The Forever Bond

The business news through the weekend has been all about bank failures and their effect on interest rates and the economy. At the heart of the problem is the inability of banks to pay off deposits when customers show up during a bank run.

Bank deposits are "hot money" because they are liabilities that can be redeemed at any time. Silicon Valley Bank and Signature Bank failed because they didn't have enough cash on hand (or could get cash quickly enough from asset sales or borrowings from other institutions).

"When this bond was written on vellum in 1648,...
its wide margins were empty. Over many years,
the margins were covered with the records of the
interest returned to its owner."

At one end of the duration spectrum are bank deposits. At the other is a 375-year-old “perpetual” Dutch bond.

One of Yale’s most intriguing investments is a 375-year-old “perpetual” Dutch bond that still pays interest. It was issued by the Hoogheemraadschap Lekdijk Bovendams, a semi-public organization charged with maintaining the dike along the Lek river in the Netherlands.

The water authority was founded in 1323; its successor still operates today, in the province of Utrecht, as the Stichtse Rijnlanden.

The bond is a "bearer bond," which is a key plot point of many a murder-mystery novel:

The text makes clear that the bond was transferable, and payment was to be made to the bearer of the security, not to someone listed in a registry.

However, what may dissuade someone from acquiring the instrument via foul means is that the bearer must show up in person to receive the interest. Also, the amount at stake is not enough to quit one's day job:

Beinecke curator Timothy Young presented the allonge in 2015 at the Stichtse Rijnlanden offices to collect the subsequent twelve years of payments. The latter amounted to the equivalent of $153.

The water company paid its obligation, even when the Netherlands were annexed by France in 1810. When the debt was issued in 1648, the payment of same was viewed as a moral imperative. It's nice to know that some people and cultures still subscribe to that principle.

Even Hans Brinker Won't Be Enough

Back when heroes didn't have super-powers, a favorite children's story was about the little Dutch boy, Hans Brinker, who saved the town by putting his finger in the dike. Nowadays saving the Netherlands from rising seas involves expert engineering and vast expenditure of resources.

Headline: Dutch reinvent critical dike as seas rise, climate changes

The Afsluitdijk is 20 miles
long. (Wikipedia)

Engineers are strengthening the Afsluitdijk, including laying thousands of custom-made concrete blocks and raising parts of it....Engineers built a scale model of a cross section of the Afsluitdijk in the tank and are pounding it with waves that they say should occur only once every 10,000 years. The goal is to make sure the new design can survive the destructive power of such a storm.

The government has earmarked nearly $20 billion to fund such projects for the period from 2020-2033.

$20 billion is the equivalent of $460 billion to the United States, which has an economy 23 times the size of the Netherlands. The Dutch are devoting a huge portion of their resources to defenses against rising seas; one doesn’t need to buy into all the tenets of climate change to take action when one’s survival is at stake.