Boomerang – Travels in the New Third World (Amazon,) is about how the 2008 banking crisis morphed into a sovereign crisis. (Excerpts)
Thoughts
The 2008 Global Financial Crisis established a few things:
- If you fail, make sure you fail big. Bankruptcy is for the little guys.
- Banks are an extension of state policy.
- There is no getting rid of moral hazard and the principal-agent problem.
- It will happen again.
This book adds a 5th one to the list: a country’s banking system reflects the society within which it operates. It embodies and amplifies all the cynicism, envy and hypocrisy of its owners, regulators and customers.
After reading this book, I wonder if all banks should be forced to become utilities where the state guarantees a certain return on equity to its shareholders and the banks are allowed to take a narrow set of very specific risks. For example, the regulated power and gas utilities in the US have a guaranteed monopoly status within a region, allowed a fixed maximum return on capital and a highly regulated set of activities.
As usual, Michael Lewis does a good job of presenting his research is easy to digest chunks of wit. Highly recommend that you read the book.
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