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U.S. can learn from Europe’s travails


THOSE seeking to somewhat understand the financial troubles that Europe is having, and perhaps feel a little better about our own American foibles, should pick up Michael Lewis’ book “Boomerang.”

The book has been out since October, but it just recently came to my attention. Though I have spent

a good deal of time reading about the U.S. housing and financial collapse, I have long felt uninformed about what is going on in Europe.

“Boomerang” provides a short and easy-to-read look at what Europe did to get itself into its current financial mess. In many respects it’s similar to what happened in America and often interrelated.

Lewis—who has written many best-selling books including “Liar’s Poker,” “Moneyball,” “The Blind Side” and “The Big Short”—structures “Boomerang” as a series of long articles about countries at the center of Europe’s financial crisis: Iceland, Ireland, Greece and Germany.

All four countries navigated the era of cheap credit differently and in a way that reveals much about their cultures. Iceland went from a sleepy fishing-based economy to a hedge fund. Greece’s corrupt and inept government bankrupted the country with its lavish public sector payouts and inability to collect taxes. Irish banks made terrible bets and were then bailed out by the government, a move that bankrupted the nation. Amid it all the Germans stayed mostly fiscally conservative, though their banks made their share of bad bets.

The result is a scary situation still very much in flux in which countries have unsustainable debts in a continent still just experimenting with a central currency and inter-nation cooperation. Somewhat ironically, the fact that Germany emerged relatively unscathed from the crisis has allowed that country to do economically what it tried to do so many times militarily—essentially control Europe.

Lewis shows that to a large extent it will be up to Germany to decide how long to prop up its bankrupt neighbors and their banks. The results will certainly touch America as well, as many of our banks are heavily tied to Europe. And in a world that is flat, a severe downtown in Europe affects the customer bases of multinational U.S.-based firms.

America’s federal, state and local governments of course face many of the same financial challenges that European nations now have. Our government took on a lot of the bad bets that U.S. banks made, just as occurred in Europe, but was big enough to absorb them.

Still, the U.S. national debt, as well as those at the state and sometimes local levels, will eventually have to be reckoned with also, so Americans should pay close attention to how the similar situation is playing out in Europe.

Bill Freehling: 540/374-5405