Re: Isn't That A Belgian Comic Book?

1

Related, the Bush tax cuts, or as Krugman called them "The Throw Grandma From The Train Act of 2011".


Posted by: ajay | Link to this comment | 04-24-13 4:47 AM
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2

See also Robert Louis Stevenson's The Wrong Box.


Posted by: snarkout | Link to this comment | 04-24-13 4:56 AM
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3

Why not just put your savings, at retirement, in one or more single premium immediate annuity? Why use an exotic financial instrument when you don't have to?


Posted by: Benquo | Link to this comment | 04-24-13 5:14 AM
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4

My grandfather sometimes laughs. He retired in 1979. I'd bet his employer didn't think they'd still be paying out a full pension now. He'd have cleanup tontine style.

3 makes a good point, though. It seems no different from a standard insurance scheme, except with added opportunities for murder.


Posted by: nattarGcM ttaM | Link to this comment | 04-24-13 5:19 AM
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5

The WSJ article didn't explain what happened to the principal after the last participant dies which seems a rather important detail.

Regular annuities pay out the principal along the way (on average) so would appear to offer higher income.


Posted by: James B. Shearer | Link to this comment | 04-24-13 5:26 AM
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... But really, I'd just like Social Security to be enough to live on, which would save a whole lot of trouble for everyone.

What's enough to live on? I know people living on Social Security (actually similar public employee pensions).


Posted by: James B. Shearer | Link to this comment | 04-24-13 5:31 AM
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Even if the added opportunities for murder were somehow eliminated, at best, a tontine sounds like a Ponzi scheme. It's a retirement plan that only pays off if you live longer than most people. But, not knowing in advance how long you'll live, you should protect your investment and hedge your bets against dying early by bringing in people likely to die before you. Then they should do the same.

Actually, it's starting to sound a little like regular old Social Security, except that if it pays out more and more as people get older and older, this version of SS actually could have solvency problems.


Posted by: Cyrus | Link to this comment | 04-24-13 5:35 AM
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8

Are tontines still illegal in most jurisdictions?


Posted by: Flippanter | Link to this comment | 04-24-13 5:35 AM
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7: I think the idea is that it's a hedge. You have a regular retirement account which gets drawn down gradually, but what if you outlast your expected lifespan? In that case, the tontine is probably paying you an above average amount (since on average people don't exceed their expected lifespans, so the other owners are likely dead).


Posted by: Benquo | Link to this comment | 04-24-13 5:39 AM
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And like many hedges you are sacrificing some "upside risk" in return. In this case, you forfeit some of the gains from your early death that would accrue to your heirs.


Posted by: Benquo | Link to this comment | 04-24-13 5:43 AM
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Likely Dead, a first novel by the pseudonymous "N. Fogged" set in and around a retirement community on the campus of a liberal arts college, is a mystery built upon the engine of that archaic form of financial planning the tontine. A surprisingly large (but diminishing), cantankerous cast of characters spends most the novel bickering over the identity of the murderer in their midst, but pause to digress at length on food, dating and, bizarrely, sex with clowns. Some good moments, but a little heavy on pun humor. One and a half stars.


Posted by: Flippanter | Link to this comment | 04-24-13 5:48 AM
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12

This amusingly creepy This American Life Story, about funds made up of life insurance policies made on people likely to die soon, seem apropos.


Posted by: Sifu Tweety | Link to this comment | 04-24-13 5:56 AM
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13

|| Flipp's pseudonym there reminded me. Looking at CA's baptismal certificate recently I learned that his godfather was named S/ir Wi/ll/iam Ogg. Apparently this is a fairly common Scottish surname? |>


Posted by: oudemia | Link to this comment | 04-24-13 5:57 AM
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7

Actually, it's starting to sound a little like regular old Social Security, except that if it pays out more and more as people get older and older, this version of SS actually could have solvency problems.

No it can't, the increased payouts aren't guaranteed they arise naturally as the available income is divided among fewer people.


Posted by: James B. Shearer | Link to this comment | 04-24-13 5:58 AM
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13: Common in Llamedos, at least.


Posted by: Cyrus | Link to this comment | 04-24-13 6:06 AM
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16

For those who haven't read the same mystery novels I've read, a tontine...

Or they could watch more Archer. The trivia sections on the episodes are great.


Posted by: gswift | Link to this comment | 04-24-13 6:07 AM
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4

3 makes a good point, though. It seems no different from a standard insurance scheme, except with added opportunities for murder.

Any new product provides opportunities for excessive fees until people figure them out (which is a good reason to avoid them). And tontines have some subtleties. How big should each pool be? How do you assure the pools are fair (similar expected payouts for all participants)? The incentive to lie about your age seems greater than for a regular annuity. And I still don't know what happens to the principal after everyone dies.


Posted by: James B. Shearer | Link to this comment | 04-24-13 6:20 AM
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I thought most tontines didn't do the payout of the full pool to the last subscriber, specifically to mitigate some of the murdery problems.


Posted by: Annelid Gustator | Link to this comment | 04-24-13 6:28 AM
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Like all decent, God-fearing folk, I learned about tontines from Archer. Like God intentioned. Did I mention God? God makes me watch Archer. It's his will.


Posted by: Walt Someguy | Link to this comment | 04-24-13 6:28 AM
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20

To answer James' question, the principle goes back to the insurance company after everyone dies. Presumably the furure payment would be securitized. The insurance company would sell the principle as a zero coupon bond due to mature about X years in the future.

The product described in the article is different from various annuity products already available only in that the dividends gredually increase as you get older. I don't think this is especially useful, form my experience of extremely elderly relatives. Those who held onto health for the longest had a diminishing ability to enjoy spending money: World travel in their 70's, less travel but still going to theatre and restaurants in their 80's, not getting out much in their 90's. Of course medical expenses may increase over the decades, but that's why we have medicare.


Posted by: unimaginative | Link to this comment | 04-24-13 6:58 AM
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21

"For the Australian pillow manufacturer, see Tontine Group."

^^^Plot point in murder mystery (in which the detective solves the crime using wikipedia, it'snot a very exciting murder mystery)


Posted by: tierce de lollardie | Link to this comment | 04-24-13 7:16 AM
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22

21.last: Au contraire, mon frère..

(It's been linked before, but was apropos.)


Posted by: LizardBreath | Link to this comment | 04-24-13 7:18 AM
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23

Like all decent, God-fearing folk, I learned about tontines from Archer

Not from The Simpsons?!


Posted by: nosflow | Link to this comment | 04-24-13 7:20 AM
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24

Did they call it a tontine in Raging Abe Simpson and His Grumbling Grandson in 'The Curse of the Flying Hellfish'?


Posted by: Sifu Tweety | Link to this comment | 04-24-13 7:21 AM
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25

Tontines were originally set up as vehicles for 18th century states (especially France) to raise money, in an era in which government coupon bonds weren't that common. So the principal stayed with the state even after everyone died and the subscriptions were widespread, meaning that if you went full murder you (a) wouldnt get the prinicipal back and (b) would have to murder a whole lot of folks. It seems a little weird that this would have been put in place as a means of mass investing in state finance before ordinary government bonds but maybe they were easier to administrate somehow and they served as a kind of ersatz social security in an era without any real retirement saving or health care. And for old people living with their kids it gave the young folks a reason to keep grandpa alive.


Posted by: Robert Halford | Link to this comment | 04-24-13 7:23 AM
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26

24: Yes. Mr. Burns asks his fellow soldiers if they've heard of a "tontine" and the stereotypically stupid-looking and -sounding one offers an accurate definition.


Posted by: nosflow | Link to this comment | 04-24-13 7:24 AM
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27

Huh, I guess my mystery-novel based understanding was off.


Posted by: LizardBreath | Link to this comment | 04-24-13 7:25 AM
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28

27: The Rubber Band? I can't remember, but there's a Nero Wolfe, right?


Posted by: oudemia | Link to this comment | 04-24-13 7:27 AM
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29

Mmmaybe? I'm having a hard time getting specific, but I know I've seen two or three. There's a Laurence Block Matt Scudder, but that's not a real tontine if I remember correctly, it's a tontine-esque club. But tontines are referenced.


Posted by: LizardBreath | Link to this comment | 04-24-13 7:29 AM
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27: your mystery novel–based understanding was mine too, as that's how it worked in The Simpsons (where what the last survivor gets is a bunch of stolen artworks).


Posted by: nosflow | Link to this comment | 04-24-13 7:34 AM
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31

I think we can all agree that understanding financial products based on The Simpsons is more accurate that reading the financial press.


Posted by: Moby Hick | Link to this comment | 04-24-13 8:25 AM
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32

- that, + than. I blame Vanguard.


Posted by: Moby Hick | Link to this comment | 04-24-13 8:25 AM
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33

Interesting law article, arguing that tontines were not inherently defective, but were a developed industry comparable to life insurance; conventional insurance took over after their reputation plummeted due to corrupt business practices. Also it finds only two states statutorily ban tontines, although a judge in New York voided one on their own say-so in 1981.


Posted by: Minivet | Link to this comment | 04-24-13 8:29 AM
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34

A tontine might help with some of the risk of outliving your savings, but it clearly isn't going to help for all of the tail risk, at least in the U.S. system where nursing homes aren't well covered by public insurance (and private insurance is becoming unaffordable). If you get dementia at a relatively young age, it would seem that you run a very great change of both dying before you can collect significant sums and of having greater financial need than the people who live long enough to collect the significant sums.


Posted by: Moby Hick | Link to this comment | 04-24-13 8:31 AM
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35

|| Someone recently asked late in a thread about what night the main get-together at Unfoggedycon will be, which I guess I need to know, too, and now I don't remember which thread. Was there an answer to this?
|>


Posted by: Mister Smearcase | Link to this comment | 04-24-13 8:35 AM
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36

I haven't been paying attention, but I was pretty sure it was Saturday night -- Friday's a workday, so we'd miss people who needed to work Friday and travel Saturday morning.

I'm going to be finalizing travel/lodging plans at the last goddam minute because my family is impossible to plan for/with.


Posted by: LizardBreath | Link to this comment | 04-24-13 8:37 AM
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37

Ok. I'm there Friday and Saturday nights, but I also have to figure out when to hang out with my sister who lives in DC.


Posted by: Mister Smearcase | Link to this comment | 04-24-13 8:51 AM
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38

Opposing counsel just told me that the saber I was rattling was going to blow up in my face. I cracked up and told him you don't see many exploding sabers these days. Sometimes I really enjoy my job.


Posted by: LizardBreath | Link to this comment | 04-24-13 9:00 AM
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39

If you say, in open court, "Objection your honor, counsel is mixing metaphors," I'll give you fifty cents.


Posted by: Moby Hick | Link to this comment | 04-24-13 9:02 AM
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40

I wasn't even rattling a saber at all.


Posted by: LizardBreath | Link to this comment | 04-24-13 9:09 AM
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41

I'm sure your saber is perfectly sounds and doesn't rattle at all.


Posted by: Moby Hick | Link to this comment | 04-24-13 9:11 AM
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42

Everything I know about tontines I learned from an episode of M*A*S*H.


Posted by: Spike | Link to this comment | 04-24-13 9:13 AM
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43

I thought tontines in the 19th century ended up benefiting financiers in some way but I've forgotten almost all of the insurance history I've read.


Posted by: fake accent | Link to this comment | 04-24-13 9:15 AM
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44

"Insurance history repeats, first as tragedy, then as farce."


Posted by: Moby Hick | Link to this comment | 04-24-13 9:19 AM
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45

I thought tontines were a Star Wars planet...creature...thing...something.


Posted by: Mister Smearcase | Link to this comment | 04-24-13 9:23 AM
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46

No, that's Tartine.


Posted by: nosflow | Link to this comment | 04-24-13 9:24 AM
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47

39: Surely there is a kickstarter-type dot-com that can be built out of a concept like that. What things that would otherwise not be done would you be willing to chip in to see?


Posted by: politicalfootball | Link to this comment | 04-24-13 9:25 AM
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48

I'm sure your saber is perfectly sounds and doesn't rattle at all.

Surely it's only an unsound saber that doesn't rattle?


Posted by: nosflow | Link to this comment | 04-24-13 9:25 AM
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49

Structurally sound, was my meaning.


Posted by: Moby Hick | Link to this comment | 04-24-13 9:31 AM
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50

What things that would otherwise not be done would you be willing to chip in to see?

A sequel to "Garden State".


Posted by: Josh | Link to this comment | 04-24-13 9:33 AM
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51

A sequel to "Garden State".

:(((


Posted by: redfoxtailshrub | Link to this comment | 04-24-13 9:34 AM
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52

It's not a sequel, Josh! It's just another movie by the same guy!


Posted by: nosflow | Link to this comment | 04-24-13 9:36 AM
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53

Surely a "send Zach Braffff to a deserted island for two years" kickstarter could raise more money.


Posted by: Bave | Link to this comment | 04-24-13 9:37 AM
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50: Google reveals that this is not some kind of hideous joke, but is in fact something that Braff is working on via kickstarter.

(Actually, I guess it's both.)

What I'm thinking in 47 is that this opens up a space for an entrepreneur to seek donations to have people who interact with Braff mock him mercilessly for this terrible idea.


Posted by: politicalfootball | Link to this comment | 04-24-13 9:47 AM
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55

Combining the post title with the previous thread - we recently went to the Musée Hergé. Very fancy place.


Posted by: asilon | Link to this comment | 04-24-13 9:58 AM
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"I thought tontines in the 19th century ended up benefiting financiers in some way but I've forgotten almost all of the insurance history I've read."

Well, you could buy the rights from the impoverished but living members of the tontine. Once you'd bought up some percentage, you could go to the remaining members and say, let's split it. That's assuming no violence is involved.


Posted by: bjk | Link to this comment | 04-24-13 10:46 AM
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26: "Well said, Oxford."


Posted by: snarkout | Link to this comment | 04-24-13 10:52 AM
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Note that you can buy a membership in a tontine but tie your share not to your own life, but someone else's. (The illustration in the WSJ article has a example of this.) The legal article has examples of tontines that long outlived the original shareholder, leading to inheritance puzzles.


Posted by: clew | Link to this comment | 04-24-13 11:04 AM
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Now I understand how pensions work. That's why you're probably better off in a pension, because the individual account shifts the risk (of outliving funds) to the individual. Of course you can buy an annuity, but how many people do that? Interesting.


Posted by: bjk | Link to this comment | 04-24-13 11:15 AM
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I have the vague and uneducated impression that annuities tend to be priced above the present value of the income stream, such that it's not a practical method of retirement planning unless you've got enough money that you probably have other ways to plan around the risk.


Posted by: LizardBreath | Link to this comment | 04-24-13 11:17 AM
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60: Depends on your discount rate. If you're comparing it to historical returns on equities and ignoring risk, then it will look like a bad deal. And of course the insurer wants to make some money.

Berkshire Hathaway lets you get actual quotes without doing something unpleasant like speaking to a human being. (I have no idea how their quotes compare to the best available.) I got a quote for a man born exactly 60 years ago who has $500,000 to invest, and he could get a fixed payment of $2,295 per month. With a 3% discount rate (higher than the current 30-year treasury rate) you'd break even sometime around 86 years old. Someone with half a million in liquid savings retiring at 60 is, in relative terms, pretty well-off, but not so well-off that they shouldn't worry about exhausting their savings.

Of course you might want payments that grow with the economy (to hedge against increased cost of living / inflation), and variable annuities are a little more complicated.


Posted by: Benquo | Link to this comment | 04-24-13 1:55 PM
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60

I have the vague and uneducated impression that annuities tend to be priced above the present value of the income stream, such that it's not a practical method of retirement planning unless you've got enough money that you probably have other ways to plan around the risk.

I think the real problem is annuities tend to be bought by people who live longer than average and sellers allow for this when pricing them. So the sellers aren't making excessive profits but annuities are a better deal if you are excellent health.

I believe you can buy annuities that don't start paying right away. So at 65 you might buy one which started paying in 25 years which might be fairly cheap. You still have to worry about inflation of course.


Posted by: James B. Shearer | Link to this comment | 04-24-13 5:23 PM
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20

To answer James' question, the principle goes back to the insurance company after everyone dies. Presumably the furure payment would be securitized. The insurance company would sell the principle as a zero coupon bond due to mature about X years in the future.

This is reasonable if the proceeds of the zero coupon bond are added to the initial pool, otherwise not so much.


Posted by: James B. Shearer | Link to this comment | 04-24-13 5:30 PM
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64

I recently finished binge watching Archer on Netflix. verdict? hilarious.


Posted by: Turgid Jacobian | Link to this comment | 04-24-13 5:42 PM
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65

Tontines sound like something that would be a lot more useful in a legal system with out developed equity jurisprudence.


Posted by: Keir | Link to this comment | 04-24-13 9:42 PM
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35, 36: Yeah, that question wasn't answered at the time, but I think the consensus from earlier threads was that Saturday night would be the big shindig.


Posted by: teofilo | Link to this comment | 04-24-13 9:58 PM
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from the OP "moral hazard ("Do you want a bunch of old people running around killing each other?")"
I suppose this is one solution to our projected medicare/extended life expectancy woes. . .


sort of reminds me of one of my favorite lines from Middlesex . . .spoiler alert . |

It wasn't like a car chase in the movies. There was no swerving, no near collisions. It was, after all, a car chase between a Greek Orthodox priest and a middle-aged Republican. As they sped (relatively speaking) away from Grand Trunk, heading in the direction of the river, Father Mike and Milton never exceeded the limit by more than ten miles per hour.

|


Posted by: Ile | Link to this comment | 04-25-13 3:46 PM
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Middlesex was the first book I read for my present book club - and my favorite so far - I remember that particular scene and its climax very positively. I'm glad to see it quoted!


Posted by: joyslinger | Link to this comment | 04-25-13 8:59 PM
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