Boomerang: Travels In The New Third World - Michael Lewis

The great recession of 2008 a time in history that made fools of many and wonder how have we let our governments become reckless for so long?

In Boomerang: Travels in the New Third World, Michael Lewis visits Iceland, Ireland, Greece and Germany as well as California (when he visited he had a good conversation with the Govenator himself). Greece and California have more in common than the other three but all have been greatly impacted by what happened in 2008.

In the case of Ireland it was pure speculation of the housing market, houses were built with no one to buy them. Credit was extended to builders to build these properties but of course with no one to buy these properties the builders couldn't pay them back. Housing markets that appreciate greatly are bad signs, look at Toronto and Vancouver, scary crap right there.

Iceland was because someone had the bright idea that fishing and aluminum smelting were not good enough. Let's get into banking, even after reading this book I still don't understand how they accumulated all their wealth. All I know is that the American's came knocking with their subprime and of course other "good ideas" that the Icelandic banks decided to gamble on then lost all their wealth and more.

Greece and California (to the same extent the province of Ontario should be included) was due to entitlement. The issue that Greece and Ontario share with California, underfunded public pensions, which is complicated to even explain unless you are familiar with downloading costs from one level of government to the other with the local governments picking up the tab for the emergency services workers. For Greece they have a lower retirement age than any other jurisdiction and like Ontario employ MANY in government services. These employees of course enjoy their defined benefit pension plans (I could go on a rant about this type of pension and how some unions have negotiated that you could go years without working, not quitting of course but being on disability, and the employer would still contribute to your pension.) and will not give it up in any bargaining (see Canada Post). Since no one could afford their houses anymore in California no one was paying property taxes, therefore that revenue stream was shriveling up in some communities. This lead to reductions in public servant staff and in many cases severance, but with ones remaining until retirement where does the money come from to replace the funds borrowed from the pension bucket?

The Greek government is like the Ontario Liberal government, doing very little to change bad habits. For instance in Boomerang Michael Lewis visits a monestary at the centre of a land value scandal. The monks were able to swap their land of little value for land of greater value. The greater value land was bringing in rental revenue for the Greek government but somehow the monks are now benefiting from this revenue stream. Pick E-Health, Ornge or the Gas Plants and it's about the same for Ontario.

Germany is the outlier in all of these examples because their country did not go bust. However they were the ones, who being the voice of reason in the IMF, that had to "bail out" Ireland, Iceland and Greece. German banks were not typically known to take risks like the Irish and Icelandic banks, but somehow they got caught up in the American subprime debacle.

Here's a scenario that is not known, had the IMF not existed Ireland and Iceland could have reverted to being colonies of Great Britain and Denmark if they did not successfully cut ties like they did. This happened to Newfoundland, they owed Great Britain for WWI couldn't pay it back tried to get a loan from from elsewhere to pay back this and were not successful. Great Britain reverted them back to a colony and now they're a Canadian province. But of course there were many other layers underneath this due to WWII and the Cold War. But can you imagine if this happened to Ireland and Iceland? To read more about Newfoundland please check out Don't Tell the Newfoundlanders: The True Story of Newfoundland's Confederation with Canada  by Greg Malone.
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In all of these cases, except Germany it is all a bad case of short term gain for long term pain. Was buying into the idea of a lot of people becoming homeowners in Ireland worth it? Was it worth the gamble of Iceland to "diversify" their economy? Read Boomerang: Travels in the New Third World by Michael Lewis you'll be glad you did.

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