by Jaime Lalinde
February 1, 2011, 12:01 AM
For the March issue of Vanity Fair, Michael Lewis traveled to Ireland for the third leg of his Euro DisasterLand adventure (preceded by Greece and Iceland). In Iceland, Lewis found that the country was brought down by Icelandic Alpha males who wanted to be investment bankers; in Greece, he found that the country was brought down by spectacularly generous social services coupled with rampant tax evasion; in Ireland, Lewis finds a housing bubble the likes of which even we Americans struggle to fathom. “In an era when capitalists went out of their way to destroy capitalism,” he writes, “the Irish bankers set some kind of record for destruction.” These hapless bankers loaned billions of dollars seemingly to any property developer who walked in the door. The result: one particularly hapless Irish bank, Anglo Irish, reported losses of €34 billion (a figure that, accounting for population and exchange rates, is more like $3.4 trillion to American ears).
Amazingly, finance minister Brian Lenihan convinced the Irish government to nationalize the private debts of not one but three of Ireland’s biggest banks. And the ruling political party, Fianna Fail, has been allowed to stay in power just long enough to firmly set the hook in every Irishman’s mouth—having recently accepted a bailout worth €85 billion from the E.U. and I.M.F. This ruling political party will not be ruling much longer, as its prime minister, Brian Cowen, will certainly be pushed out after an early election occurs sometime before March. The hate for Cowen is so unanimous and widespread that, in an attempt to minimize his association with Fianna Fail, he was forced to step down as party leader. In effect, Cowen became that friend with the rolling backpack that is so embarrassing you can’t wave to him in public. Lewis spoke with VF Daily about being accosted by Ireland’s reigning bare-knuckle boxing champion, why Greek people don’t care about what he has to say, and why Irish people do.
VF Daily: How have people reacted to your past pieces, about the economic crises in Greece and Iceland, in those countries?
Michael Lewis: I don’t really hear the response. I get it secondhand, but it’s divided. Some people are very angry and some people are very happy. The people who are very angry are usually the people who are in power. In both of those countries there was a silent faction that was outraged by what was going on and was happy to have someone come in from outside and describe what they had been watching, so I wasn’t met with universal hostility. On the other hand, I’m not sure how welcome I would be if I turned up at the airport in Reykjavik or Athens.
The other thing here is that all of these countries are engaged in this confidence game: they have lost the confidence of the markets or are losing the confidence of the markets. And I don’t think it’s possible for them to get it back. But they don’t know that, or at least they’re behaving as if they don’t. For someone to come in and undermine confidence in their ability to repay their debts, it’s disturbing to them.
This is another interesting subtext to these pieces. I’m sort of a know-nothing. I roll into these places and try to figure out what is going on, but I don’t arrive with a great deal of prior knowledge. However, even so, just by being able to wander around and talk to people, what I come out with ends up meaning something even to those who have bets on in the marketplace. I’ve heard a lot from people who are playing in, for example, the sovereign credit-default-swap market, and it seems to be true that even a piece in Vanity Fair can have an effect on perceptions in the financial market.
So will we see more people downgrading Anglo Irish as a result of your article?
Well, the reactions are less a reflection of the quality of the pieces than they are just the fact that nobody knows. It’s like what people used to say about the movie business: Nobody knows. You’re not talking about their ability to repay their debts; you’re talking about their willingness to repay their debts, which is a social question. It is a question that is essentially unanswerable by even people who are the shrewdest players in the financial markets. When seemingly new sort of takes on this are dropped in the financial markets, they have an effect.
Do you think the Irish care about what an American journalist has to say?
Before I went to Ireland, I had feelers from journalists saying, “We heard you’re coming and we wonder whether you’re going to do to our credit-default spread what you did to Greece’s.” The Irish are really charming in their interest in what foreigners have to say about them. In contrast, the Greeks aren’t actually all that interested in what foreigners have to say about them. The Irish care too much about what others think of them, and the Greeks too little, and you can see both traits in the way they’ve handled their financial affairs.
The Irish were in a great kerfuffle about two and a half years ago when the German ambassador to Ireland gave a speech to a bunch of German industrialists making fun of the Irish. He meant it as a joke, but like a lot of things German, it didn’t really sound like a joke. When you read it in translation, it read like a vulgar stereotyping of the Irish. This played hugely in Ireland.
How do you think the Irish will react?
I think that they’re starting to get angry about what’s happened to them. They’re beginning to experience such real effects on their standards of living that I wouldn’t be surprised if it’s warmly received. The people in Ireland who might be pissed off about the article—the bankers and the politicians—have so many bigger problems, it’s going to just be one more thing and they’ll pay no attention. But the people, who are upset and are looking to have their situation explained from an outsider’s point of view, might actually be interested in it.
Ireland’s prime minister (and recently disgraced Fianna Fail party leader) got a vote of confidence from none other than finance minister Brian Lenihan.
[Laughs.] Yes, a secret vote of confidence.
Which doesn’t sound like confidence to me at all. What do you think will happen in the general elections?
The party in power, Fianna Fail, is doomed. I think they’ll be moved out, and God knows what’s going to happen to the party. I think there’s going to be some coalition of opposition parties. If there’s any justice in the world, the Labour Party would rise, but I’m not sure that they will. Irish politicians think that the stage is being set for an Irish Tea Party—a political movement to renounce the debt. I had politicians tell me that they know of Fianna Fail politicians who are thinking of leaving the party so that they can make a comeback in other clothing.
And Irish politics in general?
I think Irish politics is going to undergo convulsions in the next few years. This is a really different situation than the past Irish crises. First, people are losing things they thought were rightfully theirs; there is a collapse in the standard of living that people had become a bit accustomed to. Second, historically in Ireland, when there are these types of crises, the pressure valve is immigration; people go other places. Historically, they come here, and they can’t anymore. We don’t let them in. In fact, we throw them out if we find them without Green Cards. They’re kind of stuck where they are, and I think that’s going to cause lots of turmoil.
There’s a line at the end of the piece, where my driver says, “The problem with the Irish is that you can push them and push them and push them and they don’t do anything, then they snap and go whacko.” I think that’s going to happen. I think that you’re going to be surprised how much punishment they take, and then at some point they’re going to cease to take it. This may be years off; it may not be six months off. I think it’s a pretty slow-burning fuse.
And, like in The Big Short, there were those who saw it coming.
Actually, yes. There were some employees at Merrill Lynch who could see what was ahead. After Merrill accepted money from the Irish government to write a report that essentially guaranteed Irish banks, a few of those employees decamped. Along with Ed Allchin, they formed an independent research agency called Autonomous Research.
In earlier drafts of your piece, you had a character called the King of the Travelers. Tell me about him.
When I was driving around Ireland, I passed a house that was so unlike any house I had seen. I asked what it was, and my cryptic driver knew a lot more about it than he should of.
He said, “That belongs of the King of the Travelers. He was the bare-knuckle boxing champion of Ireland.”
The Travelers define themselves almost in opposition to one of the central Irish traits: an obsession with home ownership. They don’t own any homes; they move around in crappy recreational vehicles.
Like Brad Pitt’s character in Snatch, who has an obsession with caravans?
I went to some of the sites where the caravans are parked, and I didn’t see anyone that looked like Brad Pitt. It’s almost a satirical comment on Ireland that the Travelers don’t own homes. The Irish got in such trouble with their home-ownership fetish, but the King had this great white mansion. It looked like it could have been in the American South, built right after the Civil War. Sort of an emulation of what people imagined had been in the South after the Civil War.
My driver, who ends up knowing the guy, says, “Yeah, he owns that house but he doesn’t live in it. He just uses it to keep all of his stolen possessions.”
I said, “Well, we have to go talk to this guy.”
He said, “No, no, no, you don’t talk to him. They won’t take kindly to you visiting.”
But I asked him to turn around and we went back to the house and pulled off on the side of the road in front of the house. I started to get out of the car and, out of a trailer in the back of the house, came the man himself with a baseball bat in one hand and his fist balled up, and he was coming to beat the crap out of us. And I thought, Maybe I should try to put in a call first.
There are economies all across the world that are failing and, entertaining this idea of the Theory of Everything—where in reality things aren’t complex and you can whittle anything down to one essential feature—how would you explain, in one sentence, why this is happening now?
An excessive faith in free financial markets led people to be allowed to do things with money they should have never been allowed to do.
Last time we spoke, we discussed the possibility of a bankruptcy of the U.S. Treasury brought about by a default on American debt. We have Congress about to take a vote on raising the American debt ceiling. What percent chance do you think there is of a default happening?
We’re not talking about our ability to repay because we have bottomless ability to repay. We could sell Yosemite. It’s our willingness. For the first time, our Treasury secretary, Timothy Geithner, is talking about the possibility of default. Treasury secretaries don’t usually do that. I don’t think this is imminent, but since the last time we spoke, a Chinese ratings agency downgraded U.S. Treasury debt to A+. I wouldn’t wager that owners of U.S. Treasury bonds aren’t going to be repaid their interest. I don’t think that’s how it’s going to happen. In the end, it’s most likely that we are going to inflate away our obligations to the extent we can.
One of the things the financial crisis shows you is that, despite the big and powerful institutions being mainly interested in their own success and survival, they are capable of suicidal acts. I would not put it past the U.S. government to do the same thing, but I wouldn’t bet on it. The most likely outcome is that it all gets fudged and the debt keeps going up and the Fed keeps printing money and eventually we get pretty bad inflation, which means that if you’re a Chinese investor who owns a trillion dollars of U.S. Treasury bonds, you’re not going to get a trillion dollars in buying power back.
You mentioned China a few times there, and seeing how they have so much beneficence toward the United States …
[Laughs.] Yes, they’re very generous.
Exactly. And Jim Chanos, the famous short-seller, says that China is the biggest bubble of all.
I’ve never been to China, other than a quick stop in Beijing, so I don’t have a great feel for what is happening there. But I get his e-mail blasts, and they’re pretty persuasive. They make Ireland look like chump change. There are whole cities that are empty. I’m very prepared to hear the skeptical arguments about China. Not so long ago, people were saying the same things about Japan that we are hearing now: “This unbeatable beast in the East is going to come up and end up owning America.” Instead what happened was that some people in Japan got ripped off by American investment bankers and Hollywood producers. Then their economy collapsed on their own contradictions.
The Chinese so far have avoided interaction with the American investment bankers and American Hollywood producers, but that’s the only mistake they haven’t made. Instead what they’ve done is they’ve embraced the U.S. Treasury. It may be that 20 years from now we’re all laughing about what fools we were for thinking China was such a threat. I don’t believe that the Chinese political system can sustain a really successful economy. There’s going to have to be a political revolution there before they’re competitive with us. But what do I know?
I heard that they’ve finished shooting Moneyball, based on your 2003 book about the Oakland A’s and general manager Billy Beane?
Yes, they’ve actually got a print. I went to several days of filming, so I saw some scenes being shot and I saw the script. You can’t really tell much from that, but you can tell it’s not bad. I’m kind of hopeful.
And you have a new book coming out in June.
This series of pieces (Iceland, Greece, Ireland) is the spine of that book, Boomerang: Travels in the New Third World. Apart from that, I am writing a script for HBO, which grew out of a piece I did for Vanity Fair about an American baseball agent named Gus Dominguez, who was thrown in jail for helping Cuban baseball players escape the island.
Yes, of course, “Commie Ball.”What ended up happening to him?
He spent three and a half years in two minimum-security prisons, where I would go visit him. He finally got out, two months ago, and I think he’s starting to represent Cuban players again. I can’t help but wish him well.
Donal Mac Fhearraigh