Michael Lewis on Wall Street, Europe, and the Next Big Crisis

In Boomerang: Travels in the New Third World, Michael Lewis shares an amusing anecdote about a conversation with Kyle Bass, a hedge fund manager who was one of the first to recognize the impending credit crisis in Europe.

At one point, Lewis, who was growing concerned about the possible collapse of the global financial system, asked Bass, "What do you tell your mother when she asks you where to put your money?" Bass replied, "Guns and gold. But not gold futures. You need physical gold."

That evocative story tells us a lot about Lewis' remarkable talent. He has a tremendous knack for identifying fascinating characters who think differently about the challenges facing their particular industries. Recently, the writer spoke with us at the Fool about a wide variety of subjects ranging from Occupy Wall Street to the next big crisis affecting America. Here are some of the highlights.

Occupy Wall Street
Lewis, who visited us just as the Occupy Wall Street movement was gaining momentum, was extremely sympathetic to the protesters. He felt that the movement "had legs" and "could be the beginning of something quite large." He even suggested that the Fool's Tom Gardner could lead the movement!

In the past, Lewis has lamented our system of socialism for capitalists, and capitalism for everyone else. That approach, of course, led to bailouts for AIG (NYSE: AIG  ) , GM (NYSE: GM  ) , and Citigroup (NYSE: C  ) , and foreclosures and job losses for everyone else. He told us that this is outrageous, and that the big Wall Street firms -- like Bear Stearns and Lehman Brothers -- had caused a lot of pain and suffering for ordinary people. In any other society, he said, "people would be getting shot."

Lewis doesn't believe, however, that this was about a few bad people on Wall Street. Rather, in his words, "It is about a really screwed up system that leads people to do things that are not in everybody's interest." In fact, he believes that if you put the average protester in the "seat of a Goldman Sachs (NYSE: GS  ) trader, they'd behave the same way." What we need to do is change the system.

In order to change the system, Lewis suggests that the protesters consider targeting politicians who take money from Wall Street or target institutions that invest in Wall Street firms. Ultimately, the demonstrators could turn "Wall Street into South African companies before the end of apartheid, or tobacco companies."

Europe
The subtitle of Lewis' new book is "Travels in the New Third World," and he told us that Greece should already be viewed as a third-world nation. Regarding Europe in general, he said he doesn't know what is going to happen, but "wouldn't put my money on all of this working out nicely."

It was Kyle Bass who told him that the European sovereign debt crisis would follow on the heels of the financial crisis of 2008. Bass saw that governments were effectively guaranteeing their countries' banking assets, which would lead to countries taking on more debt than they could ever hope to pay off. The scary thing is that when a bank fails, the government stepped in. What happens, though, when a government fails?

In order to better understand this crisis, Lewis traveled to Iceland, Greece, Ireland, and Germany. The way he came to understand it, "It is like entire societies are left alone in a dark room with a pile of money, what do they want to do? You look around the world and you see that the answer wasn't the same everywhere. ... It was different because of the nature of the culture the temptation was imposed on."

Perhaps the most worrying thing of all is that Lewis doesn't believe the Germans have the will to bail out the Greeks. And the Greeks don't appear to have much of a stomach for additional austerity. So the question is, "What gives first, German politics or Greek society?"

California
The next big crisis affecting America will be the financial catastrophe facing its state and local governments, according to Lewis. California may be in the worst shape of all, so that's where Lewis went to see the problem firsthand.

That brought him to Vallejo, Calif., which is a city that has "hit bottom." Because of its financial problems, the city has had to ruthlessly cut all of its services. Lewis told us, "It is unbelievable just how desperate the place seems and how far it has fallen."

Despite its desperate circumstances, however, Lewis shared a wonderful story about how Vallejo's fire chief is moving heaven and earth to do more with less. As a result of seeing that resourceful and inspiring work, Lewis "has a hard time getting depressed about our country," though he admits that he "doesn't have a hard time getting depressed about Greece."

Questions and answers
Michael Lewis' visit to the Fool raised a lot of great questions for Americans to consider. Will the Occupy Wall Street movement bring about meaningful change to our economy and financial system? Is the European debt crisis an unfixable problem that will constrain global economic growth for years to come? How will we deal with the impending financial catastrophe facing our state and local governments?

The debate on these questions has already begun and will only intensify in the coming months. Tell us what you think in the comments box below.

John Reeves does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Citigroup. Motley Fool newsletter services have recommended buying shares of General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2011, at 3:15 PM, thrilliod wrote:

    sounds like it was an amazing meeting with one of the best writers out there. thanx for the recap! I'm jealous! :)

  • Report this Comment On November 01, 2011, at 3:40 PM, TMFBane wrote:

    Yeah, it was a really fun visit. He's a great storyteller, so the time went by fast. And a lot of what he said about Greece seems very prescient at the moment.

  • Report this Comment On November 01, 2011, at 4:20 PM, Frankydontfailme wrote:

    I hope I can buy an audio version of the book, interesting stuff. Kyle Bass is a genius.

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