The Tontine Coffee-House (2018)

Summary

Those who know a bit about New York’s financial past have almost certainly heard of the Buttonwood Agreement. In 1792, two dozen stockbrokers signed a now famous pact agreeing to trade directly with each other, bypassing any middlemen, under a Buttonwood tree on Wall Street. This agreement standardized trading between them and is thus thought of as setting the foundation for what would become the New York Stock Exchange. But connecting the agreement signed in 1792 to today’s stock exchange on the corner of Wall and Broad is a story involving an antique insurance product and a coffee shop by the same name. Needing a place to do business outside the rain, Wall Street’s earliest brokers settled on a coffee shop. But no existing one would suffice, a new one, called the Tontine Coffee-House, would be created for the purpose of being New York’s first post-Buttonwood exchange. Where does insurance come into this story; well, the startup capital for the place was provided for by an archaic annuity-like scheme called a tontine.Tontines Tontines have a history that goes back long before the Tontine Coffee-House, established on the corner of Wall and Water streets. The scheme, named after a 17th century banker from Naples, Lorenzo de Tonti, combined retirement planning with a lottery; what better way to combine financial savvy with speculative thrill, all the while raising investable capital. The product worked as follows: Investors each buy shares in the tontine, akin to paying up front for an annuity. The pool of capital is then invested, in a coffee house in the case of our story, and investors receive dividends on their shares until their deaths. Once the number of survivors shrinks to a small group, the investment is wound down. So far, this looks just like any other annuity; but with a tontine, the distributions that do not go to deceased investors are used to increase the benefits of the surviving ones. This is the lottery part of the scheme. Instead of having to worry ...