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Yale’s 367-year-old water bond still pays interest (2015)
- divbzero 4y agoThis makes me wonder: Did Dutch financiers in 1648 grasp the concepts of net present value and convergence of infinite series? Or was the price of perpetuities simply set by market demand?
- ahoef 4y agoAlso covered by the fantastic Tom Scott: https://youtu.be/cfSIC8jwbQs https://youtu.be/cfSIC8jwbQs
- darknavi 4y agoThe world is so much nicer with people like Tom Scott, Technology Connections, CGP Grey, and Smarter Every Day.
- Kwpolska 4y ago> CGP Grey He produced a grand total of 3 explainer videos this year, and maybe 5 last year. He’s got an entire production team, and has a podcast on which he brags about his productivity system. Tom Scott makes 2+ videos per week, while Alec from Technology Connections has produced 17 videos this year, many of them long and deep dives.
- Ericson2314 4y agoHistory is cool, but this is gross rentier behavior. Perpetual bonds should be banned. Perpetual ownership comes next.
- alpark3 4y agoDoesn't matter if the other side enters into the transaction willingly, imo.
- leetcrew 4y agoI mostly agree, but a 367 year old contract kinda stresses the concept of "other side" and "willingly". I may be missing some subtleties of how dutch water boards work, but they seem to be a sort of quasi-governmental organization that receives tax-payer funds. so in some sense, the people of the netherlands are bound to an american private university by a contract that far predates the birth of any living citizen's great-grandparents. in this case, the interest amounts to only a symbolic amount, but imo it would be pretty unfair if it were a more significant yearly payment. no one alive today consented to the contract.
- vasco 4y agoNobody alive today consented to a monarchy and we also have plenty of those around. One still in the Netherlands.
- kergonath 4y agoIt’s more of an argument against monarchy than for perpetual bonds.
- kazen44 4y agobut people do consent to the monarchy? mind you, the netherlands is a constitutional monarchy in which the king is legally bound by the constitution. Changing the constitution to just absolve the monarchy is a possibility. One that just hasn't happened yet, because the monarchy in the netherlands is quite popular. Also, in the past two decades, the monarch had to resign some roles he still played in goverment. (like appointing the "informateur" and "formateur" during the formation of a new cabinet.) This all happens without his approval, because he doesn't have the power to draft and implement laws. That is done by both chambers of goverment.
- ghaff 4y agoIt's not perpetual--it's 100 years--but check out Listerine royalties. https://thehustle.co/the-people-making-millions-off-listerine-royalties/ https://thehustle.co/the-people-making-millions-off-listerin...
- Proven 4y ago
- Denvercoder9 4y agoI think the water board can spare ten bucks for interest out of their €130M budget.
- Ericson2314 4y agoIt is still a waste of administrative labor.
- htkibar 4y agoIt has value in terms of being an example of how old these institutions are, not to mention how trustworthy and with lasting power they are. Administrative effort + 10 bucks is _nothing_ compared to that.
- none_to_remain 4y agoAvoiding default is not a waste.
- hadlock 4y agoPaying all and any debts makes it much easier to raise new bonds for future construction and maintenance. News articles like this are like the ultimate letter of credit.
- Reason077 4y agoThe legitimate/legal solution would be to buy back the bond and cancel it. But I guess everyone allows to continue because it's a cool piece of history.
- rvba 4y agoYou mean stocks should be banned? Conceptyally they are kind of the same thing.
- chordalkeyboard 4y agoconceptually they are different. stocks are equity and bonds are debt.
- ghaff 4y agoIf you dig into finance theory they're not as different as you might think. And it gets even fuzzier when you consider instruments like convertible bonds.
- chordalkeyboard 4y agoif they weren't different then why would the bond need to be converted from one to the other?
- ghaff 4y agoI wrote they weren't as different as you might think in terms of who has claims on the company etc. At the practical level there are obviously differences between different classes of stock, callable vs. not callable bonds, convertible bonds etc. I'm just saying that equity vs. debt is not binary.
- rvba 4y agoStocks are equity that (at least in theory) allows you to have perpetual dividends. Of course most companies fail in longer time frame, also modern stocks are kind of a modern concept, but there are some really old companies here and there. Most dont pay dividends but conceptually they could. Also in 100 years people will probably still drink wine/beer, eat salt or will want to go to some respected restaurant or a traditional hotel near a japanese wellspring. https://en.wikipedia.org/wiki/List_of_oldest_companies https://en.wikipedia.org/wiki/List_of_oldest_companies
- OscarCunningham 4y agoA perpetual bond has a finite present value. It's no more or less exploitative than a bond with finitely many payments and the same present value.
- AnimalMuppet 4y agoAnd, given a finite present value, I'm pretty sure Yale has the money to buy it back if they want to...
- kgwgk 4y agoYale holds the bond and is being paid ~$30 per year. Apparently someone has to bring it to Amsterdam every couple of decades to collect the payments and keep the bond alive. They are losing money - I guess Yale has enough to do it just for fun, I mean, for the historical interest (pun intended).
- t0mas88 4y agoNot just to Amsterdam, Stichtse Rijn is further south (around Utrecht). It includes the area where the 16th century rich people from Amsterdam would build their out of town mansions. Traveling there by boat, on a water system that has been managed for over 900 years. So this 367 years is old, but the organisation paying has existed in some form for more than twice that.
- akavi 4y agoIf someone gifted me the bond, I’d happily pay many multiples of the interest payments in airfare to go collect, and I have far less money than Yale. It’d be fun story and a cool bit of financial history, and keeping it “alive” is definitely worth a few grand every 10 years or so.
- Ericson2314 4y agoIt is fun cool history. I would have fun doing the trip with the document, not going to lie. But this ritual is also Proganda for capitalism. I don't mean that in a conspiracy way --- no one at Yale was like "yeah let's do this it makes finance looks good", but it clearly reflects someone having positive associations about this and the history of finance. It's kind of like how keeping around powerless monarchs is harmless in one sense, but a cosplay to uphold a classist society in another. I would not try to go for records with the longevity of either, I would abolish the monarchy and force all perpetual bond holders to sell them back to the issuers.
- micromacrofoot 4y agoAs another commenter pointed out upthread, there are actual cases of perpetual ownership (Harvard being the example), though they're equally as rare as this 367 year old bond.
- max-ibel 4y agoI believe you can set up "dynasty trusts" in some US states today that basically live forever: https://trustandwill.com/learn/dynasty-trust https://trustandwill.com/learn/dynasty-trust
- ghaff 4y agoGoing back to the Dartmouth College case: In the opinion for the Court, Chief Justice John Marshall wrote that by establishing a corporation, Eleazar Wheelock had created “an artificial being, invisible, intangible, and existing only in contemplation of the law.” He explained that “by these means, a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being.” (Also, by the way, corporate personhood is nothing new.)
- s1artibartfast 4y agoBanning Perpetual ownership just reduces everyone to being a surf with leased land and possessions. I have very little interest in a return to a feudalism where higher authority owns the product of my labor
- Ericson2314 4y ago1. It's spelled "Serf" 2. Serfs were indefinitely tied to the land. Heritable Fiefs were also indefinite. In general you are exactly backwards, indefinitely arrangements are a holdover from Feudalism. Getting away from them is getting further from Feudalism.
- s1artibartfast 4y agoAll humans are indefinitely tied to land and property. They need it to live. The question is simply if they ever have a chance of owning it themselves. You propose taking that away.
- Ericson2314 4y agoThat's nuts. The only problem with renting is landlords --- someone else owning. Look up LVT. If it's "rent all the way down" --- the land rent is ultimately disbursed back to the people, then there is no issue.
- s1artibartfast 4y agoWhy would I want my land rent distributed back to other people opposed to owning the land outright? Why would I want other people to be able to raise my rent until they squeeze out every dollar I make?
- Ericson2314 4y agoThey can't squeeze you without squeezing themselves.
- mrbabbage 4y agoShould have (2015) in the title, but I absolutely love stories like this. Even wilder is the detail at the end: they recorded interest payments on the original goat skin until 1944.
- samwillis 4y agoI wander at what point in time the value of the document as a historical artefact outweighed its value due to the bond it represents? It raises some interesting questions about the legitimacy of perpetual interest payments and bonds. I expect that exactly why the academic has gone through this process though, it creates an interesting point of discussion.
- AceJohnny2 4y agoIts value as a historical artifact already outweighs its financial value. Per the Tom Scott video mentioned in another comment, obtaining the interest is mostly for ceremonial and amusement value.
- jefftk 4y ago> Its value as a historical artifact already outweighs its financial value. I read your parent as asking how many years after it's creation that became the case
- AceJohnny2 4y agoAh, good point!
- JoeAltmaier 4y agoPerhaps its historical uniqueness is tied to its active status as a valuable bond? They cannot be separated?
- OscarCunningham 4y agoI wish governments issued perpetual bonds. It would make thinking about finance much easier if you could directly convert a stock to a flow and vice-versa.
- refurb 4y agoHow do you value a perpetual bond in an inflationary environment? A 3% return in perpetuity isn't very valuable when inflation > 3%.
- nly 4y agoWell, you can have inflation linked bonds, but usually the issuer is in some way involved in setting determining the inflation index...
- chollida1 4y ago> It would make thinking about finance much easier if you could directly convert a stock to a flow and vice-versa. Can you explain this please? Because I can't really see how converting stock to flow and more specifically flow to stock makes thinking abut finance easier. But the idea seems interesting, what am I missing?
- justincormack 4y agoThe UK had some outstanding until recently, but I don't think there are any left https://www.gov.uk/government/news/chancellor-to-repay-the-nations-first-world-war-debt https://www.gov.uk/government/news/chancellor-to-repay-the-n...
- OscarCunningham 4y agoMy understanding is that all British consols were callable; the government had the option to force redemption of the bond at a fixed price. This means that they're a slightly more complicated product than the direct stock-for-flow exchange that I'm imagining.
- robocat 4y ago
- gumby 4y agoThe article says, "In the 17th century, people sometimes issued perpetual debt." True, but not just in the 17th century; consols have been issued into the mid 20th century, mainly for war (from the Napoleonic wars up to WWII). The article also mentions, parenthetically, "The interest rate was reduced to 3.5% and then 2.5% during the 17th century." Does anyone know if this was specific or if some law alterered interest rates? The bond is older than Yale itself (though FWIW there are plenty of schools still operating that are older than this bond).
- User23 4y ago> FWIW there are plenty of schools still operating that are older than this bond There are, or at least recently were, 62 such schools. Indeed, besides the Catholic Church, the Lutheran Church, and the Parliaments of Iceland and the Isle of Man, every organization in the western world that's been continuously operating since 1530 is a university[1]. I believe this is why it's critically important that universities remain focused on their timeless mission rather than chasing secular fads. The Buxton index, described in the below link, is an incredibly important concept. [1] https://www.cs.utexas.edu/users/EWD/transcriptions/EWD11xx/EWD1175.html https://www.cs.utexas.edu/users/EWD/transcriptions/EWD11xx/E...
- edzillion 4y ago> My third remark introduces you to the Buxton Index, so named after its inventor, Professor John Buxton, at the time at Warwick University. The Buxton Index of an entity, i.e. person or organization, is defined as the length of the period, measured in years, over which the entity makes its plans. For the little grocery shop around the corner it is about 1/2,for the true Christian it is infinity, and for most other entities it is in between: about 4 for the average politician who aims at his re-election, slightly more for most industries, but much less for the managers who have to write quarterly reports. The Buxton Index is an important concept because close co-operation between entities with very different Buxton Indices invariably fails and leads to moral complaints about the partner. The party with the smaller Buxton Index is accused of being superficial and short-sighted, while the party with the larger Buxton Index is accused of neglect of duty, of backing out of its responsibility, of freewheeling, etc.. In addition, each party accuses the other one of being stupid. The great advantage of the Buxton Index is that, as a simple numerical notion, it is morally neutral and lifts the difference above the plane of moral concerns. The Buxton Index is important to bear in mind when considering academic/industrial co-operation.
- kibwen 4y agoSimilar fun fact: Harvard is immune to eminent domain, because the original constitution of Massachusetts ensured that all of Harvard's then-existing rights would remain in effect "forever", and apparently that includes a dusty old letter from King George or something stating that Harvard cannot be subject to eminent domain. Harvard has used this to reroute a subway tunnel that would otherwise have run under Harvard Yard. So the next time you're on the red line and wondering why the train slows to a crawl as it passes that sharp turn around the Harvard stop, now you know.
- glompers 4y agoMultiple urban legends reported as fact. Massachusetts Bay Colony lost its royal charter anyway for hanging Quakers. Edit: wiki reference added in following comment
- glompers 4y agoThat fact about Harvard sounds like multiple urban legends. For one thing Harvard began in the 1630s, yet in 1684 the King dissolved Massachusetts Bay Colony's 1628 royal charter because of their bad behavior (hanging of Friends). Anything about eminent domain would have had to be put in a 1691 new charter: https://en.m.wikipedia.org/wiki/Massachusetts_Charter https://en.m.wikipedia.org/wiki/Massachusetts_Charter
- anshumankmr 4y ago>dusty old letter from King George Wow. That's crazy. Is there a picture of it somewhere? Or is it locked in a deep vault somewhere in Harvard
- ilamont 4y agoThis is as far as the facts go, and only lore is left. Here, however, is how the story goes. When, in 1974, the Massachusetts Bay Transportation Authority sought to extend the Red Line beyond Harvard Square, the state began plans to dig underneath Harvard Yard. They got so far as to build a platform approximately underneath Wigglesworth Hall. In fact, you may see the ghost station when you ride the T, on the right side of the train as it slows down and nears the platform at Harvard station. However, Harvard would not tolerate the thought of a tunnel below its sacred grounds, disturbing the scholarly peace and quiet of the Yard. Allegedly, Harvard hired a team of lawyers who took the MBTA to court. According to lore, they presented before the judge a glass encased letter granting Harvard exemption from eminent domain signed by General George Washington. As for the veracity of the story, I have not found substantive proof other than repeated versions of the story told in forums. However, it is true that Harvard inexplicably convinced the MBTA to build around the Yard despite an astronomical increase in the cost of construction. https://www.thecrimson.com/column/the-snollygoster/article/2012/10/19/harvard-eminent-domain/ https://www.thecrimson.com/column/the-snollygoster/article/2...
- dang 4y agoRelated: Yale’s 367-year-old water bond still pays interest (2015) - https://news.ycombinator.com/item?id=26556938 https://news.ycombinator.com/item?id=26556938 - March 2021 (127 comments) Yale to Be Paid Interest on Dutch Water Authority Bond from 1648 - https://news.ycombinator.com/item?id=10226291 https://news.ycombinator.com/item?id=10226291 - Sept 2015 (120 comments)
- phyzome 4y agoSomewhat similarly, I recently became a Special Depositor at new mutual bank that's in organization (Walden Mutual). This involved sending them a few thousand dollars, which will be part of their pool of capital for making loans. I cannot withdraw the principal, although I should be able to sell ownership of the deposit to someone else, and of course I would also be considered a (subordinated) creditor if they fold. In exchange, as soon as they are profitable (in a few years) they will be paying dividends at a pretty good rate, indefinitely. The rate is not guaranteed, though. This feels like a good idea to me because this bank is in the business of making local agricultural loans, and the founders are aligned with my values -- this is an institution that I want to have exist. But also I think they're well positioned to make these loans, so it should be a good investment. Mutual banks also tend to be long-lived, so this is an investment that should continue to pay dividends for many decades.
- Aperocky 4y agoIt will either continue to pay dividends for almost perpetuity or fold in the next few years.
- mbg721 4y agoIt's not nearly as old, but the University of Cincinnati has a "Tanners' Lab" facility, because somebody gave them a bunch of money for it when leather tanning was still super-high-tech, and the money hasn't run out. I believe their recent work is stuff like Harley-Davidson contracting with them to stress-test jackets.
- Something1234 4y agoIsn't any kind of fabric production still pretty high tech? It feels a little dismissive to call it super high tech in the past tense.
- TMWNN 4y agoGot to love all the commenters who implicitly or explicitly assume that the bond is one that Yale issued, as opposed to possesses.
- PaulDavisThe1st 4y agoThe article is quite poorly written in this respect. They could have explained up front that it is a "bearer's bond" - that whoever holds the physical document can collect the interest, and then gone on to note that it it was now held by Yale as part of a museum collection. Instead, the bearer part is delayed till the end.