Los Angeles Review of Books: On Yanis Varoufakis’s new theory of the global financial crisis, by Brian Collins

Brian Collins honoured us (myself and my co-authors Joseph Halevi and Nicholas Theocarakis) with a long, extremely kind review which he just published in the Los Angeles Review of Books

Brian Collins’ review follows… 

I found a flaw… . a flaw in the model. 
                   —Alan Greenspan, October 2008

It’s almost three years since the bubble burst. If understanding really does abhor a vacuum, something about why it happened ought to have been learned. Much has been written on the subject, to be sure, lots of it terrifically trenchant. Journalists like Matt Taibbi (in his superb Rolling Stone screeds) and Andrew Ross Sorkin (Too Big Too Fail) establish incontrovertibly that there was colossal greed at work on Wall Street. (The bankers, one can’t help noting, admit as much. It’s only the criminal charges they’re a little defensive about.)But moral narratives alone will never suffice; what’s being reckoned with here, recall, is arguably the greatest systemic failure of all time. The bankers cannot have been the only ones responsible. A more circumspect explanation is to be found in what might be called the “regulatory capture” version of the moral tale, found in books Simon Johnson’s 13 Bankers or Joseph Stiglitz’s Freefall. In this version of the crisis, self-interested elected officials and the regulators they appointed are (quite rightly) seen to have stood aside for the banks.

Such finger-pointing accounts are even less satisfying in view of our situation today: The global financial system still teeters on the brink of collapse, and virtually nothing has been done to avert another disaster. One would have to be pretty cynical to accept that only greed and personal political ambition are to blame for such thoroughgoing paralysis. In view of the spectacle of “extend and pretend” presently unfolding in power centers from Washington to Frankfurt, what needs explaining is why even the well-informed and quite high-minded remain committed to so unpromising a status quo.

At long last there is progress in this area: Two new books, conjoined twins of a kind but each of them quite extraordinary in their own way, from a trio of economists fronted by Yanis Varoufakis, who teaches at the University of Athens and writes with great command of the European debt crisis on his blog. The first is Modern Political Economy: Making Sense of the Post-2008 World, co-authored by Joseph Halevi and Nicholas Theocarakis, an astonishing tour de force of math, metaphysics, and political economy in the grand tradition, all unfolded in fugal counterpoint. The second, just out from Zed Books, is The Global Minotaur, Varoufakis’ short course for a more general reader, Modern Political Economy minus the more abstruse material. According to both, the 2008 financial crisis was the result of two more or less mutually reinforcing conditions: First, a major reorganization of the global economic order in the late twentieth century; and, second, the inherent limits of what economics can say about the outcome of such shifts. The great insight here is that, along with whatever reckless self-interest was at work, the crisis occurred and persists because an alternative was and is mostly unthinkable.  


  • Well there is perhaps at least one good thing that has come out of this crisis. We have had the great opportunity of discovering a brilliant mind and a brave man in Yannis Varoufakis. He makes us proud to be Greek again.

    • Very right. Feel the same. For me he is an examplary intellectual, who takes responsibility in difficult times and speakes up. I am so much waiting for this in Germany. Instead the opinion making is left over to the BILD newspaper and an opportunistic Ms.Merkel.

      Further he has been publishing in-depth, lengthy analyses in this and anothter blog, 2-3 times every week. Through his blog and his books, he has been publishing like crazy. I have great respect for this, plus in the age of the internet, such intense publishing work, will have its influence.

      There is a lot to say, but one highlight more, which I have found in his last interview on ALTER: he answered to a question of a reporter: “I DON’T KNOW.” How often do you hear that from an economist these days?

      Great Yannis, keep up the good work.

    • Many things omitted.
      That page must become bigger.
      Otherwise i want a wiki page too.
      I can tie my own shoelaces.

    • @Xenofon

      “There is a lot to say, but one highlight more, which I have found in his last interview on ALTER: he answered to a question of a reporter: “I DON’T KNOW.” How often do you hear that from an economist these days?”


      Truely this is ,in these days ,a very rare lesson for many. I wish people will understand the importance of this phrase. I have wished many times ,for certain people to say this. “It is not hard. Just say it. “I do not know.”” One of the most irritating properties of certain individuals is to just not admit the lack of information and knowledge. And one of the most irritating properties of the people ,as voters ,is to hear such individuals. I hope this will change soon.

  • Very good discussion you had on ALTER Yannis:

    You did not have the chance to answer one particular question though. One of the interviewers kept saying, that Greece has been reducing its deficit and that it would have a surplus in 2012. You denied the fact or the prospect, but you could not explain why, because of lack of time.

    So can you explain this further? Is it true at all, that the Greek deficit is falling, despite of the depression in the greek economy? And if yes, is there a prospect of generating surpluses in the near future?

    • I think Yanis comment on the surplus is based on the fact that such is only an estimate based on the assumptions used. So, I think Yanis’ doubt is that such assumptions will prove incorrect(under shooting) and a surplus will not be possible in 6 months from now. Judging from what’s happening in Greece right now, I tend to agree with Yanis: things are bound to get worse than forecasted.

      Obviously Yanis will explain for himself but I think his demeanor in this interview was to underscore the fallacy of the artificial construct which coupled by the lack of action has created a true mess.

      I wonder if this is an opportune time to get the Eurobond topic back on the table. When today Moody’s announced that for the next three months France will be under watch for a possible downgrade, my interpretation of this is that the Americans are telling Merkel she is trapped and there is no way out other than the Eurobonds. I could be wrong but it’s time for Merkel to eat crow and explain the unthinkable to her citizens.

      BTW, re: haircuts – I understood that even though the July agreement targeted 21% haircut, such was voluntary. In order to participate in such voluntary scheme, Greece required a 90% participation rate by debt holders. The latest news was that the participation rate stood at 70%, thus falling short of the target. I am mentioning this to underscore the point that Greece is under no way obligated to participate. Greece is not going to be the sucker holding the bag while some bondholders get 100% reimbursed.

      So now is the time to Bond(To Bond or not to Bond) and no other.

    • Another very good appearance for Yani was also in MEGA TV channel at “Κοινωνια ώρα MEGA” (17-10-2011, go to http://www.megatv.com/koinoniaoramega/default.asp?catid=20695 and click the 2 parts). For me it was important because it was the first time I heard Yani talk about not only the “big picture” of the European crisis, as he usually does, but also for the “little picture” of what we in Greece should do on the day after. Specifically in the second part he discusses the hypothetical scenario that the latest bill is voted against in the parliament and as a consequence we do not get the 6th tranche of the troika loan. He then gives examples of how the Greek state could immediately reduce expenditure in order to be able to get through the months before the European solution can have its positive effects in our economy: Squeeze salaries from the top (e.g. highest salary becomes second highest, second highest becomes third highest etc.), close down embassies in smaller far-away countries and reduce army expenditures. Of course, TV time is very condensed and he did not have the time to elaborate on these examples or add some more, so I think it would be interesting to have him write something about it in this blog.

      In any case, Yani, it seems to me as if lately you are trying out the political arena and making cautious steps towards entering it. I don’t know you personally, but you seem to me as a person that possesses integrity, a vision for the future and the courage to pursue it. These are qualities missing from today’s politicians and I am not sure if they never had them or if they lost them because of their involvement with politics. So I urge you, if you are thinking of entering this arena, never to forget and betray these qualities and you will have my vote.

  • Thanks for this enlightening blog! I’m addicted. Because I don’t seem to find the true nuts and bolts of the European crisis properly explained anywhere else.

    I’d love to read what you think about this article (Jacques Delors and others):


    I can’t seem to find any “meat” in it; it seems vague, and seems to say very little about how these magic Eurobonds are going to work. Perhaps there is more information in there that you can decode? (Or perhaps it’s just gesture politics…)

  • The protesters of “Occupy the Wall Street “or whatever “occupy” are saying “The system is rigged”. They are right. The capitalist system is based on one dollar one vote. The democracy is based on one man one vote. So we really have two systems that are incompatible at the same space. Contrary to what economists and politicians are preaching the system after consolidation of wealth to fewer and fewer hands will come to a crash, it always did and always will. The crash is built into system. The efficiencies and the ability of the system to produce wealth is negated by its self distraction. Economic power or money is not only used to buy goods and services or invest to produce more goods and services but also to buy political influence, to buy votes, to chose the candidates for political office, to buy raw power of military and police in short to superimpose the will of an individual or a group who somehow honorably or not got such power over what we call market and over what we call democracy.
    The manipulators and the ideologs are trying to tell us that the politics is one thing and the market another. They almost consider that the market is governed by natural laws of nature and the politics are manmade. They tell us that if we will allow the free market forces all of us will live in haven. The reality is that free markets don’t exist. If one person has a billion dollars and another has a dollar there cannot be a market between them, it can be only a dictate like take it or leave it. Because the markets are such a beautiful tool for making our lives more pleasant we idealize them and we are letting our lives and prosperity destroyed by 1% of people who managed to get more wealth than the 99% of the rest of us and completely destroy the market and democracy.
    For our system to function we need to put limits on power. We limit the wealth of individuals and groups. We allow individuals enough wealth so they will strive to do their best to create it, but not enough to limit the orderly function of the market. We limit the power of elected representatives to represent us only for a certain time limit and no prime ministers, presidents, members of parliament, judges, and chiefs of that or the other to repeatedly represent us. Lock’s postulate that you can take as much land as you can, but you have to live enough and the same quality for the other folks apply to all wealth and all political power and influence.
    In short really what I wanted to say is that Yanis idea of Eurobonds will help a little but will not solve the problem. Especially the Greek problem.

    • “The crash is built into system”

      Yes ,agreed.
      Although they are smart individuals and they can do whatever they like ,their will for power is what makes them stupid.
      That is why they can not find a solution. This is an opportunity for the rest of us to understand and act while the gap exists. The gap between the crisis and the future leaders. They in no way must be conventional politicians. Psychopaths.

      “They almost consider that the market is governed by natural laws of nature and the politics are manmade.”

      Actually ,you like it or not ,there is a higher order ,always.
      Even to everything manmade. And that is why this opportunity exists today to understand the behaviour of the few world bullies.

      LET’S TAKE IT.

      (Hey ,that is allmost optimistic of me. Hurray.)

    • Eurobonds is not the only way.

      Look, if you want to give us another kind of love then give us 2% cost of debt for 5 years (and I’ll take care of the rest):

  • Dear Professor Varoufakis,

    I just finished reading Brian Collins’s review of both volumes, and will post links on two sites I read daily as opportunity arises: crookedtimber and nakedcapitalism.

    As a non-economist/mathematically-challenged member of the general populace, I’ll be purchasing The Global Minotaur for myself and for friends here in Greece. Collins’s review suggests that it presents the sort of “big-picture” overview on the life-course of capitalism that would be appreciated by humanists and qualitatively-oriented social scientists.

  • I read the review last night and have sent its link to a number of colleagues & family members. I read the 1st chapter of the book at ebooks last night. Very clear and a nice light touch style for my weary old mind. Now I just have to decide either to get the pdf version from ebooks or have amazon ship it here from the UK or US.

  • Dear Yanni et al.

    the book is indeed very interesting and enticing; illuminating and thorough, yet accessible even if one decides not to dwell into the technical details. And this is coming from someone who barely passed his (core requirement) class in macroeconomics as part of a degree in electrical engineering (of course that was long before 2008, and at a time when I found Keynes too mild for my taste).

    One suggestion to the authors, concerning the discussion of epistemological failures of formalist neoclassical economics: on the second edition, you might want to consider looking at the parallels between the situation you describe, and the one described in Lee Smollin’s “The trouble with Physics”. In that case the field under consideration is string theory, but a lot of the features are the same: the cultish attitude of the practitioners, the drumbeat for the entire field set by a few established heads of the field, the exclusion from academia of whoever chooses to follow a path far from the mainstream. Of course, string theory is far less politically charged, and thus the conflict maybe less sharp (or one would imagine it to be so…). In any case, as (if) economics enters an era of introspection, it might be helpful for some members of the community to keep an eye on Paul Feyerabend’s take on scientific communities. Scientists in all fields are certainly interesting subjects for anthropologists. But unfortunately in some cases the repercussions of the science affect much more than the scientific community itself.

    Anyway, thanks for a marvellous read!


    • After what is happening today ,astronomers will consider astrology as a science more than economics. 🙂

    • Honestly ,why do we use the Gregorian calendar when a most accurate and natural calendar exists for every purpose? The Lunar.

      I wonder how many moons before the euroblast.

  • Get your personal bailout: GBP 250.000


    The Wolfson Economics Prize will be awarded to the person who is able to articulate how best to manage the orderly exit of one or more member states from the European Monetary Union.

    There is now a real possibility that political or economic pressure may force one or more states to leave the Euro. If the process is managed badly it would threaten European savings, employment and the stability of the international banking system. This prize aims to ensure that high quality economic thought is given to how the Euro might be restructured into more stable currencies. The prize, worth £250,000 (€286,000), is the second biggest cash prize to be awarded to an academic after the Nobel Prize. Deadline for submissions will be January 31st 2012. To register your interest please email [email protected]

    • Well , Holland and Germany can exit Euro if they want. Nobody is forcing them to stay!

      If german and dutch people are against to what their government decides , do you call this Democracy in you country? Do you protest?

      Are you going to oppose to the “bail out” of french and german banks with your money? What are you going to do about it .

      Greek people is fighting for his sovereignty . Do you?

    • “Greek people is fighting for his sovereignty . Do you?”

      Yes! Someone was proposing that you sell the riot videos as pay per view!

      Here everything is calm until now. People tend to take their frustration to the ballots when they vote the next time. and people move their money out of Europe and optimize their taxes…


    Let’s keep it crisp and short:

    In 2009 figures were up 17& from 2007
    2010 figures were up 25% compared to 2009

    In the first half of 2011 figures were up >b>40% compared with the same period of 2010.

    Source: The Lancet

    Thomas Wakley founded The Lancet in 1823. The Lancet publishes a weekly journal and three monthly specialty journals in the fields of oncology, neurology, and infectious diseases.


    In Ireland, you bet the picture is dramatic as well. I recently had a case in my peer group as well. This is what the IMF Banking Mafia stands for, to impoverish countries by debts, they always did, and this never changed!

    What changed however is that now there two new player coming along with the IMF, the ECB and EU-Commission.