Michael Lewis Focuses on the Sovereign Debt Issue

By on October 7, 2011

Michael Lewis - Boomerang authorMichael Lewis has been making the interview circuit promoting his new book.  Lewis is the author of several financially related books including Liar’s PokerThe Big Short, and most recently Boomerang: Travels in the New Third World.

Charlie Rose’s interview of Michael Lewis aired this week. It is a fascinating discussion including a look at the banking madness that has led to the current predicament we face (link).

Lewis commented on the movie based on his baseball related book Moneyball, the Iceland financial fiasco, the Irish disaster, and the current Greek catastrophe.

Lewis elaborated on the fact that during the financial crisis governments, who already had a lot of debt, took on the debts of private banks making it sovereign debt.  Lewis mentioned Kyle Bass, a hedge fund manager in Dallas, who earlier had recognized the sub-prime debt problem and made a huge profit betting against sub-prime mortgages.  Bass made, at the time an original observation, that the sovereign problem would rear its head.  When Lewis asked him where his mother should put her money, Bass replied, “guns and gold.”  Thereafter Iceland, Ireland, and Greece failed.  This was Lewis’ inspiration for his new book which he referred to as, “financial disaster tourism.”

Lewis said the problem has now shifted from a financial to a political question.  In essence, the outcome depends on such things as German public opinion.  Lewis said Kyle Bass hires people to take polls of these opinions.

Lewis told Rose he is phobic about forecasting, but that we are going to be in a very slow growth mode for a long time with high unemployment and the accompanied political and social problems.

Lewis commented on the “Occupy Wall Street” movement.  He said they don’t know what they want because, “what they probably want is an intensely regulated financial sector……they don’t lend themselves to post-its.”  He said OWS and the Tea Party (born out of TARP and the rescue of Wall Street) have been fueled by the outrageous, and still alive notion that “we have socialism for capitalists and capitalism for everyone else.”

When asked about Obamas’ comment to the banking execs during the crisis, “the only thing standing between you and a pitchfork is me”, Lewis laughingly said, “he was probably right and they still hate him.”  He took the unpopular stance of defending Obama saying he has no good options left.

Lewis said the “too big to fail” problem still exists where banks are allowed to speculate with a government guarantee which is, “crazy” and, “a horrible idea,” and antithetical to the notion of free markets.

When asked if the Lehman Brothers failure caused the crisis, Lewis said he didn’t think the problem was that Lehman Brothers failed, but that Lehman Brothers was allowed to succeed.  He added the business should have been more heavily regulated up front.  Lewis said in retrospect the better option would have been to nationalize the banks since the industry needed re-structuring.  Lewis said instead the government “gifted” money to the banks in order to restore them to health.  He said “the shocking thing” was that the financial industry rose up and defeated any attempts to meaningfully reform it.

Lewis proceeded to discuss Iceland, a nation of 300,000 engaged largely in the fishing industry, which he said, “turned itself into a hedge fund.”  Three Icelandic banks accumulated assets (bets) totaling $140 billion.  He added that fishermen were literally walking off boats to become currency traders believing they were financial wizards.  Lewis said they became, “a parody of American finance.”  Lewis proceeded to describe the male dominance, how the “charade” collapsed, and the aftermath including the election of a lesbian head of state.

Lewis commented on the male dominated money management industry.  Interestingly, Lewis said it helps to sell yourself as a money manager even if you can’t make money and don’t have an edge if you believe you do, or in other words, “if you believe your own BS.”  He attributed this to a male overconfidence problem.

Lewis continued the interview by discussing Ireland’s bubble, their penchant for suffering, and, in his opinion, the world’s worst bank, “Anglo Irish.”

Lewis concluded the Rose interview by discussing Greece and its “weird situation.”  Lewis thinks the only solution to the Greek problem is wiping out the debt and taking the losses.

Michael Lewis covers similar ground in the Stewart interview, but adds his views on the state of California, which he likens to one of the deadbeat sovereign countries, who demand their social services, but don’t want to pay for them.  He also comments on the influence the U. S. investment banks played in screwing up the world economies.

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