Danehy

It’s been rough as of late for some of the used-to-be wealthy.

Many were paraded in front of the cameras, telling their sad
stories, as Bernard Madoff was sentenced to 150 years in prison for
(ahem) single-handedly running the largest Ponzi scheme in history. I
felt moderately sorry for most of them, but I feel a whole lot worse
for the average teachers, nurses and firefighters who have been
terrified to open their respective mutual-fund statements over the past
several months.

I don’t feel sorry at all for Madoff’s wife, who claims not to have
known anything that her husband had been doing over the past
half-century, and who complained loudly that the government left her
with “only” $2.5 million. I mean, what’s a goil to do?

The landscape is littered with people who lost fortunes, large and
small. It’s impractical (and maybe a bit cheesy) for anybody to always
be looking after their money, but it’s prudent to check on it
sometimes. Many of Madoff’s victims almost begged him to take their
money.

Still, they shouldn’t feel too dumb. Historically speaking, they’re
in rarified company, because one of the first-ever victims of the
modern financial scheme was none other than Sir Isaac Newton, who was
… oh, only the greatest mathematician ever!

The story of Newton’s discoveries is fairly well-known. Newton spent
nearly 30 years as a professor at Cambridge. Oddly enough, that for
which he is best-known occurred away from Cambridge. In the spring of
1665, the plague hit England. Having been brought into London from
Holland by flea-bearing rats, the plague killed tens of thousands and
prompted Cambridge to cease operations for a year. Newton went home to
the countryside, and rather than till the soil at his stepfather’s
farm, he instead invented calculus, crafted the basis for his three
laws of motion, and began the work that would become Principia,
generally considered one of the most important books ever written.

After he hit the big time, he corresponded with noted diarist Samuel
Pepys and with Sir Christopher Wren, the architect who helped design
some of London’s most famous buildings after the great fire. His two
best buddies were Sir Edmund Halley (for whom the comet is named) and
noted philosopher John Locke. Imagine being the fourth person at that
table! About the only people who could handle that seat without finding
it at least a bit daunting would be Jesus Christ and Mel Brooks.

Later in his life, Newton longed for something a bit more
comfortable than the 100 pounds a year he was being paid by Cambridge.
He took what amounted to a civil-service job as warden of the Mint in
London. The timing of the appointment was crucial, as England was on
the verge of economic collapse. King William III (of William and Mary)
was waging an expensive war; England was literally running out of
currency, as a large percentage of the silver coins were being shipped
across the channel to France, where they could buy more gold and other
goods than on the isles; and much of the coinage that remained in
England was either counterfeit or “clipped.” (Low-level thieves would
use scissors to cut a tiny bit of the metal from around the edges of
the coins, melt it down and either combine it with pewter to make
counterfeit coins, or sell the silver back to the crown.)

It got so bad that counterfeiting became a capital crime, tantamount
to treason. Newton saved the day by overseeing the complete re-coining
of England, rendering the old fakes useless and making the new coins
much harder to counterfeit. He designed an assembly-line procedure that
drastically cut the re-coinage time, and even adapted his scientific
skills to detective work in tracking down and convicting London’s most
notorious counterfeiter, one William Chaloner.

For his efforts, Newton was paid well and amassed, if not a fortune,
then certainly a tidy sum of money. The smartest man in the world
(maybe ever!) should have been set for life.

In 1711, as the War of the Spanish Succession raged, some British
speculators created the South Sea Company to begin trading with Spain’s
erstwhile Latin American colonies, left unprotected because of the
fighting on the Continent. Such trade should have been very lucrative,
and people began trading paper stock in the company in what was the
forerunner to today’s stock exchange.

According to Thomas Levenson’s Newton and the Counterfeiter,
the price of the stock went from £128 to £175 in one month.
Four months later, it topped out at £1,050 a share. The
speculators were so giddy that they never bothered doing any actual
trading with the colonies; it was all on paper and was eerily similar
to a problem Newton had solved with his new calculus some 45 years
earlier. When the scheme crashed, it crashed hard. Newton jumped in
right about the time it started falling. By some accounts, he lost
£20,000 when the bubble burst, the equivalent of 40 times his
base annual salary at the Mint. He lived to be 84, but never spoke
publicly of the humiliating episode.

It’s like that joke Denis Leary used to tell. Pretending to be Babe
Ruth, he said, “Poor Lou Gehrig … died of Lou Gehrig’s Disease. He
probably should have seen that coming.”

This article appears in Jul 16-22, 2009.