Q&A: Michael Lewis Talks About the Banks That Brought Down Greece
by Jaime Lalinde September 7, 2010, 12:01 AM
In the October issue of Vanity Fair, Michael Lewis investigates the cause of the Greek financial crisis, one that translates to nearly a quarter-million dollars for each working Greek citizen. In V.F.’s April 2009 issue, Lewis examined the financial disaster in Iceland, winning Loeb and Overseas Press Club awards for his report. Lewis differentiates the two crises in this month’s article, writing, “In Greece the banks didn’t sink the country. The country sank the banks.” Aside from rampant tax fraud, nefarious number crunching by the Greek government, and more than one riot, Lewis found an affable group of monks living on a peninsula in northeastern Greece. The Vatopaidi order has been the recipient of much of the Greek outrage and the center of a parliamentary inquiry into its real-estate empire, which some speculate to be worth more than $1 billion. Lewis spoke with VF Daily about how Greece is the Pittsburgh Pirates of Europe, why Germany has the right to be self-righteous (for once), and why he is betting against the U.S. Treasury.
VF Daily: From a financial standpoint, would you agree that happy countries are all alike and unhappy countries are each unhappy in their own way?
Michael Lewis: [Laughs.] Yes, Greece is made for a Jonathan Franzen novel. There are no happy countries any more. Financially speaking, unhappy countries do seem to all be different in their own way. The thing that interests me (in what looks like is going to become a series) is that the raw event seems to be the same in each place: make credit available for people who would never have qualified for it before. How each of the cultures responds to this credit tells you so much about the society in general. Specifically, within the context of Europe, it communicates how different these cultures are that have been glued together by their monetary system. These differences are more riveting than you might have expected, given that global finance has this monocultural flavor to it, where everything seems to be sort of the same from place to place. Although the bankers in Greece kind of look like the bankers in Iceland, who kind of look like the bankers in the United States, in fact they’re not. They are still financially radically different. In a word, yes.
Many people say it is a forgone conclusion that Greece will default. Do you agree with that?
They will probably not call it a default, but yes, I don’t think they are going to pay back the money they owe. What’s going to happen, I think, is it is going to be “restructured.” That is the polite name. I think that the people who lent money to the Greek government—which is mainly the European Central Bank, a lot of bankers throughout Europe, and sovereign bond funds around the world—will not get 100 cents on the dollar from Greece. Left to their resources, without a total bailout from the rest of Europe or Germany, there is no way Greece can repay the debt.
The things they need to do to repay it would cause all the wealth production in the country to flee. There would need to be very punitive taxation, and restrictive macro-economic policies, for example. The country could be thrown into a depression if they did what they needed to do. I didn’t really address this issue in the piece because I thought the more interesting question was: Do they even want to? My feeling is that they really would rather take a pass. Paying off the debt implies the sort of resolve and collective purpose that they lack.
Regarding the Germans, I had noticed that they were amongst the biggest buyers of not only U.S. subprime-mortgage-backed C.D.O.’s but also Greek debt. From my perspective, it seems that they were in the worst position to succeed, yet their economy is thriving. How do you account for this?
The Germans have gotten stuffed every which way. They not only bought American subprime-backed securities and Greek government bonds, but they were also buyers of Spanish condos, and lenders into various megalomaniacal Icelandic private-equity deals—they bootstrapped these Icelandic tycoons. I don’t think there was a bad investment that the Germans didn’t make. I think it was their fundamental strength that enabled them to weather all these shitty investments. They have been generating such surpluses and wealth for so long that they can afford to squander some of it. It is also indicative of something that I haven’t really thought through. Whatever it is that makes Germans really good at making cars renders them less capable when dealing with American investment bankers. It’s like global finance and global manufacturing are two different aptitudes and occupy separate headspaces. So they’re really good at the math S.A.T. and not so good at the verbal S.A.T.
So the question is: Why aren’t they suffering more? There has always been this engine of prosperity underneath their financial activity, and although that engine is affected by what is going on in the world, it is not affected in the same way that an economy premised entirely on financial manipulation is affected. The funny thing is, one of the subplots of this slow disintegration of the European Monetary Union [is] that this whole institution was put together to contain Germany. By welding all of Europe together, the general idea was to make Germany less threatening by making them a part of a larger European enterprise.
Instead, it has made Germany more frightening in a couple ways. First, by opening all European markets to German manufactured goods, it created a big market for Germany to sell into, thus making it easier for them to become big and strong. Secondly, and more insidious, by essentially putting Germany in the position of the stiffed creditor of its European counter-parties, it changes the tone of relations between Germany and everybody else. This tone of relations seems to be shifting rather rapidly from still feeling ever so slightly guilty about the Holocaust to being pissed that everyone owes them money and is not paying them back. What we are looking at is a morally indignant Germany, which is kind of a new thing. In my lifetime, I can’t remember a time when the Germans were allowed to be self-righteous. And now they are justifiably self-righteous, because everybody screwed them. It is creating a climate where German politicians tell the Greeks they need to sell the Acropolis.
Which is a good segue to my next question. If you could buy the Acropolis, what would you do with it?
When I went over there, it was one of my missions to figure out what the Acropolis would cost me. I thought I would get a real-estate agent to drag me around and put values on the Greek islands and the various ruins, just to see what Greece could get if they needed to sell them. I got sidetracked, because the actual story got so much more interesting than I thought it was. So I don’t know what I would have to pay for the Acropolis, but assuming I could get my hands on it, I would, of course, turn it into a business.
The problem with the Acropolis is that they don’t manage the flow of people onto it. You get up there and the only thing you can see is the back of the head of the person who is taking the picture in front of you. And you can’t hear anything but the person behind you screaming to get out of the way because you’re standing in the way of their picture. There is no enjoying the Acropolis. It’s horrible. So if I owned it, I would start by rationing access to it and charging higher prices. I would also have an affirmative-action program where Greeks get in cheaply. I would make it more of a special event to get to the top of the Acropolis and wander around. I would have up-market tour guides, people who were experts in ancient Greece and in that site. It would be a privilege to go to the Acropolis rather than a right. I’m not sure I would make it a money thing. I want people to be able to earn their way up there. If they could demonstrate a proven interest.
Like some kind of entrance exam. [!]
Yes, an entrance exam. I would let them in for free. But people just generally aren’t willing to work, so just assume that half the people that show up would not bother to take the test.
Would the world be better off without Goldman Sachs? It seems that everywhere we turn that they are involved in some kind of sketchy, not really illegal, but gray-area-type behavior.
Yes, the answer is yes. The world would be better off without Goldman Sachs, and I don’t think it is just Goldman Sachs the world would better off without. If you waved a wand and wiped out Goldman Sachs, someone would step in and occupy that place. I think the world would be better off without the idea that Goldman Sachs embodies, which is that financial manipulation is a legitimate way to get really rich. If you look at the story of Goldman Sachs in the last six or seven years, you’ll see that they made an awful lot of money getting people to do stuff that never should have been done.
Since the departure of [former C.E.O.] Henry Paulson?
I would say the beginning of the end of the Goldman Sachs I admired was when it ceased to be a partnership. The minute it becomes a public corporation there is this moral justification for bad behavior. By saying, “We are doing it for our shareholders,” you have an excuse to do shitty things to people and do things that are bad for the world. Your job then requires you to generate profits by doing anything short of breaking the law so that you can maximize returns to your shareholders. This is a very dangerous financial attitude. It’s a shame that Goldman drifted into this because it didn’t used to be this way. It used to be “long-term greedy” and now it’s “short-term greedy.” It isn’t just Goldman Sachs we need to get rid of; it’s the concept of the public investment bank that is given a license to pursue short-term profits at any cost.
Fusing your two favorite subjects: macro-economic financial issues and Major League Baseball, I thought I would say a European country and you could tell me what team they would be in baseball right now.
Greece.
The Pittsburgh Pirates.
Germany.
The Yankees.
Iceland.
The Mets.
Spain.
The Mariners. Nice guys who have somehow managed to blow huge sums of money in the way not-so-nice people often do.
Ireland.
The Twins. Actually, no, the Twins are a much more successful enterprise. The Royals.
Italy.
The Marlins. Even though Italy is in financial trouble right now, like the Marlins are always in financial trouble one way or another, it still somehow feels like a successful place. Italy is this giant wild card; they can win the series at any point.
Here the U.S. is dolling out trillions of dollars to automakers, homeowners, and banks. Would there be a scenario where the U.S. Treasury goes bankrupt?
Yes. I say that glibly. It’s not that hard to see us getting to a moment where we are essentially restructuring our debt. I think it is a long way off, but how can it not happen? We are so indulged by our creditors. Even though we have grotesquely mismanaged our financial affairs, people are willing to lend us money on terms that they would not lend on to anybody else in the world. It’s unbelievable to me that the U.S. Treasury can borrow 10-year money at around 2.5 percent.
The Chinese are willing to lend back to us all their surpluses basically for free, and we keep running these deficits. The benefits are just too great to our society for us to turn away. I assume what will happen is that we’ll continue to do it until we get to the moment where we can plausibly say, “Whoops, we can’t pay you back 100 cents on the dollar.”
If the movie rights to this article were purchased, whom do you think would be cast as the two top dubious monks, Father Ephraim and Father Arsenios?
I don’t think of them as dubious. I quite like them. It would have to be someone who looks plausible in a beard or totally implausible. There are two ways to go with it. My first choice is John C. Reilly and Will Ferrell. Or, if you play it straight and it’s a dark and mysterious religious psychodrama, then Philip Seymour Hoffman as Father Ephraim and Joaquin Phoenix as Father Arsenios.
What is the significance behind the nine-inch nail we received in your name at Vanity Fair from a Father Matthew?
[Laughs.] I think it was removed from one of the buildings, or it was found in the rubble while they were renovating Vatopaidi. They have a whole bunch of these nails and they give them as gifts. I think it was a gift for Tabitha, my wife. It was just to have a little piece of Vatopaidi with me. I think they sensed that I was not just in awe of what they had done, but also that I was very appreciative that I wasn’t charged for being there.
So it wasn’t a sign that you had given them your confession, then?
No, no. No one even asked me. I think the moment they discovered I was a heathen, they realized there wasn’t going to be any of that. If I had given them my confession, I would still be there.
Poster Comment:
It isn’t just Goldman Sachs we need to get rid of; it’s the concept of the public investment bank that is given a license to pursue short-term profits at any cost.
It's Goldman-Sachs.