Michael Lewis has written a short, funny, very judgemental, and sometimes glib book about the 2008 financial crisis, and particularly how it affected Europe. He is an old fashioned ‘if you wanna know, go,’ kind of journalist who gets his boots dirty and talks to as large and varied a bunch of people as he can. It was interesting to read a book of this kind that didn’t focus on the cynical Wall Street bankers, but on the naive Old Worlders who lost their heads when, as Lewis puts it, they found themselves alone in a dark room with a pile of cash.
Lewis begins his tour in Iceland, whose problems, he concludes, can be boiled to down to alpha male attitudes. He finds the lack of communication between Icelandic men and women extraordinary, and notes the almost non-existent part played by women in pre-crisis public life. This is a country where tough trawlermen, whose whole lives were based on danger and risk, took advantage of the unlimited cheap cash that became available on world markets from 2002 to turn their country into an enormous assets bubble. One of his interviewees describes Icelandic banking in these terms: Imagine that I have a dog and you have a cat, and we each borrow a billion from foreign banks that are throwing money at us. Then I sell you my dog for a billion and I buy your cat from you for a billion. Hey presto, now we’re Icelandic bankers and asset billionaires. What ensued was the most rapid expansion of a banking sector in history, all based on nothing. Lewis calls this phenomenon a shift from Nordic Pragmatism to Asshole Capitalism. When it all crashed in 2008, Iceland, a country of 300,000 people, was stuck with banking losses of $100 billion. Lewis does the maths for us – that’s $330,000 for every man, woman and child.
In Greece, it wasn’t the banks that sunk the country but the government. Lewis characterises Greek culture as a kind of Hobbesian state of nature where everyone is simply out for themselves and civic identity is non-existent. No one pays any taxes and no politician asks them to because that would make them unpopular. Public sector workers get paid fourteen months salary every year to keep them sweet, then retire at fifty on fat pensions – and this is after the crash. When Greece joined the Eurozone in 2001 it was on the understanding that they would maintain a deficit of no more than 3%. The actual figure was 15% but they cooked the books with the help of some financial conjurors from Goldman Sachs. Still, anyone with a calculator could have seen there was something very fishy about the Greek economy. This raises the questions: how were the Greeks ever allowed in? How did the Germans let it happen? Some kind of answer to this is essayed, indirectly, later in the book.
Next stop, Ireland. Ireland was another giant bubble, this time based on real estate. Irish banks borrowed immense sums from overseas and lent it all out to anyone with a trowel and a bag of cement. Lewis talks to developers who built houses that no one wanted to live in, or multi-storey luxury hotels and leisure complexes in the middle of the Bog of Allen, one of the bleakest places in Europe. ‘We can stop at ghost estates on the way,’ says Lewis’s driver, taking him out of Dublin. ‘But if we stop at every one of them, we’ll never get out of here.’ In 2008, when the cracks began to show, the Irish government paid Merrill Lynch to advise them. The problem was that Merrill Lynch was making a ton of money trading with the Irish banks and didn’t want to kill their golden goose. So they suppressed their own damning report on the Irish banks and said instead that they were sound. This raises another question: why aren’t the Merrill Lynch consultants in jail? This one doesn’t get answered at all and probably never will. The Irish bankers, unlike their Wall Street counterparts seem to have been stupid rather than wicked. They all went down with the ship and are now bankrupt, disgraced, and afraid to show their faces in public. Meanwhile, the losses they ran up now belong to the Irish taxpayer, their government having guaranteed the banks just before the crash to shore up confidence.
Germany’s problems were of a different sort. The German people didn’t go mad with cheap credit. Their property market was static. Their bankers were paid modest salaries and didn’t borrow enormous sums. What the German banks did do was stoke the fire, lending limitless sums to the out of control banks in Iceland and Ireland, and the out of control government in Greece. The other thing they did was buy all the toxic subprime being pumped out by Wall Street and marked AAA by the rating agencies. Because the Germans trusted everyone. They were playing by rules that, unknown to them, no longer existed: rules that belonged to an age when banking was based on good faith. The Germans, according to Lewis, believed that as long as they checked all the boxes, so long as all the paperwork was in order, then nothing could go wrong. This might be the explanation as to why they gave the Greeks the Euro. Meanwhile the traders on Wall Street were shaking their heads in wonder at the idiots in Dusseldorf who were buying their junk right up to the moment of the crash.
Lewis’s book, for all it’s humour and invective, is in the end, a morality tale. He believes that the crisis happened because we lost our sense of a common purpose, and put personal short term gain ahead of a shared long term good. He talks to a neuroscientist who explains the layers of our brains: Outside there is a human layer that deals with reason and abstract thought; under that there is a mammalian layer that deals with social interaction; and at the centre is a reptilian core that always assumes an environment of scarcity and wants to grab as much as it can as fast as it can. So, what happened was, we stopped being people and went back to being lizards. Lewis stops short of connecting this with the ideology of neoliberal economics, the abhorrence of regulation and collective activity, and the notion, expressed by Hayek’s evangelist, Margaret Thatcher, that ‘there is no such thing as society.’ But he does leave us with a great story, a true story, told to him by the neuroscientist. This is The Parable of the Pheasant.
The neuroscientist was on sabbatical and found himself staying in rooms at Blenheim Palace, family seat of the Churchills. The winter had been harsh and the shooters on the estate had been enthusiastic and accurate. This resulted in a total pheasant wipeout, except for one lonely survivor. This bird was now able to eat as much seed as he wanted, with no one to stop him, and that is exactly what he did. He grew enormous. If he did encounter any competition for food, he was easily able to scare it off. He ate and ate and eventually became so fat that he was no longer able to fly. He had become quite famous in the area by then, and the locals had even given him a name: Henry. Then one day, Henry was nowhere to be found. A fox had got him.