From the article by Kaushik Basu The Ponzi Economy: 
Financial bubbles are a relative newcomer to the motley collection of Ponzis. The recognition of their status as Ponzis came about because it became clear that the psychology of an investor is the same, whether or not money is going to a realtor, a stockbroker or a fast-talking conartist. In all cases, it is the sustained rise in prices—or, more precisely, the expectations of an up swing—that keeps the process going. This is what led economics Nobel laureate Robert J. Shiller of Yale University to call it a “naturally occurring Ponzi”—that is, a bubble that forms not in response to a manipulator’s baton but to natural market forces, with one person’s expectations stoking the next person’s. 
We have seen this happen in the housing market and, through the ages, in the markets for gold, whereby you want to buy a good only because others have the same motivation, and so the prices will rise.
Many forms of legitimate business activity can also camouflage a Ponzi. Consider the widespread and perfectly legal practice of giving stock options to employees. It can generate profits even though the company’s practices may create low-cost products of trifling value. 
An iconic example would be a Silicon Valley start-up that hires highly skilled graduates by offering a starting package with low wages, below the prevailing market rate, while adding in stock options that carry the promise of large future returns. The paltry wages guarantee that the company can still make a profit
even if it charges customers cut-rate prices for its products. The owner, meanwhile, keeps a part of the difference between the low-cost goods and the even more menial wages while giving away the rest as supplementary earnings to senior employees.
As the firm grows by employing more workers, the entrepreneur can earn a very high profit, even though, like all Ponzis, this one will eventually crash and leave the employees without jobs or in possession of worthless options.
The rationale for TBTF (“too big to fail”) hinges on the belief that if a big investment company goes bust, the collateral damage for ordinary  citizens  will  be  so  large  that  the  government  needs  to save the company. It has now become evident, however, that  a well-meaning TBTF policy—or, for that matter, one that is ill meaning but well disguised—can exacerbate a crisis by assuring financial honchos that if they make a profit, it will be theirs to keep, and if they experience a loss, it will be for taxpayers to bear

Scientifi c American, June 2014
usaponzi.com/files/ 89610065.pdf

Kaushik Basu is senior vice president and chief economist of the World Bank and a professor of economics at Cornell University


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