10 Economic Lessons From Michael Lewis' Boomerang

Sept. 28, 2011 — -- Financial breakdowns and schemes can be found anywhere in the world: from the rocky tundra of Iceland, to the public sector of the Golden state, and in a secluded monastery in Greece. American best-selling author Michael Lewis describes the most recent and devastating bubbles and bets in a part-travel, part-investigative financial journalism book, Boomerang: Travels in the New Third World.

Lewis, author of Moneyball, The Blind Side, and The Big Short, crafts his travel tales such that they echo or foretell of problems within American borders. Here are ten lessons for the U.S. that can be gleaned from his book, which will be released Oct. 3.

1. "In Greece the banks didn't sink the country. The country sank the banks."

As members of the European Union debate over a bailout package for Greece, which is on the brink of a default, bystanders scratch their heads over the genesis of its debt problems.

Lewis describes cultural and political practices that contributed to the country's debt problems. Those include a widespread practice of citizens and companies avoiding taxes with nary a slap on the wrist.

"In Athens, I several times had a feeling new to me as a journalist: a complete lack of interest in what was obviously shocking material," Lewis wrote, describing his many interviews with bankers, tax collectors and a former member of parliament.

"Scandal after scandal poured forth. Twenty minutes into it I'd lose interest. There were simply too many: they could fill libraries, never mind a book."

Lewis wrote that when former Greek minister of finance, George Papaconstantinou, came into office October 2009, he found the country's 2009 budget deficit was 14 percent, not the previous estimate of 2.7 percent.

In an interview with the finance minister, now minister for the environment, energy and climate change, Lewis asks how the country's budget figures and other bookkeeping had been fudged.

"We had no Congressional Budget Office," explains the finance minister, comparing it to the U.S. federal economic agency. "There was no independent statistical service."

2. Investment banks aren't off the hook.

Lewis is direct in his criticism of governments' role in financial collapses, but never fails to point out the sins of the global banking sector.

He seems most direct in describing the involvement of investment bank Goldman Sachs in Greece.

"Here, in 2001, entered Goldman Sachs, which engaged in a series of apparently legal but nonetheless repellent deals designed to hide the Greek government's true level of indebtedness," he wrote.

"The machine that enabled Greece to borrow and spend at will was analogous to the machine created to launder the credit of the American subprime borrower – and the role of the American investment banker in the machine was the same."

3. Fishermen are a lot like American investment bankers.

Lewis describes the origins of Iceland's economic collapse, which included deregulation and the the privatization of its major banks.

The cornerstone of Iceland's economy have been fishing and energy, which begged the question how and why Icelandic financiers "who had no experience in finance were taking out tens of billions of dollars in short-term loans from abroad."

Lewis said the Icelandic financial crisis mirrored how the country's fishing industry took off in the early 1970s: "they privatized the fish," in which fishermen were assigned a quota based on past historical catches.

Lewis writes that like bankers, fishers' "overconfidence leads them to impoverish not just themselves but also their fishing grounds."

He writes: "The goal is to catch the maximum number of fish with minimum effort. To attain it, you need government intervention."