
Yale to Be Paid Interest on Dutch Water Authority Bond from 1648 - petethomas
http://www.bloomberg.com/news/articles/2015-09-16/yale-to-be-paid-interest-on-dutch-water-authority-bond-from-1648
======
z2
Part of the reason Yale holds this artifact is due to Prof. Geert Rouwenhorst,
who researched Dutch financial instruments. If I recall correctly, he actually
collected a few decades of interest on behalf of Yale during the purchase of
the bond back in 2003, and even had an ancient ledger updated to reflect the
payout.

I still consider the more 'recent' 19th century bonds he passed around in
class to be the coolest show-and-tell item ever from a professor.

~~~
gpvos
You can see when the interest has been collected: more or less yearly until
1963, then in 1971, 1976, 2003.

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murbard2
Perpetuities are a great idea. One of their advantage is that new debt issues
are fungible with old debt issues (provided the coupon payment dates debt
align). The downside of that is that the duration of such a bond is fixed and
depends on the prevailing interest rates.

However, one can issue a perpetuity where the coupon is set to decrease (or
increase!) geometrically over time. Different issue of such bonds are still
fungible (provided they use the same rate of exponential decay), but their
duration can now be tuned at will, by changing the characteristic time of the
exponential.

Why does this matter? There is a large market in government bonds
(particularly in the US) and this market places a large premium on the latest
issued bonds, or "on-the-run". This is because these bonds enjoy the most
liquidity and can be used as alternatives to cash. The premium disappears as
the bond is replaced with a new issue.

Real economic value is being destroyed because the bonds aren't fungible.
Perpetuities with exponentially decreasing coupons would immediately solve
that problem in one fell swoop.

~~~
rjdevereux
You've obviously never had to build a system that tracks bonds when their
original currency no longer exists. ;)

~~~
brador
How would you do that?

~~~
boxy310
When a currency disappears on a planned basis (like the Deutschmark) the
government issues a recall of the currency in banks at a set exchange rate:
e.g. for the Deutschmark it was set by law at 1.95583 DM = 1 euro (source:
[https://en.wikipedia.org/wiki/Deutsche_Mark](https://en.wikipedia.org/wiki/Deutsche_Mark))

When a currency disappears entirely (like with Zimbabwe), there's a much more
chaotic basis as it switches to separate sovereign currencies, which often
have different inflation rates baked in. As this can be much more unexpected
than a planned currency transition, the market often doesn't incorporate the
expected changes in real interest rates, and often the exchange rate needs to
keep floating for a while to account for ongoing inflation. More info on
Zimbabwe's abandonment of their currency:
[https://en.wikipedia.org/wiki/Zimbabwean_dollar#Abandonment_...](https://en.wikipedia.org/wiki/Zimbabwean_dollar#Abandonment_and_demonetization)

------
Someone
A slighlty older one (1634) on the same dam sold at Christie's in 2000, for
$47,000
([http://www.christies.com/LotFinder/lot_details.aspx?intObjec...](http://www.christies.com/LotFinder/lot_details.aspx?intObjectID=1965498))

Christie's also gives background info on the bond, such as _" While it was
originally a requirement that the bond-holder send the original parchment to
the Lekdijk Bovendams on 12 January to receive the annual interest, the
successful bidder on this lot need only send the allonge, on which the payment
will be neatly recorded by a responsible clerk of the Waterschap Kromme Rijn
(successor to the monk and Secretary who sealed the document in 1634), as it
has been for 302 years since 1698."_

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gpvos
As an aside, note the typical Dutch way to write the digit 8: starting at the
left of the middle with the bottom part, instead of at the very top left. It
is used universally in the Netherlands, but I have been told it's used nowhere
else, not even in Flanders.

~~~
strictnein
Wait, people start at the top left for 8? I start at the top right. I also
write "e" by first writing the "c" and then filling it in, so it's very
conceivable that I'm the outlier. I blame wanting to finish those dang writing
practice sheets in 2nd or 3rd grade as quickly as possible.

~~~
aaron_m04
After starting at the top right, do you move your pen left or down? I start at
the top-right and move left (in other words, the first curve is
counterclockwise).

~~~
strictnein
Yep. Same.

Did a brief survey off people around me, results were inconclusive:

1x Upper Left

1x Upper Middle

1x Upper Right

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rocky1138
Does the pier still exist? It would be amazing to see it on Google Street View
as a follow-up to this amazing story. I love stuff like this.

~~~
gpvos
Some details from Dutch news sources:

It was an bond ("obligatie") of 1000 guilders, given out by Hoogheemraadschap
Lekdijk Bovendams (more recently merged into Hoogheemraadschap De Stichtse
Rijnlanden). It returns 25 guilders (now 11,35 euros) interest per year. Yale
bought it in 2003 for 24.000 euros. It was given out in 1648 to build a groyne
("krib") near the hamlet of Honswijk. Looking at Google Maps, you can see a
system of multiple groynes there; I am not sure whether this bond paid for
only one of them or for more:
[https://www.google.com/maps/place/3998+Honswijk,+Netherlands...](https://www.google.com/maps/place/3998+Honswijk,+Netherlands/@51.9709538,5.1798967,3041m/data=!3m1!1e3!4m2!3m1!1s0x47c660e762d7a323:0x5606466a56d976e4)

Original buyer of the bond was Niclaes de Meijer:
[http://www.zeit.de/2015/15/ewige-anleihen-kredit-
geldanlage](http://www.zeit.de/2015/15/ewige-anleihen-kredit-geldanlage)
(German!).

In the first 50 years of the 17th century, Lekdijk Bovendams gave out 300.000
guilders of bonds to repair the dikes along the 8 km stretch it was
responsible for. Stichtse Rijnlanden is nowadays responsible for the Lek dikes
between Amerongen and Schoonhoven, as well as water management in most of the
province of Utrecht.

~~~
dmix
Thanks for the Google Maps link, you can follow that river for quite a long
time and it goes well inland, into Germany. I'd love to take a boat all the
way down that river.

~~~
gpvos
Yup, the Lek is, after the Waal, the second main distributary of the Rhine.
Some parts of the Rhine, notably the part between Köln and Koblenz, are widely
known for their beauty.

~~~
rosege
Sorry I did part of this journey a few years ago and got off the boat early as
I found the scenery quite boring

------
haarts
The image accompanying the story doesn't seem to be the bond in question. The
date on the bond states the year 1944, and the payments also start around that
date. The last payment _was_ done in 2003. Odd.

~~~
hydrogen18
Interesting point. The second image has dates much farther back, I see many
from the 1700s.

Perhaps the bond was originally issued and in 1944 a companion document was
issued with it? So now the single bond consists of two documents. It would
make sense to issue a newer document that goes along with the original. I
imagine some numbering scheme was introduced between the original issue and
1944. The 1944 document would provide a number in the modern scheme for the
original bond.

~~~
mcv
I can imagine a document from 1648 wouldn't be big enough to keep writing
interest payments on for more than 3 centuries.

------
vasilipupkin
Finance has eaten the world

~~~
ArkyBeagle
I can't tell if this is finance or numismatics.

------
rbinv
Serious question: Why is (bond) interest not adjusted for inflation (or
deflation for that matter)? Very long timespans such as these really devalue
any interest payments, do they not?

~~~
gahahaha
It didn't use to matter much. Consistent inflation is a rather new phenomenon
that basically only appeared after WWII. There was for example almost no
inflation in Britain between 1814 and 1914.

For the record, in case there still are Ron Paul fans/goldbugs out there:
moderate inflation is generally considered a good thing by economists today
and inflation is probably too low at the moment.

~~~
msandford
Personally, as a reductionist, I like the idea that money is somehow
permanent. Maybe economists like inflation, and perhaps it is "good" for the
economy overall. But the idea that a dollar saved today can buy roughly the
same amount of stuff in a decade or a century seems like a powerful idea to
me. To me that seems like a goal that's worthy of pursuing because then money
becomes a true abstraction that's not leaky. And because of the way my brain
works, I see that as incredibly useful. Not having to always inflation adjust
things, not having to do this or that, not having to worry about how much
retirement you actually have versus how much you think you have, etc. I
understand that for various reasons few other people want this, but that
doesn't convince me personally otherwise.

One person described money as "sweat, distilled" and I find that definition
incredibly attractive. I recognize that plenty of people making money not by
sweating but thinking or whatever, but I still find it an excellent
description. And I can't see how devaluing a person's effort over time is a
viable strategy for building a lasting civilization. I think it leads
inevitably towards the kind of throwaway society we have here in the US and
virtually guarantees that we won't build infrastructure of long lasting value
like exists elsewhere in the world. Well built stuff can last for hundreds or
thousands of years. I wish money was the same.

~~~
hsk
One aspect of inflation is that it is a tax on people who choose to hoard
their money. Because inflation naturally makes every dollar worth less and
less over time, you are forced to either spend it now or invest it somewhere
that grows with inflation. As a result, money is actually utilized instead of
sitting in a bank account.

Thus, I think the idea that a dollar saved today can buy roughly the same
amount of stuff in a decade is actually bad, because in a world where that's
likely, that dollar was probably sitting useless in someone's purse for a
decade.

Inflation, in my opinion, actually does the opposite of what you suggest --
because it encourages lending and investing in order to beat inflation, money
is actually put to use for longer term projects such as infrastructure that
can last years and years.

~~~
hga
_As a result, money is actually utilized instead of sitting in a bank
account._

Because we all know banks put all the currency they receive in huge vaults
filled with paper $100 bills, instead of, oh, lending it out (several times
over one way or another).

Unless you're converting it all to gold, or stuffing it under a mattress, your
savings are in institutions like banks which are not a sink where the velocity
of your money goes to zero, outside of economic messes where they aren't
willing to lend, or people are afraid to borrow. And your being encouraged to
spend your money doesn't seem to help those situations.

~~~
nshepperd
A piggy bank would have been a better example. Anyway, it's not an argument
against inflation: the reason putting your money in a bank account is a good
idea today is (among other things) because they do invest it to stave off
inflation. So inflation doesn't preclude saving (as in savings accounts), it
just makes sure you save in better ways, like storing it in a bank that does
lending.

~~~
msandford
Right now I earn less than a percent while inflation is definitely higher than
a percent. Where is my real return on my savings?

~~~
saalweachter
If you are earning less than a percent, you are _probably_ paying for
liquidity.

Inflation is currently bouncing between around 1.6% and 2% (but mostly towards
the 1.6%). A 3 year CD at a decent bank is currently paying around 1.6%; a 5
year CD is paying around 2%. So if you're willing to commit to a 5 year
deposit, you will probably beat inflation and realize a small, real return.
Even an interesting-bearing checking account (with a sufficient balance...)
pays close to 1.6%.

Granted, it's not the glorious 5%+ returns of yesteryear, but then, we're in a
savings glut.

~~~
msandford
> Granted, it's not the glorious 5%+ returns of yesteryear, but then, we're in
> a savings glut.

That's a nonsensical statement when the central bank is fully in control of
the money supply, and thus, the interest rate.

That's like saying "well my computer has a billion copies of funny cat gifs on
it, so there's a funny cat gif glut". It doesn't make any sense. You control
how many copies of funny cat gifs are on your computer. If there are too many,
it's because you made too many copies. If there are two few, it's because you
made too few. Pretending that market action had anything to do with something
that you are ultimately in control of makes zero sense.

The interest rate is low (or zero) because the central bank decided it should
be, not because all the people in the world collectively don't have any real
preference for a dollar today versus a dollar tomorrow.

~~~
saalweachter
The interest rate / inflation is largely low because the central banks are
trying to keep it low / not trying to raise it.

The return from consumer savings accounts being near inflation / a near-zero
real rate of return is because of the savings glut.

The two are related but not the same thing.

~~~
msandford
I don't see how you can just assert that they're similar but not the same,
without any supporting argument, and expect me to accept it.

The interest rate is supposed to be the price of money. There's going to be a
bid/ask spread on that because of the cost of accepting money and bundling it
together, along with the cost of keeping up with the book-keeping and various
other things that are costs for loans. So the rate you get paid in interest
should always be less than the rate that you pay in interest. This I
understand.

But if the interest rate is low, then the interest rate is low. The interest
rate is determined by the aggregate supply and demand for money. If there is a
lot of supply, relative to demand, then the interest rate is low. If there is
a lot of demand relative to supply, then the rate is high. And given that
people have a nearly infinite desire for money today versus in the future, the
rate is really determined by the supply.

The Fed is in control of the supply by creating or destroying money as needed.
That means that they fully and truly do set the rate, because they can do
literally whatever is needed to move the needle.

The idea that everyone's individual actions to save is somehow what created
the tremendous amount of expansion in the money supply (and thus the very low
interest rate) is utter nonsense. The Fed created a lot of extra money which
expanded the supply of loans, thus pushing down the rate.

------
drzaiusapelord
>Yale, which has an endowment of $23.9 billion

As a side note, that's about half the entire GDP of Ethiopia last year. That's
a country of 100m people.

~~~
samstave
I'm actually surprised that Ethiopia can generate ~46B at all...

~~~
adventured
Their economy is finally growing nicely, after 30 plus years of disaster.

From their small base, GDP has tripled in ten years. They've seen 11 straight
growth years. The prior two years both saw around 10% growth, while inflation
has been relatively low.

Life expectancy at birth has climbed from 50 to 64 in 20 years.

The poverty rate has fallen from 45% to about 25% in 20 years.

The infant mortality rate has fallen from 140/100k in 1980, to around 40
today, falling by 50% since 2000. It's expected to continue to fall.

They're actually generating wealth faster than any other comparable nation in
Africa:

[http://www.theguardian.com/world/2013/dec/04/ethiopia-
faster...](http://www.theguardian.com/world/2013/dec/04/ethiopia-faster-rate-
millionaires-michael-buerk)

~~~
samstave
Well, jesus -- good for them! However that article only left me suspicious as
to how these new millionaires are making their money...

Even in the article it states that some dont know where the money came from...
I err on the side of corruption...

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kchoudhu
CUSIP?

------
msie
Maybe now more money will go to the students who need it. ;-)

------
Jerry2
>Yale, which has an endowment of $23.9 billion

Fascinating. Yet they still require their students to pay tens of thousand of
dollars each year in tuition. They should do what Stanford did and make
education free for students whose families earn less than $125k.

~~~
emmett
Quoth Yale's website:

"Yale does not require students to take out loans for their education.
Instead, Yale meets 100% of demonstrated need for all admitted students with a
financial aid package consisting of need-based scholarships, term-time
employment, and a student income contribution."

[http://admissions.yale.edu/financial-aid-prospective-
student...](http://admissions.yale.edu/financial-aid-prospective-students#101)

So...Yale does what Stanford does already...

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Someone1234
Perpetual bonds are a terrible idea. Just like "unlimited" anything, if you
offer unlimited then someone will try to use unlimited.

Even if they had done 200 years, it likely wouldn't have diminished the bond's
value too heavily (at purchase), and would have put a stop to this.

I guess they figured that they would eventually buy back all of the bonds, but
missed a few or never had the money.

~~~
cletus
Any kind of unlimited tends to be a terrible idea. Just look at the wrangling
over the AAirpass:

[http://articles.latimes.com/2012/may/05/business/la-
fi-0506-...](http://articles.latimes.com/2012/may/05/business/la-
fi-0506-golden-ticket-20120506)

At least, from AA's perspective, that ends when the holder dies so there's
light at the end of the tunnel.

~~~
newjersey
When I first started learning about Individual Retirement Accounts, one
thought I had on Roth was how long can income from a Roth IRA stay tax free?

I was hoping the answer would be in perpetuity. Sadly, it seems that the
longest you can draw it out is until the death of one's surviving spouse.

Imagine how glorious it would be if you could stow away about $5k of post tax
income every year and invest it in some stock index fund if you could give it
to someone upon death. Of course, it wouldn't be a retirement account anymore
though.

~~~
csense
Trusts are sort of like this. I think the key is you have to have signed away
the money irrevocably to the legal entity of the trust, so it's totally out of
your control when you die and thus not taxed with your estate.

