Trust Issues
September 16, 2011 8:33 AM Subscribe
Hartwick College, a small school in New York's Catskills, is the beneficiary of a trust that “could ultimately shatter the nation’s financial structure.”
Workers of the Interplanetary Federation - UNITE!
posted by spicynuts at 8:42 AM on September 16, 2011
posted by spicynuts at 8:42 AM on September 16, 2011
For those with less to spend, there’s even a Time Travel Fund website puckishly set up for would-be travelers who shell out ten bucks by Paypal—money that would be compounded to pay future peoples to retrieve you from your present cash-poor existence.
Wow. Just wow. Even the cryogenic freezing companies have overheard in their ridiculous scam.
posted by griphus at 8:46 AM on September 16, 2011
Wow. Just wow. Even the cryogenic freezing companies have overheard in their ridiculous scam.
posted by griphus at 8:46 AM on September 16, 2011
Compound interest offers the tantalising prospect of immortality: The Time Travel Fund
posted by veedubya at 8:46 AM on September 16, 2011
posted by veedubya at 8:46 AM on September 16, 2011
Ach! How did I miss that bit of the article? I swear I read it all!
posted by veedubya at 8:47 AM on September 16, 2011
posted by veedubya at 8:47 AM on September 16, 2011
I love the idea of man made things that last 1000 years but a money generating machine?! Priceless.
posted by Foci for Analysis at 8:50 AM on September 16, 2011
posted by Foci for Analysis at 8:50 AM on September 16, 2011
"One penny, put out at our Savior’s birth to 5 percent compound interest, would, in the present year 1781, have increased to a greater sum than would be contained in two hundred millions of earths, all solid gold. But, if put out to simple interest, it would, in the same time, have amounted to no more than seven shillings and sixpence."
Or perhaps a widows mite?
posted by blue_beetle at 8:50 AM on September 16, 2011 [3 favorites]
Or perhaps a widows mite?
posted by blue_beetle at 8:50 AM on September 16, 2011 [3 favorites]
I don't understand.
On what grounds was this trust challenged?
Do we believe in compound interest or not?
posted by General Tonic at 8:54 AM on September 16, 2011
On what grounds was this trust challenged?
Do we believe in compound interest or not?
posted by General Tonic at 8:54 AM on September 16, 2011
Page has been formatted for Internet Explorer V6.0 and above, 800x600 resolution
Apparently the Fund has already discovered how to travel back in time.
posted by Inspector.Gadget at 8:54 AM on September 16, 2011 [7 favorites]
Apparently the Fund has already discovered how to travel back in time.
posted by Inspector.Gadget at 8:54 AM on September 16, 2011 [7 favorites]
See, and this is why the FDIC has limits on what they'll cover in the event of a bank failure.
posted by rmd1023 at 8:54 AM on September 16, 2011
posted by rmd1023 at 8:54 AM on September 16, 2011
All Workers of the Interplanetary Federation
...
All Workers of the Interplanetary Federation
...
All Workers of the Interplanetary Federation
....
We have assumed control
....
We have assumed control
....
We have assumed control
(album flip - Passage to Bangkok)
posted by humboldt32 at 8:56 AM on September 16, 2011 [5 favorites]
...
All Workers of the Interplanetary Federation
...
All Workers of the Interplanetary Federation
....
We have assumed control
....
We have assumed control
....
We have assumed control
(album flip - Passage to Bangkok)
posted by humboldt32 at 8:56 AM on September 16, 2011 [5 favorites]
The Time Travel Fund
Well, "now" we can travel in style.
So, after reading the article I'm feeling a bit oversold by the headline. The clear conclusion was that nobody will ever live long enough to swim in their great great grandpa's imaginary nickel depository. In fact, didn't America's financial structure ultimately shatter America's financial structure?
posted by obscurator at 8:57 AM on September 16, 2011
Well, "now" we can travel in style.
So, after reading the article I'm feeling a bit oversold by the headline. The clear conclusion was that nobody will ever live long enough to swim in their great great grandpa's imaginary nickel depository. In fact, didn't America's financial structure ultimately shatter America's financial structure?
posted by obscurator at 8:57 AM on September 16, 2011
I'm going to pop over to the bank during lunch hour and see what they have in the way of 900-year certificates of deposit.
posted by Wolfdog at 9:00 AM on September 16, 2011
posted by Wolfdog at 9:00 AM on September 16, 2011
I'm going to listen to 2112 while doing my finances.
posted by swift at 9:02 AM on September 16, 2011 [2 favorites]
posted by swift at 9:02 AM on September 16, 2011 [2 favorites]
This article focuses on the grant to the college, but the grant to the Unitarian Universalists is no less interesting: Holdeen intended for it to be given to charity programs in India, but actually the funds were mostly stolen by UUA administration and are still being misused today.
posted by shii at 9:03 AM on September 16, 2011 [2 favorites]
posted by shii at 9:03 AM on September 16, 2011 [2 favorites]
On what grounds was this trust challenged?
I reckon the challenge was based on the Rule Against Perpetuities or some variant thereof.
The TL;DR version of the Rule: there is a public interest against allowing a dead person to control or affect the distribution of assets long after he or she has died.
posted by exogenous at 9:04 AM on September 16, 2011 [2 favorites]
I reckon the challenge was based on the Rule Against Perpetuities or some variant thereof.
The TL;DR version of the Rule: there is a public interest against allowing a dead person to control or affect the distribution of assets long after he or she has died.
posted by exogenous at 9:04 AM on September 16, 2011 [2 favorites]
Have you ever made a charitable planned gift to your alma mater? Have you ever made a charitable planned gift on weed?!
posted by 2bucksplus at 9:05 AM on September 16, 2011 [15 favorites]
posted by 2bucksplus at 9:05 AM on September 16, 2011 [15 favorites]
The Restaurant at the End of the Universe is one of the most extraordinary ventures in the entire history of catering.
It is built on the fragmented remains of an eventually ruined planet which is enclosed in a vast time bubble and projected forward in time to the precise moment of the End of the Universe.
This is, many would say, impossible.
In it, guests take their places at table and eat sumptuous meals whilst watching the whole of creation explode around them.
This is, many would say, equally impossible.
You can arrive for any sitting you like without prior reservation because you can book retrospectively, as it were when you return to your own time.
This is, many would now insist, absolutely impossible.
At the Restaurant you can meet and dine with a fascinating cross-section of the entire population of space and time.
This, it can be explained patiently, is also impossible.
You can visit it as many times as you like and be sure of never meeting yourself, because of the embarrassment this usually causes.
This, even if the rest were true, which it isn't, is patently impossible, say the doubters.
All you have to do is deposit one penny in a savings account in your own era, and when you arrive at the End of Time the operation of compound interest means that the fabulous cost of your meal has been paid for. This, many claim, is not merely impossible but clearly insane, which is why the advertising executives of the star system of Bastablon came up with this slogan: "If you've done six impossible things this morning, why not round it off with breakfast at Milliways, the Restaurant at the End of the Universe?"
posted by Hactar at 9:11 AM on September 16, 2011 [11 favorites]
It is built on the fragmented remains of an eventually ruined planet which is enclosed in a vast time bubble and projected forward in time to the precise moment of the End of the Universe.
This is, many would say, impossible.
In it, guests take their places at table and eat sumptuous meals whilst watching the whole of creation explode around them.
This is, many would say, equally impossible.
You can arrive for any sitting you like without prior reservation because you can book retrospectively, as it were when you return to your own time.
This is, many would now insist, absolutely impossible.
At the Restaurant you can meet and dine with a fascinating cross-section of the entire population of space and time.
This, it can be explained patiently, is also impossible.
You can visit it as many times as you like and be sure of never meeting yourself, because of the embarrassment this usually causes.
This, even if the rest were true, which it isn't, is patently impossible, say the doubters.
All you have to do is deposit one penny in a savings account in your own era, and when you arrive at the End of Time the operation of compound interest means that the fabulous cost of your meal has been paid for. This, many claim, is not merely impossible but clearly insane, which is why the advertising executives of the star system of Bastablon came up with this slogan: "If you've done six impossible things this morning, why not round it off with breakfast at Milliways, the Restaurant at the End of the Universe?"
posted by Hactar at 9:11 AM on September 16, 2011 [11 favorites]
So, err, WHO is paying the interest on the trust ? TFA alludes to banks being happy to have your money, but ... I'm not seeing the doom/gloom, other than a sensationalist kinda deal. Bank has your money, are they contractually obligated to keep paying interest at some rate, or can they, at some point, say "no, take your money and go" to the trustees ? And I'd assume it isn't FDIC insured, of if it is, only to the max (which keeps changing, so I'll guess at $250k ?)
posted by k5.user at 9:14 AM on September 16, 2011
posted by k5.user at 9:14 AM on September 16, 2011
The TL;DR version of the Rule: there is a public interest against allowing a dead person to control or affect the distribution of assets long after he or she has died.
You haven't been reading the news about music copyrights lately, have you.
posted by tommasz at 9:18 AM on September 16, 2011 [14 favorites]
You haven't been reading the news about music copyrights lately, have you.
posted by tommasz at 9:18 AM on September 16, 2011 [14 favorites]
"Also, you left £17.50 in your bank account. Thanks to compound interest, you now own 98% of all the world's wealth."
posted by nzero at 9:18 AM on September 16, 2011 [1 favorite]
posted by nzero at 9:18 AM on September 16, 2011 [1 favorite]
This reminds me quite a bit of the squatters case from a few weeks back (link). Basically, it seems like perpetual ownership without any sort of investment (in the land, or in the debtor) helps one person at the cost of generations.
What benefit is there to whoever first accepts a loan for nigh-infinite compound interest? If I borrowed a penny in the time of Jesus I'm going to pretty rapidly derive all possible benefit from it, but I'll be paying for that benefit for hundreds of years. It just seems like a quick setup for rent seeking/usury, assuming there's ever a payout.
posted by Orange Pamplemousse at 9:18 AM on September 16, 2011
What benefit is there to whoever first accepts a loan for nigh-infinite compound interest? If I borrowed a penny in the time of Jesus I'm going to pretty rapidly derive all possible benefit from it, but I'll be paying for that benefit for hundreds of years. It just seems like a quick setup for rent seeking/usury, assuming there's ever a payout.
posted by Orange Pamplemousse at 9:18 AM on September 16, 2011
You haven't been reading the news about music copyrights lately, have you.
You were probably joking, but yeah :-(
posted by exogenous at 9:21 AM on September 16, 2011
You were probably joking, but yeah :-(
posted by exogenous at 9:21 AM on September 16, 2011
I kind of liked Ben Franklin's idea of being burried in a cask of wine while my investment in the future compounds.
posted by JohnnyGunn at 9:24 AM on September 16, 2011 [1 favorite]
posted by JohnnyGunn at 9:24 AM on September 16, 2011 [1 favorite]
“A fortune in circulation,” explained one judge from the case, “even if spent in luxuries, waste, and dissipation, did more good to the public.”
QFT
posted by chavenet at 9:37 AM on September 16, 2011 [2 favorites]
QFT
posted by chavenet at 9:37 AM on September 16, 2011 [2 favorites]
So they'll be using it to buy fifty million dollars worth of anchovies, then?
posted by The Bridge on the River Kai Ryssdal at 9:38 AM on September 16, 2011 [5 favorites]
posted by The Bridge on the River Kai Ryssdal at 9:38 AM on September 16, 2011 [5 favorites]
A similar thing happened hundreds of years ago when individuals donated land and other gifts to church institutions. As the institutions themselves never died and so could never have their wealth liable to feudal dues or redistributed among heirs, it was a worry that they would eventually deprive the king of all income. The Statue of Mortmain limited the wealth that church institutions could acquire be requiring them to petition the king for a quota which their gifts or purchases could not exceed. Indeed, even the acquisition of land within the quota had to be approved, such was the fear of these medieval "trusts".
posted by Jehan at 9:45 AM on September 16, 2011 [4 favorites]
posted by Jehan at 9:45 AM on September 16, 2011 [4 favorites]
Holy crap, I just read John Jone's Dollar last night. dee-dee dee-dee
posted by DU at 9:47 AM on September 16, 2011
posted by DU at 9:47 AM on September 16, 2011
This is why every country that lasts a long time must have either periods of massive hyperinflation followed by redenomination, or periods where massive amounts of currency are destroyed in other ways.
We just had such a period, but quantitative easing kept it from doing its job, and guaranteed that we'll have to have an even worse crisis, probably sooner rather than later.
posted by jamjam at 9:47 AM on September 16, 2011 [2 favorites]
We just had such a period, but quantitative easing kept it from doing its job, and guaranteed that we'll have to have an even worse crisis, probably sooner rather than later.
posted by jamjam at 9:47 AM on September 16, 2011 [2 favorites]
I never turned over the 2112 album...is the other side any good?
posted by Billiken at 9:52 AM on September 16, 2011 [3 favorites]
posted by Billiken at 9:52 AM on September 16, 2011 [3 favorites]
exogenous: I reckon the challenge was based on the Rule Against Perpetuities or some variant thereof.”
Did you read the article? That's kind of what it's about.
posted by koeselitz at 9:55 AM on September 16, 2011
Did you read the article? That's kind of what it's about.
posted by koeselitz at 9:55 AM on September 16, 2011
Billiken: La la la la la la la... you have entered the Twilight Zone!
posted by Buckt at 9:58 AM on September 16, 2011
posted by Buckt at 9:58 AM on September 16, 2011
What benefit is there to whoever first accepts a loan for nigh-infinite compound interest? If I borrowed a penny in the time of Jesus I'm going to pretty rapidly derive all possible benefit from it, but I'll be paying for that benefit for hundreds of years. It just seems like a quick setup for rent seeking/usury, assuming there's ever a payout.
Well, if you spend it on fripperies like food, water and shelter, sure. But if you think more like a bank:
- Use it to start a business whose profits will exceed the repayments.
- Trade in bonds, stocks or commodities whose value will keep rising in excess of the payments.
- Hope that inflation will be high enough to make the value of your debt (i.e. how much of your goods or services you'll have to sell to make the repayments) go down dramatically over time.
- Loan it back out to someone else at a slightly higher interest rate than you're paying, and keep the difference.
posted by metaBugs at 10:00 AM on September 16, 2011 [1 favorite]
Well, if you spend it on fripperies like food, water and shelter, sure. But if you think more like a bank:
- Use it to start a business whose profits will exceed the repayments.
- Trade in bonds, stocks or commodities whose value will keep rising in excess of the payments.
- Hope that inflation will be high enough to make the value of your debt (i.e. how much of your goods or services you'll have to sell to make the repayments) go down dramatically over time.
- Loan it back out to someone else at a slightly higher interest rate than you're paying, and keep the difference.
posted by metaBugs at 10:00 AM on September 16, 2011 [1 favorite]
I never turned over the 2112 album...is the other side any good?
What are offering in exchange for this knowledge, a passage to Bangkok? You won't get something for nothing.
posted by adamdschneider at 10:03 AM on September 16, 2011 [1 favorite]
What are offering in exchange for this knowledge, a passage to Bangkok? You won't get something for nothing.
posted by adamdschneider at 10:03 AM on September 16, 2011 [1 favorite]
I never turned over the 2112 album...is the other side any good?
It's just shiny and reflective like any other CD.
posted by griphus at 10:07 AM on September 16, 2011 [4 favorites]
It's just shiny and reflective like any other CD.
posted by griphus at 10:07 AM on September 16, 2011 [4 favorites]
Agreed. Fascinating.
posted by Windopaene at 10:12 AM on September 16, 2011
posted by Windopaene at 10:12 AM on September 16, 2011
The result is a lot simpler once you think about the investment as competing against all the other investments in the world, the ownership identity of which doesn't really matter. Essentially, it preserves the fraction of the capital base which exists right now for the future, when the economy is larger. Less than that to account for the saving of present laborers. So the 1000 year trust doesn't end up owning everything in the future, it ends up owning a fraction less than what it does right now.
posted by a robot made out of meat at 10:14 AM on September 16, 2011 [2 favorites]
posted by a robot made out of meat at 10:14 AM on September 16, 2011 [2 favorites]
The fear of perpetual trusts is WAY overstated. Say you start a trust with 1 billionth of the world economy today. If invested well, in 1000 years it will still be worth 1 billionth of the world economy. It's just that the world economy is (presumably) going to be much, much bigger. In the long run the growth from investment is equal to GDP growth, nothing more.
The unfair part is this: an average Joe today might have 1 billionth of the world economy. He doesn't invest anything, so his descendants have a little less than 1 billionth, and their descendants have a little less than that, and on and on. In 1000 years, his descendants have far less than 1 billionth each. They probably have about the same absolute wealth as Joe did a thousand years previously. The gains all go to the people and institutions that are investing, making everyone else relatively poorer.
Perpetual trusts should be legal, because they don't hurt anyone and they're awesome.
posted by miyabo at 10:24 AM on September 16, 2011 [2 favorites]
The unfair part is this: an average Joe today might have 1 billionth of the world economy. He doesn't invest anything, so his descendants have a little less than 1 billionth, and their descendants have a little less than that, and on and on. In 1000 years, his descendants have far less than 1 billionth each. They probably have about the same absolute wealth as Joe did a thousand years previously. The gains all go to the people and institutions that are investing, making everyone else relatively poorer.
Perpetual trusts should be legal, because they don't hurt anyone and they're awesome.
posted by miyabo at 10:24 AM on September 16, 2011 [2 favorites]
The result is a lot simpler once you think about the investment as competing against all the other investments in the world, the ownership identity of which doesn't really matter. Essentially, it preserves the fraction of the capital base which exists right now for the future, when the economy is larger. Less than that to account for the saving of present laborers. So the 1000 year trust doesn't end up owning everything in the future, it ends up owning a fraction less than what it does right now.
The fear of perpetual trusts is WAY overstated. Say you start a trust with 1 billionth of the world economy today. If invested well, in 1000 years it will still be worth 1 billionth of the world economy. It's just that the world economy is (presumably) going to be much, much bigger. In the long run the growth from investment is equal to GDP growth, nothing more.
This isn't quite right. Most economic models predict that the most patient agent in the economy eventually owns everything. Normal savers (investors) are "impatient", and consume a fraction of their wealth each period. A patient agent is willing to lend money to the impatient in return for a larger share of tomorrow's wealth. The impatient agent values consumption today more than consumption tomorrow, and so they are happy to be a little richer today and a little poorer tomorrow.
A trust like this is essentially an infinitely patient investor. The trust never "consumes", and would eventually grow to own the economy (according to the simplest, textbook models).
posted by thrako at 10:37 AM on September 16, 2011 [6 favorites]
The fear of perpetual trusts is WAY overstated. Say you start a trust with 1 billionth of the world economy today. If invested well, in 1000 years it will still be worth 1 billionth of the world economy. It's just that the world economy is (presumably) going to be much, much bigger. In the long run the growth from investment is equal to GDP growth, nothing more.
This isn't quite right. Most economic models predict that the most patient agent in the economy eventually owns everything. Normal savers (investors) are "impatient", and consume a fraction of their wealth each period. A patient agent is willing to lend money to the impatient in return for a larger share of tomorrow's wealth. The impatient agent values consumption today more than consumption tomorrow, and so they are happy to be a little richer today and a little poorer tomorrow.
A trust like this is essentially an infinitely patient investor. The trust never "consumes", and would eventually grow to own the economy (according to the simplest, textbook models).
posted by thrako at 10:37 AM on September 16, 2011 [6 favorites]
The result of compounding interest on investments over the course of centuries may seem ridiculous, but we apply the same logic to the broader economy when we expect GDP to grow at the rate of 3-5% a year. An easy rule of thumb in finance is not to think about the rate of growth as a percentage, but to calculate the doubling period by dividing 72 by the interest percentage. So an investment that grows at 5% a year will double every 14 years. This is also known as exponential growth, which rapidly approaches infinity the farther out you look.
Obviously, exponential growth (or compound interest) can not be indefinitely sustained in a world of finite resources. The nature of exponential growth means that when you've exhausted half your capacity, you've only got one doubling period left.
Albert Bartlett on the exponential function
posted by heathkit at 10:43 AM on September 16, 2011 [4 favorites]
Obviously, exponential growth (or compound interest) can not be indefinitely sustained in a world of finite resources. The nature of exponential growth means that when you've exhausted half your capacity, you've only got one doubling period left.
Albert Bartlett on the exponential function
posted by heathkit at 10:43 AM on September 16, 2011 [4 favorites]
koeselitz: Did you read the article? That's kind of what it's about.
Yes I did, but I don't think the article specified the particular legal grounds (state common law, statute, or whatever) brought forth, so I provided the wiki link for some context. What's your point?
posted by exogenous at 10:53 AM on September 16, 2011
Yes I did, but I don't think the article specified the particular legal grounds (state common law, statute, or whatever) brought forth, so I provided the wiki link for some context. What's your point?
posted by exogenous at 10:53 AM on September 16, 2011
We just had such a period, but quantitative easing kept it from doing its job
Killing off poor people when they don't have $1000 to buy a gallon of milk? Yeah, sucks that we prevented that.
posted by muddgirl at 10:57 AM on September 16, 2011
Killing off poor people when they don't have $1000 to buy a gallon of milk? Yeah, sucks that we prevented that.
posted by muddgirl at 10:57 AM on September 16, 2011
$100 placed at 7 percent interest compounded quarterly for 200 years will increase to more than $100,000,000 — by which time it will be worth nothing. —Robert Heinlein
posted by cjorgensen at 11:04 AM on September 16, 2011 [5 favorites]
posted by cjorgensen at 11:04 AM on September 16, 2011 [5 favorites]
This would never ruin any economy because the bank would close its doors as soon as it could not make an interest payment, disbursing its assets safely to creditors with minimal damage (bailouts excepted.) In order for a bank or several banks to make all the payments for a thousand years, they would have to have proportionate loan income or investment income on the assets, which would mean that the economy in which the trust was situated would have also grown at a compound rate. Either way, no catastrophe.
Also, I'm curious if there are any such trusts expiring soon.
posted by michaelh at 11:35 AM on September 16, 2011 [1 favorite]
Also, I'm curious if there are any such trusts expiring soon.
posted by michaelh at 11:35 AM on September 16, 2011 [1 favorite]
Disbursing to depositors, creditors and/or shareholders depending on the legal structure of the bank and the laws in place at the time, of course.
posted by michaelh at 11:36 AM on September 16, 2011
posted by michaelh at 11:36 AM on September 16, 2011
"How much for a cup of coffee?"
"$2.5 quadrillion, same as in town'
posted by mmrtnt at 11:57 AM on September 16, 2011
"$2.5 quadrillion, same as in town'
posted by mmrtnt at 11:57 AM on September 16, 2011
We just had such a period, but quantitative easing kept it from doing its job
Killing off poor people when they don't have $1000 to buy a gallon of milk? Yeah, sucks that we prevented that.
posted by muddgirl
For total cluelessness, your comment has seen few equals, muddgirl.
Virtually all of the money of quantitative easing went to the very wealthy, corporate and corporeal.
posted by jamjam at 11:58 AM on September 16, 2011
Killing off poor people when they don't have $1000 to buy a gallon of milk? Yeah, sucks that we prevented that.
posted by muddgirl
For total cluelessness, your comment has seen few equals, muddgirl.
Virtually all of the money of quantitative easing went to the very wealthy, corporate and corporeal.
posted by jamjam at 11:58 AM on September 16, 2011
There was a good post on this on Crooked Timber a while back.
I also remember thinking about this sort of problem. "How would you set up an investment bank for time travelers?"
It turns out to be harder than you might think. You need to find investments that outpace inflation, and the change in technologies over a 1000 or even greater year time-frame. You have to hedge your investments so that the collapse or decline of a major country won't wipe out your investments. Also, since there's no single thing or investment you can make that does this over the long term and you have to be constantly investing and re-investing, you have to be absolutely sure that the people running your trust aren't malicious or incompetent since a few percentage points lost due to incompetence or corruption is the difference between exponential growth and exponential decline.
posted by Grimgrin at 12:02 PM on September 16, 2011 [1 favorite]
I also remember thinking about this sort of problem. "How would you set up an investment bank for time travelers?"
It turns out to be harder than you might think. You need to find investments that outpace inflation, and the change in technologies over a 1000 or even greater year time-frame. You have to hedge your investments so that the collapse or decline of a major country won't wipe out your investments. Also, since there's no single thing or investment you can make that does this over the long term and you have to be constantly investing and re-investing, you have to be absolutely sure that the people running your trust aren't malicious or incompetent since a few percentage points lost due to incompetence or corruption is the difference between exponential growth and exponential decline.
posted by Grimgrin at 12:02 PM on September 16, 2011 [1 favorite]
For total cluelessness, your comment has seen few equals, muddgirl.
Virtually all of the money of quantitative easing went to the very wealthy, corporate and corporeal.
Well, duh. Wealthy people are going to profit in any capitalist economy, no matter what. It's equally clueless (not to mention cruel) to claim that periods of hyperinflation are somehow a desireable aspect of a healthy economy.
posted by muddgirl at 12:09 PM on September 16, 2011
Virtually all of the money of quantitative easing went to the very wealthy, corporate and corporeal.
Well, duh. Wealthy people are going to profit in any capitalist economy, no matter what. It's equally clueless (not to mention cruel) to claim that periods of hyperinflation are somehow a desireable aspect of a healthy economy.
posted by muddgirl at 12:09 PM on September 16, 2011
Railways through Africa!
Dams across the Nile! (The ships, tell them about the ships!)
Fleets of Ocean Greyhounds! (More, tell them more!)
Majestic self-amortizing canals! (Oh, it fires the imagination!)
Plantations of ripening tea...
All from tuppence,
prudently,
thriftily,
frugally
Invested in the -
to be specific -
in the
Dawes
Tomes
Mousley
Grubbs
Fidelity Fiduciary Bank
posted by Potomac Avenue at 12:51 PM on September 16, 2011 [1 favorite]
Dams across the Nile! (The ships, tell them about the ships!)
Fleets of Ocean Greyhounds! (More, tell them more!)
Majestic self-amortizing canals! (Oh, it fires the imagination!)
Plantations of ripening tea...
All from tuppence,
prudently,
thriftily,
frugally
Invested in the -
to be specific -
in the
Dawes
Tomes
Mousley
Grubbs
Fidelity Fiduciary Bank
posted by Potomac Avenue at 12:51 PM on September 16, 2011 [1 favorite]
It's equally clueless (not to mention cruel) to claim that periods of hyperinflation are somehow a desireable aspect of a healthy economy.
If anything QE was expected to cause some level of inflation, but didn't, because we're in a liquidity trap, and all that QE money is just sitting there, doing nothing. QE was done because of the fear of a deflationary spiral, which is the exact opposite of what you're claiming. But it looks like we're in one anyway. So yeah, there you go, I hope you appreciate how wrong you are. Hyperinflation in the USA? Not anytime soon, not that it would necessarily be worse than what we have now...
posted by mek at 2:39 PM on September 16, 2011
If anything QE was expected to cause some level of inflation, but didn't, because we're in a liquidity trap, and all that QE money is just sitting there, doing nothing. QE was done because of the fear of a deflationary spiral, which is the exact opposite of what you're claiming. But it looks like we're in one anyway. So yeah, there you go, I hope you appreciate how wrong you are. Hyperinflation in the USA? Not anytime soon, not that it would necessarily be worse than what we have now...
posted by mek at 2:39 PM on September 16, 2011
I'm confused, mek - I didn't make any of those claims - did you mean to quote jamjam is claiming?
My only point is that I object to jamjam's claim that hyperinflation is a necessary and desireable function of a healthy economy.
posted by muddgirl at 2:43 PM on September 16, 2011
My only point is that I object to jamjam's claim that hyperinflation is a necessary and desireable function of a healthy economy.
posted by muddgirl at 2:43 PM on September 16, 2011
I think it's a shame that the school didn't even name anything after Mr. Holden. That just seems rude.
posted by dejah420 at 3:24 PM on September 16, 2011 [1 favorite]
posted by dejah420 at 3:24 PM on September 16, 2011 [1 favorite]
I don't see why these trusts should be illegal; I think the article implies that it these things are bad for society. If a bank is willing to go along with a trust of this length, then it may as well do it. Banks might be better off with guidelines that limit these kinds of things, of course. Then, the FDIC, to the extent that it insures banks, can simply limit their liability on these types of trusts, in case banks go under. You would be betting that the bank that holds the trust will still be in existence in 1,000 years.
The key to these types of investments is an understanding of your risks.
I'm guessing, without having actually seen anything about what legal battles have occurred in this case, that the trust was modified under state law. Every state has laws regarding the modification of trusts by the beneficiaries thereof, and I'm sure there are ways to fit a situation like this into those laws. You'll note that the trust for the college is now worth about $9,000,000, and the college gets $450,000 a year from the the trust. The college has every interest in dipping into the till early by modifying the trust, even if it is against the wishes of the settlor.
Otherwise, the trust was modified in court on equitable grounds; if so, it would be for reasons closer to unconscionability than the rule against perpetuities.
posted by jabberjaw at 4:02 PM on September 16, 2011
The key to these types of investments is an understanding of your risks.
I'm guessing, without having actually seen anything about what legal battles have occurred in this case, that the trust was modified under state law. Every state has laws regarding the modification of trusts by the beneficiaries thereof, and I'm sure there are ways to fit a situation like this into those laws. You'll note that the trust for the college is now worth about $9,000,000, and the college gets $450,000 a year from the the trust. The college has every interest in dipping into the till early by modifying the trust, even if it is against the wishes of the settlor.
Otherwise, the trust was modified in court on equitable grounds; if so, it would be for reasons closer to unconscionability than the rule against perpetuities.
posted by jabberjaw at 4:02 PM on September 16, 2011
This isn't quite right. Most economic models predict that the most patient agent in the economy eventually owns everything. Normal savers (investors) are "impatient", and consume a fraction of their wealth each period. A patient agent is willing to lend money to the impatient in return for a larger share of tomorrow's wealth. The impatient agent values consumption today more than consumption tomorrow, and so they are happy to be a little richer today and a little poorer tomorrow.
This is absolutely true in theory, and I think unimportant in practice. There are lots of investors delaying consumption about 30-50 years (young people saving for retirement, "usual" trusts) competing for that time frame. It's rather hard to imagine what investments they're missing out on because they will mature on the scale of hundreds of years. I doubt that anyone could figure those out reliably or that these trusts are even trying. In the example of the world's oldest large financial entities, the Roman Catholic Church and Eastern Orthodox Church did badly on their biggest investment (land) because of political risk, well on an unexpected niche investment (art), and very well on proselytizing (in some areas of the world). It's hard to look into the future to see how any of those will work.
posted by a robot made out of meat at 4:08 PM on September 16, 2011
This is absolutely true in theory, and I think unimportant in practice. There are lots of investors delaying consumption about 30-50 years (young people saving for retirement, "usual" trusts) competing for that time frame. It's rather hard to imagine what investments they're missing out on because they will mature on the scale of hundreds of years. I doubt that anyone could figure those out reliably or that these trusts are even trying. In the example of the world's oldest large financial entities, the Roman Catholic Church and Eastern Orthodox Church did badly on their biggest investment (land) because of political risk, well on an unexpected niche investment (art), and very well on proselytizing (in some areas of the world). It's hard to look into the future to see how any of those will work.
posted by a robot made out of meat at 4:08 PM on September 16, 2011
There are lots of investors delaying consumption about 30-50 years (young people saving for retirement, "usual" trusts) competing for that time frame. It's rather hard to imagine what investments they're missing out on because they will mature on the scale of hundreds of years.
Yes, it would be foolish to get a higher rate of return by focusing only on projects that take hundreds of years to complete. I just want to be clear that kind of behavior is not needed. The patient investor only needs to earn the market rate of return, and they will eventually own the entire capital stock (in the model). Earning the "market rate of return" in reality is also problematic, but much less so than chasing high yield investments.
I don't think it is actually feasible for many reasons. Epersonae's link lists some (though I think the author is confused about how inflation in the stock market works). But in theory the most patient agent always ends up holding all the assets.
posted by thrako at 4:59 PM on September 16, 2011
Yes, it would be foolish to get a higher rate of return by focusing only on projects that take hundreds of years to complete. I just want to be clear that kind of behavior is not needed. The patient investor only needs to earn the market rate of return, and they will eventually own the entire capital stock (in the model). Earning the "market rate of return" in reality is also problematic, but much less so than chasing high yield investments.
I don't think it is actually feasible for many reasons. Epersonae's link lists some (though I think the author is confused about how inflation in the stock market works). But in theory the most patient agent always ends up holding all the assets.
posted by thrako at 4:59 PM on September 16, 2011
I'm confused, mek - I didn't make any of those claims - did you mean to quote jamjam is claiming?
I mistook you for someone who could be held to the standards of ordinary conversational interchange, muddgirl; I beg your pardon.
Of course mek meant to quote me rather than you. How could you be so silly, mek? You should tell muddgirl you're sorry.
Hyperinflation in the USA? Not anytime soon...
I hope you're right, mek.
Up until now the Fed has been able to limit inflation by raising interest rates and the rediscount rate, but with all these pools of money you allude to sitting around, and with all the money in foreign hands that could, with modern technology, flood back into the country in seconds, it seems to me that if US inflation passed a certain threshold, everyone everywhere in the world holding dollars would suddenly see that they'd better buy something tangible here immediately before their dollars lost any more value, and just as suddenly, we'd be awash in dollars the Fed had no control over, and that would be pretty extreme inflation, if not hyperinflation.
I think the one thing which has made this scenario unlikely so far has been the disarray of the Euro, which has caused people to retain dollars as a currency for international transactions. If Europe gets its act together, or the Chinese and the South Americans working together do, I feel like we're in trouble.
posted by jamjam at 5:19 PM on September 16, 2011
I mistook you for someone who could be held to the standards of ordinary conversational interchange, muddgirl; I beg your pardon.
Of course mek meant to quote me rather than you. How could you be so silly, mek? You should tell muddgirl you're sorry.
Hyperinflation in the USA? Not anytime soon...
I hope you're right, mek.
Up until now the Fed has been able to limit inflation by raising interest rates and the rediscount rate, but with all these pools of money you allude to sitting around, and with all the money in foreign hands that could, with modern technology, flood back into the country in seconds, it seems to me that if US inflation passed a certain threshold, everyone everywhere in the world holding dollars would suddenly see that they'd better buy something tangible here immediately before their dollars lost any more value, and just as suddenly, we'd be awash in dollars the Fed had no control over, and that would be pretty extreme inflation, if not hyperinflation.
I think the one thing which has made this scenario unlikely so far has been the disarray of the Euro, which has caused people to retain dollars as a currency for international transactions. If Europe gets its act together, or the Chinese and the South Americans working together do, I feel like we're in trouble.
posted by jamjam at 5:19 PM on September 16, 2011
Of course mek meant to quote me rather than you. How could you be so silly, mek? You should tell muddgirl you're sorry.
Yikes! muddgirl, you were in fact the one that claimed milk going to $1000 a gallon would be bad as proof that QE was a good policy. I responded to you because that was a nonsense claim. jamjam is correct in saying that QE increases the risk of inflation (and huge amounts of QE might have a rather terrible consequence if the liquidity trap suddenly ends). In fact this is the entire point of QE, to attempt to keep inflation at target when interest rates can no longer be lowered.
posted by mek at 5:30 PM on September 16, 2011
Yikes! muddgirl, you were in fact the one that claimed milk going to $1000 a gallon would be bad as proof that QE was a good policy. I responded to you because that was a nonsense claim. jamjam is correct in saying that QE increases the risk of inflation (and huge amounts of QE might have a rather terrible consequence if the liquidity trap suddenly ends). In fact this is the entire point of QE, to attempt to keep inflation at target when interest rates can no longer be lowered.
posted by mek at 5:30 PM on September 16, 2011
I've thought about the trust model at times. With my dad's museum career, I've been painfully aware of the limitations of year-to-year funding, especially if public entities are involved. By contrast, I was a member of a church that was surviving -- despite what had at one time been a current membership measured in the low dozens -- by dint of previous bequests, which the finance committee was allowing to be whittled down by some 1% annually. To the best of my knowledge, this was eventually reversed, but had gotten the church through some very lean years.
So I had wondered about the effects of having fully funded trusts everywhere providing public benefits, from museums to parks to bikeways, and even about the effect of public trusts. It does seem to me that there are some moral hazard issues. A number of states have tried "raiding" public monies held in trusts or quasi-trusts (i.e. the legislature reversing its own acts), with attendant loss of public benefits and in some cases serious legal challenges.
With the recent concerns about corporate influence vs. labor rights in Wisconsin, as well as national aspects such as Citizens United, I'd wondered why the co-op model of business is under such threat. Demutualization of banks and insurance companies, for example.
Then I read that some think we already have too many non-profits in the US (even though most of them are tiny or inactive), because of the monies that escape the taxman.
I'm capable of following serious argument in this vein, but not so much of formulating things myself, to be honest. Where would I find good discussion of these concepts? I'm a bit tired, sorry for the ramble.
posted by dhartung at 6:01 PM on September 16, 2011 [1 favorite]
So I had wondered about the effects of having fully funded trusts everywhere providing public benefits, from museums to parks to bikeways, and even about the effect of public trusts. It does seem to me that there are some moral hazard issues. A number of states have tried "raiding" public monies held in trusts or quasi-trusts (i.e. the legislature reversing its own acts), with attendant loss of public benefits and in some cases serious legal challenges.
With the recent concerns about corporate influence vs. labor rights in Wisconsin, as well as national aspects such as Citizens United, I'd wondered why the co-op model of business is under such threat. Demutualization of banks and insurance companies, for example.
Then I read that some think we already have too many non-profits in the US (even though most of them are tiny or inactive), because of the monies that escape the taxman.
I'm capable of following serious argument in this vein, but not so much of formulating things myself, to be honest. Where would I find good discussion of these concepts? I'm a bit tired, sorry for the ramble.
posted by dhartung at 6:01 PM on September 16, 2011 [1 favorite]
I should add jamjam that at this point I'm not really worried about hyperinflation, but there is a big caveat: a lot of economic "wisdom" right now is that, given that previous quantitative easing wasn't effective, we need even more. Plus, the USA is not the only country aggressively using QE right now - the UK is doing the same, and finding it similarly ineffective. What's that definition of insanity, again?
posted by mek at 7:01 PM on September 16, 2011
posted by mek at 7:01 PM on September 16, 2011
What's that definition of insanity, again?
I suppose you mean the hackneyed old saw that "the definition of insanity is doing the same thing over and over again and expecting different results" or some variant thereof?
I have looked at many dozens of definitions of insanity from many different sources and NO legitimate dictionary defines insanity in this manner. WHY DO PEOPLE KEEP REPEATING THIS INANE CANARD??? Why do people attribute it to Einstein, Twain, etc for gods sakes???
(It likely was first spoken by Rita Mae Brown, and notably has been described as "the dumbest thing a smart person ever said". )
Anyway, Mek, if you did not intend to allude to that version of the "definition of insanity" , my apologies. I work for a mega corporation where I hear that "definition of insanity" repeated at least weekly by someone who couldn't carry Einsteins jock, assuming Einstein was so inclined to purchase such an item ( alas, this very day I heard this "definition" as as I listened to some pontificating corporate brown nosing asshat rail away during a mandatory "Excellence in leadership" webinar). I wanted to commit seppuku with a letter opener, but instead I decided to Rethink Possible. ahem...
O.K., I am ranted out. Peace.
posted by jcworth at 9:03 PM on September 16, 2011 [1 favorite]
I suppose you mean the hackneyed old saw that "the definition of insanity is doing the same thing over and over again and expecting different results" or some variant thereof?
I have looked at many dozens of definitions of insanity from many different sources and NO legitimate dictionary defines insanity in this manner. WHY DO PEOPLE KEEP REPEATING THIS INANE CANARD??? Why do people attribute it to Einstein, Twain, etc for gods sakes???
(It likely was first spoken by Rita Mae Brown, and notably has been described as "the dumbest thing a smart person ever said". )
Anyway, Mek, if you did not intend to allude to that version of the "definition of insanity" , my apologies. I work for a mega corporation where I hear that "definition of insanity" repeated at least weekly by someone who couldn't carry Einsteins jock, assuming Einstein was so inclined to purchase such an item ( alas, this very day I heard this "definition" as as I listened to some pontificating corporate brown nosing asshat rail away during a mandatory "Excellence in leadership" webinar). I wanted to commit seppuku with a letter opener, but instead I decided to Rethink Possible. ahem...
O.K., I am ranted out. Peace.
posted by jcworth at 9:03 PM on September 16, 2011 [1 favorite]
OK, I'm confused about how these trusts could keep growing forever (even if there were no laws against perpetuities). Banks can pay interest because they can make loans and investments with an even higher rate of return. So, they could pay 5% interest forever iff their investments pay more than 5% forever. And in general that would require the economy to be growing at more than 5% forever.
But, well, this doesn't happen. An advanced economy doesn't have growth rates like that, and so interest rates go down. My bank is giving me a fabulous 0.4% rate.
Why doesn't that happen to the trusts?
Did some idiot at the bank give Holden an account with a guaranteed 5% interest rate for the thousand-year span of his trust? That's the only way I can see this ownership-by-dead-people thing becoming a problem, and even then it would seem to be solved by this incompetent bank failing once it can't pay that level of interest any more.
posted by zompist at 10:08 PM on September 16, 2011
But, well, this doesn't happen. An advanced economy doesn't have growth rates like that, and so interest rates go down. My bank is giving me a fabulous 0.4% rate.
Why doesn't that happen to the trusts?
Did some idiot at the bank give Holden an account with a guaranteed 5% interest rate for the thousand-year span of his trust? That's the only way I can see this ownership-by-dead-people thing becoming a problem, and even then it would seem to be solved by this incompetent bank failing once it can't pay that level of interest any more.
posted by zompist at 10:08 PM on September 16, 2011
There is no guaranteed rate of return. The bank just invests it, and over many years there is a positive average rate of return. Hopefully.
posted by miyabo at 6:36 AM on September 17, 2011
posted by miyabo at 6:36 AM on September 17, 2011
Yikes! muddgirl, you were in fact the one that claimed milk going to $1000 a gallon would be bad as proof that QE was a good policy.
I intended to do no such thing. I objected to the idea that we should let hyperinflation "do it's job." Whether or not QA is a good policy is irrelevant to my point.
I mistook you for someone who could be held to the standards of ordinary conversational interchange, muddgirl; I beg your pardon.
You are being unnecessarily insulting.
posted by muddgirl at 6:49 AM on September 17, 2011 [1 favorite]
I intended to do no such thing. I objected to the idea that we should let hyperinflation "do it's job." Whether or not QA is a good policy is irrelevant to my point.
I mistook you for someone who could be held to the standards of ordinary conversational interchange, muddgirl; I beg your pardon.
You are being unnecessarily insulting.
posted by muddgirl at 6:49 AM on September 17, 2011 [1 favorite]
Yes, I was.
Please accept a sincere apology, this time.
posted by jamjam at 11:40 AM on September 17, 2011
Please accept a sincere apology, this time.
posted by jamjam at 11:40 AM on September 17, 2011
But, well, this doesn't happen. An advanced economy doesn't have growth rates like that, and so interest rates go down. My bank is giving me a fabulous 0.4% rate. Why doesn't that happen to the trusts? Did some idiot at the bank give Holden an account with a guaranteed 5% interest rate for the thousand-year span of his trust?
Not sure if anyone has mentioned this, but banks take a fee for financial services like management of a trust. So, the investments involved may make money for the trust and its beneficiaries, but the bank makes money through financial services, e.g., management of the trust in question. The bank doesn't have to make a higher rate of return like it does with savings accounts. In other words, it's not like the structure of a bank lending at a higher rate than it pays in interest to CDs and other long term deposit accounts. The bank makes money from the trust by managing it, not by using the money in the trust for other investments. I am not sure exactly, but I believe the bank or institution managing the trust is not allowed to touch the money in it, just derive profits from fees.
posted by krinklyfig at 2:13 PM on September 17, 2011
Not sure if anyone has mentioned this, but banks take a fee for financial services like management of a trust. So, the investments involved may make money for the trust and its beneficiaries, but the bank makes money through financial services, e.g., management of the trust in question. The bank doesn't have to make a higher rate of return like it does with savings accounts. In other words, it's not like the structure of a bank lending at a higher rate than it pays in interest to CDs and other long term deposit accounts. The bank makes money from the trust by managing it, not by using the money in the trust for other investments. I am not sure exactly, but I believe the bank or institution managing the trust is not allowed to touch the money in it, just derive profits from fees.
posted by krinklyfig at 2:13 PM on September 17, 2011
Also, the rate of return on investments in a trust may be considerably higher than 5% in some years. If there's a guaranteed rate of return of 5%, the better years of, say 11% or 8% make up for the worse years of 1% or 3%. Not every trust has a guaranteed rate of return, but some pay out a guaranteed rate to beneficiaries which is often increased at a rate pegged to inflation. So, the increase in payments is limited by the growth of the economy as a whole. This limits the risk involved, because some years will have negative inflation, or deflation. It also ensures that the beneficiaries are paid at a rate which is relative to the cost of living.
posted by krinklyfig at 2:17 PM on September 17, 2011
posted by krinklyfig at 2:17 PM on September 17, 2011
One more point ... it's very possible through careful management of investments to make an average of 5% on dividend paying stock and coupon payments from bonds, even in bad economies. A combination of MLPs and blue chip dividend and preferred stocks, plus fixed income investments like bonds (as well as land investments which pay rent, typical in many trusts), 5% is not that hard. The bank pays less than 1% on US savings accounts due to the current economy and lack of growth. The interest payments on deposit accounts are mostly pegged to fed fund rates, which are very low right now. This is supposed to encourage banks to lend, but there is not enough GDP growth to get that ball rolling much. Hotter economies than the US pay more on their currencies, like Australia - a US-based trust may invest in foreign currencies. This works in deposit accounts as well as foreign exchange. A trust is not going to put its investments in a US-based CD or savings deposit account, although a portion will likely be invested in US T-bills in some sort of structure, such as a fund. This is a conservative portion of an investment portfolio and will be used mostly as a hedge against other more risky investments incurring losses, not as a source of profit per se.
posted by krinklyfig at 2:30 PM on September 17, 2011
posted by krinklyfig at 2:30 PM on September 17, 2011
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Pretty fascinating article, too!
posted by Wolfdog at 8:40 AM on September 16, 2011 [1 favorite]