Krugman and Eggertsson’s model of the Global Financial Crisis of 2007-8
from Geoff Davies and RWER
Yet consider a model of the Global Financial Crisis of 2007-8 by Eggertsson and Krugman (2012), the latter a pseudo-Nobel prize winner. They made two models, one for before and one for after a crash, with the difference between the models being effectively that the amount of available credit was presumed to be less in the second. Nothing in the model determined the amount of credit, it was imposed from the outside. Their equations of optimisation did require sophisticated, though old-fashioned, analytical methods to solve, but that says nothing about the usefulness of the models.
Both models are equilibrium models. But if the “before” state of the market, with high prices, was an equilibrium state there would be no crash. Therefore the model must be missing the imbalance that drove the crash. It is therefore incapable of telling us why such a crash occurred. It cannot tell us anything about the dynamic process of boom and crash, the inflation and bursting of a debt bubble. It is not a useful model, it is a useless model, a dead end as far as understanding an observable economy is concerned.
read more: http://www.paecon.net/PAEReview/issue95/Davies95.pdf
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—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
Accepting Richard’s thesis of the need to reintegrate economics and morality, my concern is that the fragments he is having to work from have misinformed him in a way that prevents his seeing why it is persisting and what can be learned from looking at the facts. The blog editor has taken up the story shortly after Richard’s most significant bit of misinformation:
“Also in this [Luther] period, the Catholic Church had the hubris to claim authority to convert the peoples of Europe’s new world to Catholicism even if it killed them. The Church’s hubris transformed into enlightened hubris and then capitalist and socialist hubris with respect to transforming or killing other cultures in the name of developing them”.
A lovely bit of rhetoric, but I am writing as a Catholic knowing the other side of this story. In the medieval church the problem of hierarchy had been settled by the Pope, the father figure in the Catholic Church, having moral authority over the king, the father figure in secular matters: this at least since the then English king’s men killed Thomas a Beckett, leader of the English church. The Pope is no more the Catholic Church than our Queen is England.
Hubris is a fault of individuals, and dna makes sure no two are the same. In 1492 not only did Columbus discover the West Indies but a Borgia became pope and in 1494 approved of Spain and Portugal [i.e. their leaders] dividing the New World between them. The Catholic Church eventually took Luther seriously enough to start a counter-reformation in 1545 at the Council of Trent. The king of France became Catholic in 1593 and guaranteed religious freedom in the Edict of Nantes. 12 years later he was assassinated; the different French king a century later revoked the edict. Other evidence shows how the church went to the Americas to teach; Machiavellian kings persuaded the pope to close thriving missions by claiming them heretical.
Conditions in London’s docks shocked Pope Leo XIII into writing “Rerum Novarum” in 1891, calling for reconsideration of economic principles in light of human needs lost sight of in the New Age. More recent popes added the political principle of subsidiarity, the justice principle of reciprocity and the appeal for solidarity which undermined the soviet system in Poland. All this never gets considered when even mention of God or Catholic triggers knee-jerk reactions. Yet the “Small is Beautiful” sequel to it is precisely what open-minded people are seeing has become not only necessary but urgent.
The etymology of the word ‘church’ is interesting. It comes from the Greek word for ‘Lord’, i.e. belonging to the lord, religion being seen by thinkers as thanking our Father for dying that we might live, and by the empirical and Doubting Thomases as a building they see religious folk going into. Why do people think so differently? Why the clash between Right and Left in politics? Again studious Right-minded economists accept the clash rather than ask the question or study the Left-minded artist who answered it in terms of brain logic rather than knowledge. Have I not repeatedly mentioned G K Chesterton and Jung, yet still Ikonoclast above sees the French rather than the Copernican style of revolution as the only remedy for injustice. But hence again the difference between ‘economics’ and ‘ecology’: the one having a name for every ‘thing’ without knowing how it works, the other looking at everything to see how it works.
Again economists are still looking for static systems of mathematical relationships rather than studying how communication works to transform them in telephone exchanges or computer switching logic; or how C S Peirce’s system of scientific logics (in order: abduction, deduction and induction) explains stable results when cycled continuously and change when not. What they haven’t seen is how Right-minded mathematicians transformed iconic geometry (earth measuring) into symbolic (undefined) algebraic symbols, and hence left them disconnected from the earth they are supposed to be studying. Newton knew better than that: he used the old three-dimensional visual geometry and trigonometry to justify his findings.
Apologies, Geoff. I thought I was posting this to the Richard Noorgard blog, which is still up on my computer on a different screen.
Regarding our own observations, I can but agree. The above is not so much about why as suggesting what to do about it. We actually need geological rather than some undefined nominal equilibrium, but we are way off track and need right now to be back-tracking, repairing the damage as we go.
Anyone ignoring US investment banks & European banks could leverage their capital 62.5 times with MBS rated AAA to AA, or assets with a default insurance (CDS) issued by AAA rated entities, like AIG, has no idea about what caused the 2007-08 GFC.
https://subprimeregulations.blogspot.com/2016/09/if-ever-allowed-following-would-be-my.html
“There is nothing permanent except change.” – Heraclitus.
Since everything is in process in our time-governed world, we should regard an equilibrium as a process pause. An equilibrium is just a pause or hiatus in a longer process or processes. Equilibria exist as a sub-set of system processes. Hence equilibrium theory must exist as a sub-set of system process theory.
The three “metas” of system processes (including process pauses as equilibria) that we are interested in are (to lay them out provisionally);
(a) Expansion (as processes like accretion, growth or explosion);
(b) Stasis (including dynamic stases like homeostasis)
(c) Collapse (as processes like decay or implosion).
Disruption of equilibria and inflection points in a given process can be illustrated on the same graph, with the horizontal axis as the time axis and the vertical axis showing the variable under consideration. An equilibrium will be a straight, horizontal line with minor “noise” or perturbations, like a graph of a healthy person’s temperature. We don’t see many graphs like that in economic phenomena do we? Can anyone think of one? I can’t. Ergo, equilibrium models are pretty much nonsense when it comes to conventional economics.
Instead, we see graphs like the one Geoff Davies has produced. We see growth and collapse junctures and then more growth. We see dynamic processes. Of course, endless growth to date does not imply endless growth is possible indefinitely. Indeed, endless growth is impossible on a finite planet. When we see major and rapid “reverse disjunctures” in growth or decline graphs (like the one in Geoff Davies’ graph) then it is reasonable to look for causes. The appearance of the disjuncture in itself does not usually reveal the cause by itself. The action we must take (usually action is required) must depend on discovery of the cause.
If an explosion occurs in a big city, our action depends of the cause. An explosion in a big city could be a gas accident, an industrial accident, a vehicular accident involving large quantities of industrial fuels or chemicals, an explosives accident or a deliberate bombing. There are other probable causes. It could be an aviation accident. We must find the cause. Then we will know what to do, at least in broad terms, to begin remedying the situation, as far as possible.
I will pause my discussion at this point and come back to the issue of causes. Suffice it to say I will talk about real causes and formal (rule) causes of behaviors in the economic system. We need to talk about this because a socioeconomy or political economy is influenced by both types of causes. And if we don’t separate out and then understand real causes and formal (rule) causes we are never going to unravel the Gordian Knot of “economics”.
Please read my comment above on September 14, 2021 at 10:55 pm, before reading this comment. That comment sets the scene.
Part 2.
I need to state something front. What I present below is not any part of so-called “game theory” in conventional economics. That “game theory” is supposedly “the study of mathematical models of strategic interaction among rational decision-makers.” That theory holds no interest or value for me. It presumes the existence of “atomistic” and unrealistically rational actors without a full real environment context and without a full social context. That model is already so curtailed it is too abstract to tell us anything descriptively valid and useful about real socioeconomies or political economies. Instead, I propose to look at something I term competitive-cooperative game theory. Let us enter upon the subject as below.
What controls the action on a basketball court? I mean “controls” especially in the senses of “directs” and “causes”. We can list the basic factors that control the action on a basketball court as follows:
(1) Fundamental Laws (The arena of investigation of the hard sciences).
(2) The actions of humans. (The arena of behavioral and social sciences).
(3) The extant rules and parameters of the game. (The arena of legal law and custom).
The game happens in the real world on a physical field (a court in this case) where physical events closely obey at least all known fundamental physical laws. The game is played by physical humans taking decisions and actions. (A decision is an action too in the monist materialist, not the Cartesian dualist, purview.) The game has rules and parameters. Parameters are a sub-set of the rules which define the physical field of action. The parameters define the size of the field, the height of the basket ball ring and the size and type of ball for example. The rules essentially prescribe freedoms and limits for the players (as actors or agents). Basketball is an example of a competitive-cooperative game.
We need to define the term “competitive-cooperative game”. A simple definition is that people compete and cooperate to set the rules and parameters for an enterprise or game so that competition and cooperation may take place within the field, bounds, rules and parameters of the game. There is a sense of both the “nesting” of levels here and of dialectic or iterative feed-backs between the levels. A governing body of a game typically has a rules committee. People will compete and cooperate to get on the committee and/or to get rules through the committee. Active coaches and players are typically not on the rules committee unless in a minor, advisory and observing role as coaching or player representatives. Otherwise conflicts of interest could easily arise.
Players compete on the court or on the field. But it is both a competitive-cooperative game and a cooperative-competitive game. People cooperate to compete and they compete against the other team to enjoy (hopefully) winning cooperation on their own team. Watch groups cooperating at a neighborhood court to set up a competitive neighborhood game of basketball. They cooperate to compete. Watch the high fives of celebration after the winning cooperation of the winning team. Watch the re-strategizing and “low fives” of mutual encouragement in a losing but still functional team. Groups compete with the outgroup to experience cooperation in an in-group. The need to belong and cooperate is strong. This is particularly noticable when game competition is required to replace more existential struggles in tribe versus nature or tribe versus tribe competition, in more strictly existential survival settings.
A political economy is a competitive-cooperative game. It has a real arena: two levels in fact as real environment and real economy. It has humans acting, as I often say, as rule makers, rule takers and rule breakers. To search for fundamental laws outside of the real environment and real economy is fruitless. And when it comes to the real economy I mean fundamental laws which govern real production, like rain governing crop yields unless we can irrigate, chemistry determining how paints can and cannot be be manufactured and so on. Once we hit the level of humans, their behaviors and actions – other than their autonomic nervous system functions – are the realm of what we term voluntary behaviors and actions. Our voluntary actions take the form, in a society with rules, of making, obeying and disobeying rules.
Instead of looking for fundamental laws in political economy, we simply should be looking for good and bad rules. And we need to look radically at our most prescriptive rules. The axiomatic rules of private property, as constructed in modern neoliberal or unfettered capitalism, lead to the continuing concentration of wealth. The concentration of wealth is a theorem-outcome of the current axioms or rules of private property and the calculative “rituals of finance”. If you want to change political economy, change the rules.
If often seems to be assumed that all players in the political economy system want a “level laying field” as in fair rules for all. This is the implicit claim of market economics: that the market rules are fair, known to all and all have an equal chance to participate and compete in the market. And there are no power differences , like those between owners and workers, Yeah well, LOL and Bulldust to that!!!
It is much more realistic to assume selfishness and bad faith rather than kindness and good faith, especially in a system which synergises and empowers selfishness and bad faith as does capitalism (and not only capitalism). We have to assume bad faith, cheating, rule manipulation, regulatory capture, gaming and loopholing as standard behaviors in any system which prioritizes competition and personal rewards over cooperation and communal sharing of rewards.
This suggests that mass and communal action to reset the game rules (of the competitive-cooperative political economy enterprise) will be far more effective than economic theory which falsely imputes fundamental laws and behaviors to a rule-system. There are indeed secondary real effects of a rule-system (prescriptive system) applied to a real system. That would take another post to talk about. There are also secondary technicalreaosn where there are requirements for “pure” economic theory. But all these are secondary and of secondary and technical importance after you set fair rules by political and direct action.
I would start with rules and direct actions changing the meaning and scope of private property in our society. I mean reducing the power, size and scope of private property privileges in our modern economy. I mean passing anti-trust laws, anti-monopoly laws, excess property and excess wealth laws and so. Re-implement state monopolies for natural monopolies. Confiscate and tax away excess wealth. Change the rules to change the game! It’s as simple as that. Pretending that complex economic theory needs to be involved is just part of the obfuscation and mystification game of capitalism. Time to call bulldust on all that.
Oh this will cause fights will it? Of course it will. Status quos, ruling elites, are never overthrown without fights. There are many ways to fight and those without power have to fight asymmetrically and in their own opaque, grey war manner against the black letter law and naked force of capitalism. It is better not to give reactionaries and capitalists the excuse of the naked violence which they love meting out. The ultimate standby of capitalist owners has been to shoot workers and other dissident or marginalized groups. Always has been. Always will be. The preferred option is to shoot fleeing, unarmed people in the back. This is the standard practice of capitalists and their captured state apparatus when people too vigorously and openly try to change the rules that grotesquely and extremely favor capitalists. The final logic of capitalism is the logic of gangsterism: rigged games, extortion, stand-over tactics, protection rackets, pay back and terroristic violence.
https://www.npr.org/2021/01/25/956177021/fatal-police-shootings-of-unarmed-black-people-
reveal-troubling-patterns
https://www.hrw.org/news/2020/09/23/why-police-shoot-people-back
1) laws, 2) actions 3) rules. All right. But what about luck? Wouldn’t that be another basic factor?
Also, in addition to rules there are norms which guide activity. They’re a bit different and they can’t be changed easily.
The basketball game analogy is okay but there are also games that are purely competitive – a foot race, downhill skiing, singles tennis and golf do not seem to have much cooperation about them.
Ikonoclast didn’t answer the question I asked again (as it happened) above:
“Why do people think so differently? Why the clash between Right and Left in politics? Again studious Right-minded economists accept the clash rather than ask the question or study the Left-minded artist who answered it in terms of brain logic rather than knowledge”.
Pfeffertag does, in a way, though Ikonoclast missed his own point when he claimed
“A decision is an action too in the monist materialist, not the Cartesian dualist, purview”.
That dualist purview is nothing other than the distinction Ikonoclast makes between (1) and (3), which a mathematician may see as partial derivatives of a reality that is both active and recorded in memories and other physical structures. Ikonoclast lumps custom with (1) laws when the laying down of laws is a subset of (2) action, which physically includes growing up. This, as pfeffertag suggests, is a somewhat chancy business that materially affects future decision making.
Ikonoclast, you are oblivious. You completely miss what my article is doing, you just carry on with your own pseudo text book, banging on about obscure analysis, getting nowhere (as I frequently comment here).
“(1) Fundamental Laws (The arena of investigation of the hard sciences).”
There are no fundamental “laws” in the “hard” sciences. There are hypotheses that have proven themselves useful, some to the point they are called theories. Actually you can use a similar approach with living systems (as I do in the example in this post), but you have to be very aware of the limitations of what you infer, because perceived patterns can shift around.
I was going to leave this blog alone for a while, but then my piece was posted. Then Ikonoclast came barging in again, perfectly illustrating what I find a waste of time on this blog (not everything, but too much).
Ikonoclast, do your stuff if you must, but I’d prefer you didn’t attach it to my stuff and totally obscure what I’ve said in your dense and irrelevant smokescreen.
There are hundreds of elements involved in market crashes. Plus, many others that are invisible to us. Lines on a graph, straight, curved, or squiggly can never show us what’s going on. For that, close and frequent observation is first, then the experiences necessary to interpret these observations, and finally the writing skills to write up the observations and interpretations for all who are interested to read and discuss.
According to Henry Blodget, once the darling of Wall Street, bubbles, panics, and similar events are inevitable in the capitalist system. “Most bubbles are the product of more than just bad faith, or incompetence, or rank stupidity; the interaction of human psychology with a market economy practically ensures that they will form. In this sense, bubbles are perfectly rational — or at least they ’re a rational and unavoidable by – product of capitalism.” In Blodget’s view, greed is an innate part of human nature. In this, he follows Sigmund Freud, who wrote, “Culture has to call up every possible reinforcement in order to erect barriers against the aggressive instincts of men. . . . Its ideal command to love one’s neighbor as oneself is really justified by the fact that nothing is so completely at variance with original human nature as this.”
In my view Blodget has it wrong. There are too many existential faults with markets as constructed today for this explanation to hold water. Before we get to that, we need to consider this. In the words of E. P. Thompson (1971: 91), the ‘market model’ is ‘a superstition,’ a ‘self-validating essay in logic.’ Like any superstition, the model may be true after all. If it is true, however, it is not so in any self-evident way or for the reasons that the model uses to arrive at its truths. While the ‘market model’ is complex and even internally contradictory, a point brought out by many, according to its advocates the model includes several fundamental elements which I argue are not as theses advocates depict them and can be a source dysfunction, mania, and market crashes.
Let’s begin with the assumption that market actors are autonomous individuals who deal with each other at arm’s length. Such independent, rational, dispassionate actors are necessary to the model, because only this allows judgements necessary if purchasers are to get the greatest benefit for the least cost. For firms, rational independence is necessary for the greatest possible profit, which is necessary for survival in competition with other dispassionate, independent market actors. However, most individuals and firms do not conform to this ideal, and those who deviate are often at an advantage relative to those who conform. For example, firms who hire through other than labor markets have frequently out performed those who use labor markets. Research also shows when firms deal with each other over any significant length of time, commonly they abandon the impersonality and autonomy of the market, and instead establish relatively durable relationships that have a clear moral component (see also Block 1990: 69-73; Macaulay 1963). For Dare (1983: 479), these relationships “become regulated by criteria of fairness.”
Many actors (individuals and firms) also incorporate a clear moral component into markets. It is possible to see trustworthiness as a market attribute that makes the actor more attractive (see, for example, Gambetta 1988), just as some consumer-goods firms portray themselves in their advertising as trustworthy and seek to promote durable moral relationships with customers (see Carrier 1990). Such an analytic strategy is likely to produce a model that more closely represents the actual behavior of firms, as James Acheson (1985) shows in his discussion of the Maine lobster industry. This marks a retreat from the conception of the impersonal and asocial market, a retreat from the notion of the detached commercial sphere.
Another common element of the model of the market is that actors are clear-headed and economically rational. One could argue that markets require not rational actors, but only actors who make choices. In practice, however, such an argument reduces the model to the assertion that people want what they want given the circumstances. An example of this, in formal economics, is an assertion of Gary Becker’s: “A person enters the marriage market if he expects his marital income to exceed his single income” (1991: 119; ‘market’ and ‘income’ are technical terms). In other words, single people think about getting married when they think getting married might be nicer (income and pleasure-wise) than staying single. This proposition is a tautology, its truth following automatically from the specialized definitions of ‘market’ and ‘income.’ It is only by positing some basis of choice, like rationality (or, for anthropologists, culture), that tautology is avoided, a step that also makes the proposition’s truth problematic and ‘unrealistic.’
In the market, advocates claim, clear-headed calculation is an attribute that is forced on firms especially, if only because those who lack it will fail in competition with those who have it. Again, however, many market actors do not conform to this expectation, as is apparent in William O’Barr and John Conley’s (1992) description of actors at the core of capitalism, Wall Street. They studied the managers of pension funds, who, they found, deviated from the model’s standards in important ways. Here I consider just one aspect of that ‘deviance’: the ways that pension fund officials dealt with the outside investment firms that they had contracted to manage some of the pension’s funds. O’Barr and Conley found that, once hired, these outside managers were almost never fired because of their objective performance, their rate of return. Outside managers were selected on the basis of their investment strategy, and so long as they maintained that strategy they were effectively exempt from dispassionate scrutiny by fund officials and their position was secure. The reason that fund officials gave for this is that poor performance by an outside manager is likely to reflect only the fact that the manager’s investment strategy is ill-suited to the current phase in the cycle of the stock market. The outside manager would do better at the appropriate phase of the cycle.
This argument appears to be rational in market terms, for it speaks of the rational calculation of material gain. However, that appearance is deceptive. The argument reflects not the calculated financial judgement of fund officers, according to O’Barr and Conley, but the uncertainties that confront any official who wants to assess the objective performance of outside managers. Should they be assessed relative to the performance of the stock market generally? If so, against what measure of the market? There are many measures, such as the Dow-Jones Industrial Average, the Standard and Poor’s 100, the Standard and Poor’s 500, the Wilshire 1000, the Wilshire 3000, the Wilshire 2000 (which is the Wilshire 3000 minus the Wilshire 1000), the Wilshire 5000 and the New York Stock Exchange index, and they produce different statements about the performance of the stock market–sometimes markedly different. Alternatively, should outside managers be assessed against other managers who followed a similar investment strategy? This would seem reasonable, but information on rates of return of other managers was secret and effectively unavailable, so that this means of assessment is foreclosed. Also there is uncertainty about the period over which the outside manager should be assessed. Ought it to be a short period like three months or a year? Some argue that they should be assessed over a whole market cycle; but this is an ambiguous period defined by an uncertain concept. Some say that the market went through an entire cycle in the 1987 crash; some deny that cycles exist.
This sort of uncertainty pervades many aspects of the world of fund officials, and in the face of it commonly they retreated to subjective interpersonal evaluations of outside managers: are they pleasant, are they easy to deal with, do they seem sensible? The retreat to these evaluations may be reasonable, given the circumstances in which these officials find themselves.
However, they are not rational in market terms. These reasonable but not rational officials do not, however, represent a pocket of incompetence at the heart of the American capital market. Instead, they represent a failure of the model of the market. In asserting that market actors are rational calculators, the model assumes that actors can foresee the consequences of their actions fairly well and that they can foresee the actions of others equally well. No doubt, in some circumstances some actors do have the foresight necessary for most practical purposes. These fund officials do not, however, even though they oversee funds of enormous proportions and have the resources to command extensive market research. One could argue, of course, that the model does not apply here, because the stock market is so imperfect that it is not a true market. But if the New York Stock Exchange is not a market, then what in this world is?
The lesson that can be drawn from O’Barr and Conley’s work is simple and hardly surprising. The greater the uncertainty, the less it is possible to be a rational, calculating market actor. To a degree uncertainty is one result of the length of time between making a decision and being able to assess its outcome; and these fund officials were thinking in relatively long terms. Their situation resembles that of the firms that Dare and Granovetter described. There too, actors were thinking in the relatively long term, and thus confronted the associated uncertainties. And in consequence it makes sense for them to try to build and rely on stable, moral relationships rather than trying to meet each situation anew with fresh dispassionate calculations of the abilities and intentions of other firms and individuals.
How does this fit in with market crashes and panics? In 2008, for example, groups of financial traders with longstanding bonds (friendships) set about robbing anyone not in the group – banks, pension funds, other big and small investors, etc. This is a pattern repeated in many other panics and crashes. Done mostly for enjoyment it seems. Just like any ‘pump and dump’ scheme. The first such was probably the South Sea Bubble of England (1720). The South Sea Company proposed a scheme by which it would buy more than half the national debt of Britain (£ 30,981,712, equivalent to £ 6.1 billion in today’s money based on average earnings), and would issue new shares, along with a promise to the government that the debt would be converted to a lower interest rate, 5% until 1727 and 4% per year thereafter. The purpose of this conversion was to offer liquidity in return for a lower interest rate. It would allow a conversion of high-interest but difficult-to-trade debt into low-interest, readily marketable debt/shares of the South Sea Company. All parties could supposedly gain. This sounds suspiciously like some of the securitizations, swaps, and restructurings that were engineered during the first decade of the 21st century, and contributed to the market crash of 2008, proving once again the validity of Karr’s observation that “plus ç a change, plus c’est la même chose” (the more things change, the more they stay the same).
The South Sea Company then set to talking up its stock with “the most extravagant rumours” of the value of its potential trade in the New World, which was followed by a wave of “speculating frenzy ”(today we would call that an “intense promotional campaign” as part of a “pump-and-dump operation”). The share price had risen from the time the scheme was proposed, from £128 in January 1720 to £175 in February, £330 in March, and, following the scheme’s acceptance by the Bank of England, to £550 at the end of May. The price finally reached £1,000 in early August (at the height of the “pump” phase), but then the level of selling was such that the price started to fall, and dropped back down to £100 per share before the year was out, after the “dump” phase. Altogether, a classic pump-and-dump scheme. And as with the crisis that broke in 2008, many well-known members of society were fleeced. The noted bluestocking Lady Mary Wortley Montagu invested in the hope of using the profits to pay off a blackmailer with whom she had had an indiscreet romantic correspondence. Poets, bishops, Sir Isaac Newton, and King George I were all drawn into the euphoria. This was the first of many Ponzi schemes, which are primarily equal opportunity scams.