Show of hands: How many of you knew the crash was coming before it finally hit in 2008? I don’t have a crystal ball now and I didn’t have one then, but something seemed… strange, to say the least, in those preceding years.
At the time I was covering the real estate market in Southern California. The credit flowed. Everybody, it seemed, lined up for houses and acquired them with the relative ease of ordering an In-N-Out Burger at the drive-through window.
Our media group even had Angelo Mozilo, chairman of the board and CEO of Countrywide Financial, as a keynote speaker at our annual conference. Ah, times were good, real good—too good. Did I mention they were strange? Yeah. Those were some go-go years and then….
Right, the bad loans caught up. But they didn’t stop there. The financial market crash of 2008 rocked Wall Street and Main Street, for sure, but the weird thing is the ripple effect that it had around the globe, reaching such disparate countries as Greece and Iceland. In his latest book, Boomerang, author Michael Lewis treks around the globe, to those countries and others, to perform a financial forensic study of the global financial crisis.
I’d read bits and pieces and seen news reports, even a power point presentation once, on how the rest of the world got duped, but I’d never really seen the trees for the forest until reading Lewis’ book. While greed played a major role in the crash, the methods to this debtor’s madness, varied from nation to nation.
On Iceland (poor Iceland), he writes: “Back away from the Icelandic economy and you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited to the work available to them. All these exquisitely schooled sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to make a living: trawler fishing and aluminum smelting… Enter investment banking.”
As for Greece, Lewis catches up with a group of monks who helped bring down the government (that continues to reel today), with their wheeling and dealing of risky real estate. As Lewis points out, these holy men kicked off Europe’s sovereign debt crisis.
After taking us around the world in search of those hurt and still hurting from “bad money,” Lewis finally boomerangs back home to the Golden State of California where he meets with then Governor Arnold Schwarzenegger. The two go on a bike ride to discuss the economic crisis and what got them there. In a word: debt.
According to Lewis, in 2011 the average Californian has debts of $78,000 “against an income of $43,000.” These numbers, at a certain point, are unsustainable, but those numbers, as dire as they sound, pale in comparison to the debt of the government and where there are gross problems with overspending, not to mention in priorities.
Lewis lists voluminous statistics to dishearten even the steeliest among us, but this was the one I found most depressing: In 2010, “the state spent $6 billion on prisons, (and) invested just $4.7 billion in its higher education.”
I was both troubled by these numbers and numbed by them. We know we’re in a debt crisis, but is this the message we want to send? If we are, in fact, investing in our future, does this mean we’re investing in our prison population to pull us out of debt? Oh, someone save us now!