In this quick and entertaining read, Lewis presents five case studies in financial madness that engulfed speculative investors in the meltdown that occurred in 2008.
The author has engaged in "financial disaster tourism" traveling to countries whose economies were shook up by financial turbulence. He travels to Iceland, Greece, Ireland, Germany and the United States (Vallejo, California) where he interviews many leading players and how they used free flowing credit.
Each of the essays appeared in Vanity Fair Magazine where they can be read free of charge.
Here's a sampling.
Iceland's economy was based on fishing for hundreds of years and its inhabitants were clueless about the workings of the financial markets. "They inhabited their remote island for 1,100 years without so much as dabbling in leveraged buyouts, hostile takeovers, derivatives trading, or even small-scale financial fraud."
"The investigators [of Iceland's financial system] produced a chart detailing a byzantine web of interlinked entities that boiled down to this: 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 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."
In 2003, assets in the three largest Iceland banks stood at several billion dollars which rose to over $140 billion over the next 5 years.
Iceland's biggest banks went bust in October, 2008.
Each Icelander was indebted for about $330,000!
Next, Lewis visits Greece where he says the Greeks have in effect opted to "turn their government into a pinata...and give as many citizens as possible a whack at."
Here the "average government job pays almost three times the average private-sector job." Tax collections are virtually nil with a majority of Doctors reporting income less than 12,000 Euros.
"In 2009, tax collection disintegrated because it was an election year. The first thing a government does in an election is to pull tax collectors off the streets."
The only way Greece was able to join the European Monetary Union in 2001 (and swap its drachmas for Euros) was by concealing its true level of indebtedness-- by cooking its books. This came to a head in 2009 when news broke that the Vatopaidi Monastery "somehow acquired a fairly worthless lake and swapped it for far more valuable government- owned land." This scandal brought down the existing Prime Minister.
The Greeks in 2001 had reported that its deficit was 3 percent of GDP when in actuality it was a whopping 15 percent.
The only question now is whether Greece will walk away from the $400 billion in debt it owes European banks.
This book is a strong recommendation.
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