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Boomerang
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Boomerang

Travels in the New Third World

Michael Lewis
W.W. Norton, 2012
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Editorial Rating

9

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  • Innovative

Recommendation

As the euro zone grapples with the repercussions of the 2008 financial crisis – with debtor nations jockeying to end austerity and powerhouse Germany unwilling to bend – financial journalist and expert wordsmith Michael Lewis looks back to see how it all began. His 2011 tours through Iceland, Ireland, Greece and Germany throw helpful, entertaining illumination on the irresponsible – or out-and-out strange – behavior that got Europe into such a lasting jam. Lewis’s wry and highly readable travelogue hinges on individual stories and features Europeans’ memorable expressions of disgust, defiance and sheepishness. His visit to suburban California at the end of the book will disturb your sleep for months to come. There is one comfort: You will thoroughly enjoy how well Lewis writes. getAbstract recommends his bestseller to anyone concerned about the world’s future financial health. Revisit the start of the meltdown, and see how far (or not) the world economy has come.

Summary

Iceland’s Meltdown

Iceland became a surprise entrant into the economic bubble that burst spectacularly in 2008. Iceland’s banks held only a few billion dollars in 2003, but by 2006-2007, their assets rose to nearly $150 billion, many times higher than the nation’s gross domestic product. This increase marked, “the most rapid expansion of a banking system in the history of mankind.” When the worldwide financial meltdown began, Iceland’s banks lost “$100 billion,” which was “roughly $330,000” for each citizen. The banks racked up liabilities equaling 850% of the country’s GDP.

Before 2008, Iceland’s economy soared as the value of its currency, the krona, increased. Icelanders made the fatal error of borrowing in foreign currencies, which carried lower interest rates, to finance their purchases. This worked fine as long as the krona kept rising. When the housing bubble popped and the krona fell, Icelanders’ repayments inflated, leaving them with “$500,000 houses with $1.5 million mortgages.” The nation’s dependence on imports meant more domestic spending, with a devalued currency, just to survive. This further damaged Iceland’s economy.

The entire episode is completely...

About the Author

Michael Lewis, the best-selling author of Moneyball and Liar’s Poker, has also written for Vanity Fair, The New York Times and Slate.

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