7 ideas
Lewis travels to Iceland, Greece, Ireland, Germany and California to report how each was uniquely deformed by cheap credit in the 2000s. The book turns the abstract debt crisis into a series of vivid national portraits.
Lewis reports as a curious outsider who translates opaque financial machinery into human stories of bankers, monks and civil servants. Complexity is rendered legible through character rather than models.
The same flood of cheap money in the 2000s produced a different kind of wreck in each country, because borrowed money amplified whatever that society already wanted. Icelanders became leveraged speculators, Greeks used it to enlarge and loot the state, the Irish poured it into property, and Germans lent it to foreigners and bought American subprime bonds. The crisis should therefore be read place by place, as a stress test of local values and institutions, not as one uniform financial event.
In the 2000s a nation of about 300,000 people, whose economy had rested on cod fishing, turned its three newly privatized banks into global lenders and acquirers. The banks' assets swelled to roughly ten times the country's GDP, largely through buying each other's shares and foreign assets with borrowed money. They all failed in October 2008, leaving a small country with debts far beyond its capacity to rescue.
In California, officials in cities such as Vallejo and San Jose granted police and firefighters generous pay and pensions during good years, because the costs fell due long after the officials who approved them had gone. When revenues fell, these fixed obligations consumed city budgets, leading to cuts in services or bankruptcy. Lewis argues that a population and political system geared to short-term gratification cannot restrain itself once credit makes future costs invisible.
The monks of Vatopedi, a monastery on Mount Athos, acquired a lake and then traded it with the Greek state for valuable public property worth far more. When the deal was exposed, the resulting scandal helped bring down the Greek government. Lewis uses it to show a political culture in which private and institutional actors treated the state as something to be extracted from.
In September 2008 the Irish government guaranteed essentially all the liabilities of its banks, turning the losses of reckless property lending into obligations of the state. The debts of private bankers and developers became a burden on ordinary taxpayers. The result was an austerity crisis for the whole country, while bank creditors were largely repaid.