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Is the European debt crisis heading for Wall Street?

business Updated: Oct 11, 2011 20:51 IST
Paul Harris

The fire alarm goes off as Michael Lewis, a former American bond trader, descends in the lift from his hotel room. As a security guard warns nervous-looking guests that the screaming sound was not a drill, it seemed the perfect introduction for a man whose new book about Europe's debt crisis is flying off American shelves.

"The world does seem to be falling apart," said Lewis. Even the briefest glance at the headlines would seem to confirm that opinion. As civil unrest flares in a near-bankrupt Greece and European leaders struggle to avert "contagion", it is hard not to worry that the Great Recession caused by the collapse of debt-laden banks might - horribly - be just a prelude to the even greater disaster of debt-laden countries toppling like dominoes.

That cheerful scenario is precisely the subject of Boomerang: Travels in the New Third World, Lewis' jaunty yet scary account of his travels in four countries at the heart of the crisis.

He visits Iceland to investigate just how a tiny island nation in the middle of the north Atlantic could go through one of the most spectacular banking boom-and-busts in history. He trawls through the sorry tale of the Irish real estate bubble and the epic tragedy that is Greece before examining Germany: Europe's reluctant rescuer. But finally, and harrowingly, he ends his journey back in the US, warning that Americans have little reason to feel safe from the danger.

"I think there is legitimate anger in the country that arises from the unfairness of the treatment of the financial sector," said Lewis. He points out how Wall Street banks, having helped cause the Great Recession and then been bailed out to the tune of hundreds of billions of taxpayer dollars, have now set about gutting attempts to reform their industry.

The US government will act to stem the crisis heading its way, said Lewis. It may mean tough times, even a fundamental realigning of what Americans expect out of life, but it will not be a Greek-style imminent collapse. "Americans are pretty self-preservatory. The crisis will create pressures here that will arrest the crisis before it causes the US treasury to stop paying its bills."