder language Germans feature it in a multitude of descriptions, sayings and nicknames.
It is fascinating, if frightening, reading on how entire nations in recent years have made collective horrible financial decisions that are going to be devastating for their countries long into the future. (Apr. 10/12)