How we got into this financial mess: A story on steroids

Over the last few years, financial journalists have been having a field day. As some of us yield-curve-challenged mortals watch the world slip and slide from one crisis to another, we look to these pundits, eager for some enlightenment about all the abstruse machinations that have been going on in the name of High -and Low- Finance.

There was the crystal-clear narrative of Too Big To Fail (Andrew Ross Sorkin), the ominous sounding The End Of Wall Street (Roger Lowenstein), the incredibly self-righteous narrative offered by Hank Paulson in On The Brink, the ever-so cerebral Nouriel Roubini's Crisis Economics and Michael Lewis's wickedly funny The Big Short. Arguably, these were some of the definitive books, on the post-2004 madness that sucked us into the vortex that we now refer to as 2008. All hole, no mint, it turns out.

 How we got into this financial mess: A story on steroids

Book cover of Boomerang

Each one of these books deconstructed the mind-bogglingly complex, yet intuitively simple, kick-the-can-down-the-road philosophy, displayed by Bankers, Traders, Investors, Insurance Firms, Rating Agencies and Regulators. These were the gentlemen who believed they had finally discovered the Holy Grail of Finance: extinguishing Risk. Ha! And Ha again!

(No offence to megalomaniacal alpha male banking types, but we seriously need more women in Finance & Investment Banking. Hell, even in Hedge Funds. At least they ask for directions when they are lost!)

Boomerang: The Meltdown Tour, a recent release authored by the charmingly witty Michael Lewis, is "a rollicking good yarn" (as described by the Financial Times). It delves into how this spectacularly insane kick-the-can-down-the-road philosophy has been adopted by governments as well. Lewis ventures deep into the dark underbelly of this messy thingamajig, filling us in on the gory details of the Ponzi scheme which entire nations have been indulging in. PIIGS should have gone oink a long time ago actually is what I thought to myself as I put the book down finally.

The opening chapter is about a nation where fishermen decided to go in for career path realignment a few years ago, and took to being Bankers. Icelanders, writes Lewis,

"inhabited their remote island for 1100 years without so much as dabbling in LBOs (Leveraged Buy-outs), hostile takeovers, derivatives trading, or even small-scale financial fraud. When, in 2003, they sat down at the same table with Goldman Sachs and Morgan Stanley, they only had the roughest idea of what an investment banker did and how he behaved. And so what they did with money probably says as much about the American soul, circa 2003, as it does about the Icelanders. They understood instantly, for instance, that finance has less to do with productive enterprise than trading bits of paper among themselves. And when they lent money they didn't simply facilitate enterprise but bankrolled friends and family, so that they might buy and own things, like real investments bankers: Beverly Hills condos, British soccer teams, Danish airlines and media companies, Norwegian banks, Indian power plants".

Lewis has his very own, refreshingly irreverent style (on ample display in some of his earlier books, especially Liar's PokerandThe Big Short) of dispensing with the superficialities of an issue, and attacking the core. And being politically correct is a concept entirely unknown to him. Thank God for that!

Once Iceland and most things Icelandic have been demystified, he proceeds to skilfully manoeuvre his way through the governmental, social and cultural specificities of Greece, Ireland and Germany, before wrapping up with Too Flat To Fly - perhaps the darkest section of this book- which would make Americans cringe because of how much it reveals about them. Even the firefighters, worshipped as a breed after 9/11, are not sacrosanct enough to prevent a quip or two about them by Lewis.

Boomerangpulls no punches as it takes us on a guided tour through the collective German psyche, taking potshots at their "clean on the outside" and "dirty inside" duality. Reminds me of Private Joker from the Full Metal Jacket with "Born to Kill" written on his helmet, and a peace symbol on his body armor.

Along the way, Lewis shines some light on Germany's not-so-banal anal obsession, and links it to how it is okay for "shit to happen" outside their borders, but when it comes to the domestic economic landscape, financial poop is simply not allowed. When the entire world - well, almost the entire world - was going berserk inflating the real-estate bubble, Germans maintained their sanity locally, while gobbling up huge amounts of CDOs emanating from the factories on Wall Street that were crapping out the instruments with stinking enthusiasm. But Lewis says that the lessons of the Post-War reparations and the subsequent hyperinflation are still etched way too deep in the nation's collective memory for the Germans to attempt any serious shenanigans when it comes to their domestic economy though.

There are interesting snippets on Ireland as well. Sample this: the erstwhile Prime Minister, seeking to explain the financial crisis of 2008, actually said "Lehman's was a world investment bank (sic). They had testicles everywhere"! When countries start getting governed by not entirely unintelligent people who confuse their testicles with the tentacles of global finance, it is time to say a little prayer. (I, myself, however prefer saying that word starting with B and rhyming with Malls!)Borderline Atheism (a serious cosmic whack can swing the scales back after all) comes with its little joys. It is a bit like wanting Capitalism on the way up, and Socialism on the way down. Think "Occupy"!

The most devastating section of the book is devoted to Greece. Underneath that huge sovereign debt, and the cooked government account books (how the Greeks "controlled" inflation and kept the fiscal deficit in check is a story that will give some of our Indian politicians a debilitating inferiority complex!) lies decades of rampant corruption, gleeful tax evasion and a bloated wage bill to feed the incompetent public sector employees. You could throw in a few Orthodox monks who have not sold their Ferraris yet, in there too. Sounds familiar?

Greece, according to Lewis, is perhaps the only country where public enterprise salaries are higher than those of private sector employees. No wonder they were rioting on the streets when austerity measures were being debated in Parliament: for a nation that does not believe in paying taxes, austerity measures of any sort, understandably, can cause some degree of heartburn. Enough heartburn actually, for one to fling a Molotov Cocktail or two while passing by a bank or a government building. It is the zeitgeist, stupid!

Jin Liquin (Chairman of China Investment Corp) was rather blunt in a recent interview when he said: "The labour laws in some parts of Europe induce sloth and indolence, and the incentive systems are totally out of whack with reality." What he probably wanted to say was "No frigging way we are going to be lending you a trillionanything for a bailout anytime soon. Go ask Angela Merkel!" For more on this, click here.

I have a sneaking suspicion that Angela Merkel privately fantasises about being Chinese. That way, bailing out nations that deserve to go under would not have been her problem. Oh wait... Remind me again, how many trillions worth ofUS Treasury bonds the Chinese own! It is complicated, I guess.

I am hoping that in a year or two, Michael Lewis will demystify that conundrum as well for us...

Updated Date: Dec 20, 2014 07:08:49 IST