Technofeudalism: What Killed Capitalism

by Yanis Varoufakis

How had these mad numbers come about? What drove them? One way to answer this question is technical: it involves a description of financial instruments such as options (or derivatives) – the weapons of potential mass financial destruction, as Warren Buffett called them – which were the occasion, if not the cause, of the immense financial bubble that burst in the calamity of 2008.[4] These instruments, known as options, had been available under Bretton Woods, but it was only once Bretton Woods had died that bankers, liberated from their New Deal chains, were allowed to bet on the stock exchange, first with other people’s money and, later, with money – effectively conjured from thin air – lent in astronomical sums by the banks to…themselves. Conjured from thin air? To be clear, yes. Most people think that banks take Jill’s savings and lend them to Jack. That’s not what banks do. When a bank lends Jack money, it does not go into its vault to check it has enough cash to back the loan. If it believes Jack will return the loan, plus the agreed interest, all the bank needs to do is add to Jack’s account the number of dollars it lends him. Nothing more than a typewriter or, today, a few keystrokes on a keyboard are necessary. Now, if the Jacks of the world use their loans judiciously to make enough money to repay the loans plus the interest, all is well. But it is in the nature of banks to accommodate too many Jacks eager to borrow increasing amounts to keep paying each other more...