Boomerang: Travels in the New Third World

by Michael Lewis

  And he didn’t—at least not in its original form. But the prime minister’s office pressed him; the monks, it seemed to Doukas, had some kind of hold on the prime minister’s chief of staff. That fellow, Giannis Angelou, had come to know the monks a few years before, just after he had been diagnosed with a life-threatening illness. The monks prayed for him; he didn’t die, but instead made a miraculous recovery. He had, however, given them his confession.

  By now Doukas thought of these monks less as simple con men than as the savviest businessmen he had ever dealt with. “I told them they should be running the Ministry of Finance,” he says. “They didn’t disagree.” In the end, under pressure from his boss, Doukas signed two pieces of paper. The first agreed not to challenge the monks’ ownership of the lake; the second made possible the land exchange. It did not give the monks rights to any lands from the Finance Ministry, but, by agreeing to accept their lake into the Ministry of Finance’s real estate portfolio, Doukas enabled their deal with the minister of agriculture. In exchange for their lake the monks received seventy-three different government properties, including what had formerly been the gymnastics center for the 2004 Olympics—which, like much of what the Greek government built for the Olympic Games, was now empty and abandoned space. And that, Doukas assumed, was that. “You figure they are holy people,” he says. “Maybe they want to use it to create an orphanage.”

  What they wanted to create, as it turned out, was a commercial real estate empire. They began by persuading the Greek government to do something it seldom did: to rezone a lot of noncommercial property for commercial purposes. Above and beyond the lands they received in their swap—which the Greek parliament subsequently estimated to be worth a billion euros—the monks, all by themselves, were getting 100 percent financing to buy commercial buildings in Athens and to develop the properties they had acquired. The former Olympics gymnastics center was to become a fancy private hospital—with which the monks obviously enjoyed a certain synergy. Then, with the help of a Greek banker, the monks drew up plans for something to be called the Vatopaidi Real Estate Fund. Investors in the fund would, in effect, buy the monks out of the properties given to them by the government. And the monks would use the money to restore their monastery to its former glory.

  From an ancient deed to a worthless lake the two monks had spun what the Greek newspapers were claiming, depending on the newspaper, to be a fortune of anywhere from tens of millions to many billions of dollars. But the truth was that no one knew the full extent of the monks’ financial holdings; indeed, one of the criticisms of the first parliamentary investigation was that it had failed to lay hands on everything the monks owned. On the theory that if you want to know what rich people are really worth you are far better off asking other rich people—as opposed to, say, journalists—I polled a random sample of several rich Greeks who had made their fortune in real estate or finance. They put the monks’ real estate and financial assets at less than $2 billion but more than $1 billion—up from zero since the new management took over. And the business had started with nothing to sell but forgiveness.

  The monks didn’t finish with church until one in the morning. Normally, Father Arsenios explained, they would be up and at it all over again at four. On Sunday they give themselves a break and start at six. Throw in another eight hours a day working the gardens, or washing dishes, or manufacturing crème de menthe, and you can see how one man’s idea of heaven might be another’s of hell. The bosses of the operation, Fathers Ephraim and Arsenios, escape this grueling regime roughly five days a month; otherwise this is the life they lead. “Most people in Greece have this image of the abbot as a hustler,” another monk, named Father Matthew, from Wisconsin, says to me in a moment of what I take to be candor. “Everyone in Greece is convinced that the abbot and Father Arsenios have their secret bank accounts. It’s completely mad if you think about it. What are they going to do with it? They don’t take a week off and go to the Caribbean. The abbot lives in a cell. It’s a nice cell. But he’s still a monk. And he hates leaving the monastery.”

  The knowledge that I am meant to be back in the church at six in the morning makes it more, not less, difficult to sleep, and I’m out of bed by five. Perfect silence: it’s so rare to hear nothing that it takes a moment to identify the absence. Cupolas, chimneys, towers, and Greek crosses punctuate the gray sky. Also a pair of idle giant cranes: the freezing of the monks’ assets has halted restoration of the monastery. At 5:15 come the first rumblings from inside the church; it sounds as if someone is moving around the icon screens, the sweaty backstage preparations before the show. At 5:30 a monk grabs a rope and clangs a church bell. Silence again and then, moments later, from the monk’s long dormitory, the beep beep beep of electric alarm clocks. Twenty minutes later monks, alone or in pairs, stumble out of their dorm rooms and roll down the cobblestones to their church. It’s like watching a factory springing to life in a one-industry town. The only thing missing are the lunch pails.

  Three hours later, in the car on the way back to Athens, my cell phone rings. It’s Father Matthew. He wants to ask me a favor. Oh no, I think, they’ve figured out what I’m up to and he’s calling to place all sorts of restrictions on what I write. They had, sort of, but he didn’t. The minister of finance insisted on checking his quotes, but the monks just let me run with whatever I had, which is sort of amazing, given the scope of the lawsuits they face. “We have been reading this adviser in the American stock market,” says the monk. “His name is Robert Chapman . . . ” (I’d never heard of him. He turned out to be the writer of a newsletter about global finance.) His fellow monks, said Father Matthew, were wondering what I thought of Robert Chapman. Whether he was worth listening to . . .

  THE DAY BEFORE I left Greece the Greek parliament debated and voted on a bill to raise the retirement age, reduce government pensions, and otherwise reduce the spoils of public-sector life. (“I’m all for reducing the number of public-sector employees,” an IMF investigator had said to me. “But how do you do that if you don’t know how many there are to start with?”) Prime Minister Papandreou presented this bill, as he has presented everything since he discovered the hole in the books, not as his own idea but as a nonnegotiable demand of the IMF’s. The general idea seems to be that while the Greek people will never listen to any internal call for sacrifice they might listen to calls from outside. That is, they no longer really even want to govern themselves.

  Thousands upon thousands of government employees take to the streets to protest the bill. Here is Greece’s version of the Tea Party: tax collectors on the take, public-school teachers who don’t really teach, well-paid employees of bankrupt state railroads whose trains never run on time, state hospital workers bribed to buy overpriced supplies. Here they are, and here we are: a nation of people looking for anyone to blame but themselves. The Greek public-sector employees assemble themselves into units that resemble army platoons. In the middle of each unit are two or three rows of young men wielding truncheons disguised as flagpoles. Ski masks and gas masks dangle from their belts so that they can still fight after the inevitable tear gas. “The deputy prime minister has told us that they are looking to have at least one death,” a prominent former Greek minister had told me. “They want some blood.” Two months earlier, on May 5, during the first of these protest marches, the mob offered a glimpse of what it was capable of. Seeing people working at a branch of the Marfin Bank, young men hurled Molotov cocktails inside and tossed gasoline on top of the flames, barring the exit. Most of the Marfin Bank’s employees escaped from the roof, but the fire killed three workers, including a young woman four months pregnant. As they died, Greeks in the streets screamed at them that it served them right, for having the audacity to work. The events took place in full view of the Greek police, and yet the police made no arrests.

  As on other days, the protesters have effectively shut down the country. The air-traffic controllers have also gone on strike and closed the airport. At the port of P
iraeus, the mob prevents cruise-ship passengers from going ashore and shopping. At the height of the tourist season the tourist dollars this place so desperately needs are effectively blocked from getting into the country. Any private-sector employee who does not skip work in sympathy is in danger. All over Athens shops and restaurants close; so, for that matter, does the Acropolis.

  The lead group assembles in the middle of a wide boulevard a few yards from the burned and gutted bank branch. That they burned a bank is, under the circumstances, incredible. If there were any justice in the world the Greek bankers would be in the streets marching to protest the morals of the ordinary Greek citizen. The Marfin Bank’s marble stoop has been turned into a sad shrine: a stack of stuffed animals for the unborn child, a few pictures of monks, a sign with a quote from the ancient orator Isocrates: “Democracy destroys itself because it abuses its right to freedom and equality. Because it teaches its citizens to consider audacity as a right, lawlessness as a freedom, abrasive speech as equality, and anarchy as progress.” At the other end of the street a phalanx of riot police stand, shields together, like Spartan warriors. Behind them is the Parliament building; inside, the debate presumably rages, though what is being said and done is a mystery, as the Greek journalists aren’t working, either. The crowd begins to chant and march toward the vastly outnumbered police: the police stiffen. It’s one of those moments when it feels as if anything might happen. Really, it’s just a question of which way people jump.

  That’s how it feels in the financial markets, too. The question everyone wants an answer to is: Will Greece default? There’s a school of thought that says they have no choice: the very measures the government imposes to cut costs and raise revenues will cause what is left of the productive economy to flee the country. The taxes are lower in Bulgaria, the workers more pliable in Romania. But there’s a second, more interesting, question: Even if it is technically possible for these people to repay their debts, live within their means, and return to good standing inside the European Union, do they have the inner resources to do it? Or have they so lost their ability to feel connected to anything outside their small worlds that they would rather just shed the obligations? On the face of it, defaulting on their debts and walking away would seem a mad act: all Greek banks would instantly go bankrupt, the country would have no ability to pay for the many necessities it imports (oil, for instance), and the government would be punished for many years in the form of much higher interest rates, if and when it was allowed to borrow again. But the place does not behave as a collective; it lacks the monks’ instincts. It behaves as a collection of atomized particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There’s no question that the government is resolved to at least try to re-create Greek civic life. The only question is: Can such a thing, once lost, ever be re-created?

  III

  IRELAND’S

  ORIGINAL SIN

  When I flew to Dublin in early November 2010 the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers had decided to guarantee all the debts of the biggest Irish banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government claimed was suffering from a “liquidity problem,” confessed to losses of 34 billion euros. To get a sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish Bank, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar it invested.

  The two other big Irish banks, Bank of Ireland and, especially, Allied Irish Banks (AIB), remained Ireland’s dirty little secret. Both older than Ireland itself (the Bank of Ireland was founded in 1783; Allied Irish was formed in a merger of three banks founded in the 1800s), both were now also obviously bust. The Irish government owned most of the two ancient banks, but revealed less about them than they had about Anglo Irish. As they had lent vast sums not only to Irish property developers but also to Irish home buyers, their losses were obviously vast—and similar in spirit to the losses at the upstart Anglo Irish. Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers had set some kind of record for destruction. Theo Phanos, whose London hedge fund has interests in Ireland, says that “Anglo Irish was probably the world’s worst bank. Even worse than the Icelandic banks.”

  IRELAND’S FINANCIAL DISASTER shared some things in common with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while the Icelandic male used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia—the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was buy Ireland. From each other. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, has made a back-of-the-envelope calculation that puts the property-related losses of all Irish banks at roughly 106 billion euros. (Think $10.6 trillion.) At the rate money flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for the next four years.

  In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in fifteen years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006 the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent, and climbing toward rates not experienced since the mid-1980s. Just a few years ago Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit—in 2007 the country had a budget surplus—is now 32 percent of its GDP, the highest by far in the history of the euro zone. Professional credit analyst firms now judge Ireland the third most likely country in the world to default. Not quite as risky for the global investor as Venezuela, perhaps, but riskier than Iraq. Distinctly third world, in any case.

  Yet when I arrived, Irish politics had a frozen-in-time quality. In Iceland, the business-friendly conservative party had been quickly tossed out of power, and the women had booted the alpha males out of the banks and government. In Greece the corrupt, business-friendly, every-Greek-for-himself conservative party was also given the heave-ho, and the new government is attempting to create a sense of collective purpose, or at any rate persuade the citizens to quit cheating on their taxes. (The new Greek prime minister is not merely upstanding but barely Greek.) Ireland was the first European country to watch its entire banking system fail, and yet its business-friendly conservative party, Fianna Fáil (pronounced “Feena Foil”), remained in office up until February 2011. There’s no Tea Party movement, no Glenn Beck, no serious protests of any kind. The only obvious change in the country’s politics has been the role played by foreigners. The new bank regulator, an Englishman, came from Bermuda. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin was now an occupied city: Hanoi, circa 1950. “The problem with Ireland is that you’re not allowed to work with Irish people anymore,” an Irish property developer told me. He was finding it difficult to escape hundreds of millions of euros in debt he would never be able to repay.

  Ireland’s regress is especially unsettling
because of the questions it raises about Ireland’s former progress: even now no one is quite sure why the Irish did so well for themselves in the first place. Between 1845 and 1852 the country experienced the single greatest loss of population in world history: in a nation of 8 million, 1.5 million people left. Another million Irish people starved to death, or died from the effects of hunger. Inside of a decade the nation went from being among the most densely populated in Europe to one of the least. The founding of the Irish state in 1922 might have offered some economic hope—they now had their own central bank, their own economic policies—but right up until the end of the 1980s the Irish had failed to do what economists expected them to do: catch up with their neighbors’ standard of living. As recently as the 1980s 1 million Irish people, in a nation of a mere 3.2 million, lived below the poverty line.

  WHAT HAS OCCURRED in Ireland since then is without precedent in economic history. By the start of the new millennium the Irish poverty rate was under 6 percent, and Ireland was the second richest country in the world, according to the Bank of Ireland. How did that happen? A bright young Irishman who got himself hired by Bear Stearns in the late 1990s and went off to New York or London for five years returned feeling poor. For the better part of the past decade there’s been quicker money to be made in Irish real estate than in American investment banking. How did that happen? For the first time in history people and money longed to get into Ireland rather than out of it. The most dramatic case in point are the Poles. The Polish government keeps no official statistics on the movement of its workforce, but its Foreign Ministry guesstimates that, since their admission to the European Union, a million Poles have left Poland to work elsewhere—and that, at the peak, in 2006, a quarter of a million of them were in Ireland. For the United States to achieve a proportionally distortive demographic effect it would need to hand green cards to 17.5 million Mexicans.