How Ireland managed to end up part of the 'New Third World'

AMERICA:THE US financial journalist and author Michael Lewis has a favourite metaphor for the global economic crisis: what do people do when they find themselves alone in a dark room full of money?

Lewis was all over the airwaves this week, launching his book, Boomerang: Travels in the New Third World. Like most of his previous 11 books, it’s sure to be a bestseller. Lewis studied economics at the London School of Economics and sold bonds for Salomon Brothers. The Huffington Post calls him “the darling of Wall Street traders, politicians and writers alike”.

Bad news for Ireland and the US: along with Iceland and Greece, we're part of "the New Third World". Irish readers may remember Lewis's March 2011 article on the Irish crisis in Vanity Fair, which comprises a quarter of his book.

“Even in an era when capitalists went out of their way to destroy capitalism,” Lewis writes, “the Irish bankers set some kind of record for destruction . . . Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland.”

The Americans, when left alone in that dark room, “had been conditioned to grab as much as they could, without thinking about the long-term consequences”, Lewis writes.

National Public Radio (NPR) calls Lewis's distinctive style "financial disaster travel journalism". On Jon Stewart's Daily Showthis week, he expounded on his theory that Icelandic "alpha males" revealed their "suppressed megalomania" by getting involved in finance.

Icelandic men were duped; not the women. That is why Iceland now has the first lesbian head of state. “The women said: ‘You don’t know what you’re doing.’ They’ve had this realisation of how dangerous men are with money.”

The US, Lewis told Bloomberg Television, has behaved like a drug addict: “At every level of the society we have been willing to basically sacrifice our long-term interests for short-term interests. It’s not sustainable, and I think what happens is we have to hit bottom first, like an addict.”

Lewis didn’t say how we’ll know when we’ve “hit bottom”, but it will be characterised by high unemployment, slow growth and people revolting – like the Occupy Wall Street movement that is gaining traction in the US.

The last chapter of Lewis’s book explains how the state of California, where he lives, is shifting its insolvency to local governments. In the bankrupt town of Vallejo in the San Francisco Bay Area, there are no police, the traffic lights don’t work and shops post signs saying “We Accept Food Stamps”.

“We have a basic problem in America,” Lewis told NPR. “People want services they don’t want to pay for. And we’ve been disguising this problem by borrowing money and we’re coming to a moment of reckoning.”

Not only did the global financial crisis start on Wall Street, “you look at the financial crisis in Europe, and the fingerprints of American investment bankers are everywhere”, Lewis says. “The [US] financial class encouraged the worst sort of behaviour.”

Goldman Sachs – a leading culprit in the subprime crisis – helped the Greek government cook its books so it could qualify for membership in the euro zone.

Merrill Lynch, the wealth management division of Bank of America, charged the Irish Government €7 million for a sanitised, seven-page report implying that the Government should guarantee the banks, a decision which Lynch calls “not merely odd but suicidal”.

US president Barack Obama should have nationalised the banks instead of bailing them out, Lewis says. He’s scandalised that the very bankers who caused the crisis are now fighting regulation intended to prevent a recurrence.

“Nobody’s running the world; that’s the scary thing. There’s been a massive decline in authority, and in moments of crisis it’s very unnerving to realise no one’s in charge.”

Now US leaders are nervous that Europe’s debt crisis is dragging the US down. Obama and US treasury secretary Timothy Geithner this week appealed to Europe to “act fast” and “make sure they move more aggressively” to stem the crisis.

Lewis says Greece is already in the process of defaulting, and that Greek prime minister George Papandreou and German chancellor Angela Merkel will be forced out of office. The Greek default will be “very messy”. Greece will “leave the euro” and creditors “will take huge losses”, he predicted in interviews.

Asked what was the difference between Greece and Ireland, Lewis told Reuters: “The Irish just have a greater talent for suffering. If you imposed on the Greeks what the Irish have imposed on the Irish population, people would be getting shot.”

Lewis is optimistic about the EU, but pessimistic about the future of the euro. “The elephant in the room,” he says, is that the only way to make the currency union work would be total fiscal integration, “a mechanism at the federal level to collect taxes and distribute funds”.