JEFFREY BROWN: And finally tonight, a trip to Europe in search of the sources of the debt crisis.
As we reported earlier, European finance ministers approved a new batch of bailout loans for Greece today. But they put off some even bigger decisions about troubled countries and banks, and the very future of the euro.
A new book explores the roots of the problem.
And NewsHour economics correspondent Paul Solman has the story, part of his reporting on Making Sense of financial news.
PAUL SOLMAN: “Liar’s Poker,” “The Blind Side,” “The Big Short” all by Michael Lewis, whose new much-hyped book about global debt is called “Boomerang.”
We rendezvoused at an aptly named Washington restaurant, Old Europe.
“Boomerang.” Why “Boomerang”?
MICHAEL LEWIS, “Boomerang”: It’s an image that captures the spirit of this moment, that this money was thrown out in hope and it’s coming back in anger.
PAUL SOLMAN: Germany, Greece, Ireland, these major players each get a chapter and a sweeping character assessment. The book starts, though, with the first to go belly up, Iceland, a nation of 300,000 that turned itself into a banking hub, recycling the world’s money to Icelanders themselves, a breed apart, says Lewis.
MICHAEL LEWIS: They borrowed money to go acquire things, Indian power plants and Danish newspapers and British soccer teams. And they did it willy-nilly, and they themselves a story, that Icelandic history and culture and DNA leaves us very well-suited to being investment bankers.
PAUL SOLMAN: You refer to them as inbred.
MICHAEL LEWIS: Well, they are inbred. And they have a sense of themselves as genetically special, and a history of risk-taking because they make their living on the high seas fishing.
Assets generally rose in value during this period, and so it looked like they actually knew what they were doing.
PAUL SOLMAN: And then it inevitably came a cropper.
MICHAEL LEWIS: Yes. The triggering event was Lehman Brothers going down, and people all of a sudden rediscovering risk and being afraid of who they lent money to.
PAUL SOLMAN: But they have done OK, right?
MICHAEL LEWIS: It’s not a happy story. It’s a little happier, because they walked away from a lot of their debts, but they’re not OK. I mean, they’re a society that’s in a deep economic slump and still with some debt.
PAUL SOLMAN: Meanwhile, in debt-drenched Greece, Lewis claims, public workers and tax-dodging citizens have helped discredit government itself.
MICHAEL LEWIS: The reason the Greeks don’t pay taxes is they don’t trust where their taxes are going, because they know these other Greeks are taking money from the state for doing nothing.
So it’s — it’s an essentially corrupt society. A Greek tax collector will tell you the way you get fired in the Greek tax collection service is by collecting taxes, that if you do it too well, they put you in a back office somewhere, and that you’re allowed to take bribes not to collect taxes, but you can’t do your job well.
PAUL SOLMAN: You have used the line that Greece is a society in total moral collapse.
MICHAEL LEWIS: This comes to me from Greek people. I didn’t make that up. They will tell you that themselves. But what they will say is, I’m the only upstanding Greek. All these other people are cheating.
That’s the attitude.
PAUL SOLMAN: Ireland, they borrowed money from abroad and then invested it back in Ireland.
MICHAEL LEWIS: Yes.
The Irish turned in on themselves and bid up their own land prices in the most extraordinary ways. You drive the countryside in Ireland, there are hundreds of these — they call them ghost estates, little villages, basically, that are brand-new and uninhabited, that were built, I suppose, with the idea that, at some point, there would be massive immigration into Ireland.
The Irish people stepped in and guaranteed the banks, and committed to repay sums they can’t afford to repay, and essentially committed themselves to generations of suffering.
PAUL SOLMAN: Why?
MICHAEL LEWIS: I think there’s this Catholic guilt there. But I also think something else. And this is speaking as someone who’s had intimate involvement with Irish Catholic families.
There’s a certain status to suffering in Ireland, that the person who — if you’re sitting around a table, the person with the greatest status is the person who had the most horrible thing happen to them most recently. Another way of looking at it is that they have just owned up to obligations. They think that, actually, we’re responsible for this and we’re going to pay it back.
PAUL SOLMAN: Germany is like the parent that co-signs the loan for all the rest of the kids of Europe.
MICHAEL LEWIS: I always think of it as the rich man who thought he had a prenup, and then discovers that the prenup doesn’t work.
PAUL SOLMAN: The prenup is that no bailouts.
MICHAEL LEWIS: Right. We’re not going to have to pay for you people if you don’t — if you borrow money you can’t repay, it’s not our problem. And that was the deal Germany cut going into the euro.
PAUL SOLMAN: And now the Germans go, oh, my goodness, what did we do?
MICHAEL LEWIS: The Germans got fooled a little bit. But it wasn’t just that.
The Germans made just about every bad investment you could have made in the last 10 years. They invested in Icelandic banks. They invested in Greek government bonds. They were heavy into Irish banks, big into Irish banks, and they bought U.S. subprime mortgage bonds.
PAUL SOLMAN: Lewis’ controversial explanation is a German love of rules. The rules said AAA investments were safe. Since they weren’t, Germans are now being asked to protect their own banks from ruin by bailing out the borrowers, like Greece.
Lewis claims a deep national neurosis was at work.
MICHAEL LEWIS: There’s a wonderful little book called “Life Is Like a Chicken Coop Ladder.” And it was basically about purity and impurity. And the Germans had this tendency to get themselves in a position of kind of getting right up next to the impure, right up next to the dirt without getting themselves too dirty.
And I realized I was reading a story that explained their relationship to the current financial mess. They didn’t borrow a lot of money. The German financial people kind of crept right up to all the filth in the financial system, with some fascination, I think, and a little mud splattered on them.
PAUL SOLMAN: Now, you probably won’t be surprised to hear that such statements have been met with skepticism, even scorn. Several European embassies turned us down cold as interview venues.
We tried to get into a couple of these embassies, and when they heard it was you, they wouldn’t let us in, because you had unfairly stereotyped them, stigmatized them.
MICHAEL LEWIS: I would like to think that the stereotypes are original. I don’t deny the charge, but I would like to think that I invented the stereotype.
PAUL SOLMAN: Isn’t it dangerous to be coming up with stereotypes that take a whole people, in the case of Germans, what, 60 million, 80 million people, something, and assigning them a national character?
MICHAEL LEWIS: So, I think you have got to ask — all these different cultures, all these different societies were faced with exactly the same temptation, free money.
You’re alone in a dark room with a pile of money. They behaved radically differently from one another. Why? It seems pretty obvious the cultures are very different. The problem with the euro is that the cultures they have welded together are pretty different. Why can’t you say it?
PAUL SOLMAN: But Lewis doesn’t just focus on the debt and cultures of old Europe. He ends his grand tour back in America.
MICHAEL LEWIS: The vicious cycle that is bringing down European states is not going to hit us, at least not for a while, at the level of the federal government. The same cannot be said of state and local governments.
PAUL SOLMAN: And you describe Vallejo, Calif., as the example of the place where this has already happened.
MICHAEL LEWIS: It’s starting to happen there.
Vallejo, Calif., was the first city in California to declare bankruptcy. And it was like a lot of cities in California, bankrupted essentially by deals that it did with its public safety workers for big pensions, a very Greek-like thing.
PAUL SOLMAN: But ultimately different from places like Greece, says Lewis, because of America’s national character.
MICHAEL LEWIS: When an American declares bankruptcy, when he hits bottom, he can reinvent himself. There’s a story he can tell.
We tolerate reinvention. We encourage reinvention. That’s what this country has that Europe does not. It’s not just a crisis; it’s an opportunity.
PAUL SOLMAN: And that’s how you end the book.
MICHAEL LEWIS: Yes.
PAUL SOLMAN: With the optimism that we can somehow use this as a way to recreate ourselves.
MICHAEL LEWIS: It’s an idiot optimism, but it’s optimism.
PAUL SOLMAN: Optimism that, though borrowing binges boomerang back on you, America at least will emerge bruised, but unbroken.