Boomerang: Solving the Global Financial Puzzle

For those of you who don’t spend your days and nights thinking about the intricacies of the global economy, sorting out what really triggered the onset of the 2008 recession and how that continues to affect us today might be somewhat daunting.

You might be wondering how something called a collateralized debt obligation, or CDO, played a role in the collapse of the housing market or how the mortgage default rate in the U.S. helped bring down Iceland’s economy. You might even wonder why the news here spends so much time talking about the riots in Greece.

I often have to explain to our clients why these things are important, and how these seemingly far-flung issues are related to their retirement or other financial goals.

The truth is that these are all pieces of a global financial puzzle. And by far the best book I’ve come across that helps clearly explain how the pieces fit together, and the book I have handed out to clients and friends over the past six months, is Boomerang: Travels in the New Third World, by best-selling author Michael Lewis.

Interestingly, it was in writing his previous book, The Big Short, in which he explored how some people made a lot of money after the U.S. housing market collapsed, that Lewis came to understand the bigger picture of what was happening throughout the global economy. “One of the hidden causes of the current global financial crisis is that the people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem,” Lewis writes.

In Boomerang, Lewis seeks the roots of the problem by taking readers on a journey around the world – stopping in places like Iceland, Germany, Greece, and Ireland – to show how events there are connected to actions taken here in the U.S. But Lewis is also master storyteller in that he can teach you about esoteric financial topics without you even realizing it. You’ll learn how fisherman in Iceland became investment bankers overnight, for instance, and why the people of Greece apparently don’t like to pay their taxes. You’ll even get some insight into why the state of California’s economy might be in the worst shape of all.

But Lewis is also funny. Hilarious, even, when it comes to sharing tales from his travels. I remember when I handed Boomerang to my wife and how she literally howled out loud in laughter when she was reading Lewis’ insights into the German people (I’ll let you read the book to find out for yourself what was so funny!)

Just as importantly, after reading Boomerang, my wife – who has had to live with me, not just through this financial crisis, but others like the collapse of the dot-com stock bubble – began to understand what was really going on in the global economy. “Barry,” she told me. “I finally get how all the pieces fit together.”

The truth is that the global economy is more intertwined than ever and it’s only becoming more so– a fact that Boomerang makes astonishingly clear even if you’ve never taken an economics class in your life.

What makes this book so valuable is that it helps paint a picture of how we are all tied together, whether we realized it or not. The key, then, is that the better we get at understanding how unrelated events in nations abroad could impact things back here at home, and closer to home in our own portfolios, the better investors we can become in the long run.