Posted on 09/06/2009 7:40:48 PM PDT by SeekAndFind
Since the near collapse of Wall Street from the sub-prime mortgage crisis, traders have been jonesing for a return to the adrenaline rush they once enjoyed from the slew of exotic financial instruments cooked up in the dark recesses of special hedge fund units.
And according to a piece in the New York Times, they have found it with a ghoulish scheme gambling on death, by repackaging life insurance policies sold for a fraction of their worth by sick and desperate elderly people. Once people die, the investors make money. And it’s much more profitable if you die sooner rather than later please.
The concept of so-called securitized-viaticals is not new, but what’s different now, is the scope and large-scale bundling of the securitized life settlements into bonds. Sick and dying people with life insurance policies sell them to life settlement companies for a fraction of their value, but typically 20 to 200 percent more than the low cash surrender value offered by the life insurance company holding the policy.
The life settlement companies continue to pay the premiums to keep the policy in force and cash out when the insured dies. The sicker and closer to death of the owner of the policy, the better it is for the life settlement company.
Now, Wall Street is scooping up the policies from the life settlement companies and repackaging them into securitized bonds, with the seal of approval of a Triple-A rating from a bond-rating agency to attract investors. This is the same gambit Wall Street traders used to create the risky collateralized debt obligations and sub-prime mortgage instruments that nearly destroyed Wall Street.
But this time, traders are not only returning to their former risky exotic instruments, but are betting on our early deaths and hoping that a new cure or treatment for a terminal disease is not found. Any development that raises the odds in favor of a longer life, like improved health care because of the passage of health care reform, means that investors in life-insurance securitizations would lose money. There is something fundamentally wrong with an investment in a person’s early death.
And there is money to be made at every stage of the process. The firms receive fees for creating the instruments, reselling and trading them, with the bond agencies cashing in as well.
Goldman Sachs is making it easy to invest in a person’s early death without ever having to invest in the actual bonds, by providing “a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned.”
The rating agency involved in the ” early death investments,” DBRS, employs a “mathematics whiz” who has created computer models to manage the risk of investing in life-insurance securitizations. The risk being of course, people living longer than expected.
The math wiz, Jan Buckler, also has a PH.D. in nuclear engineering and she has devised a scheme of packaging the bond instruments based on the type of disease to lower the risk. She recommends bundling policies with a mix of certain diseases such as leukemia, lung cancer, heart disease, breast cancer, diabetes and Alzheimer’s.” The theory is, if too many people with breast cancer are in the securitization bundle and a cure is developed, the value of the bond would drop.
Wall Street is betting against a cure for cancer.
The financial industry and the life settlement companies, are in dire need of regulation and reform. And the life insurance companies are ready to do battle to push back against large-scale trading of life-insurance securitizations.
Sarah Palin was looking for her death panels in the wrong place.
Here’s the original article :
http://www.nytimes.com/2009/09/06/business/06insurance.html?_r=2&pagewanted=1
TITLE : Wall Street Pursues Profit in Bundles of Life Insurance
And the seeds for another big crash are sown.
How predictable Wall St. can be, sometimes.
This has been going on since AIDS happened. The people do not have to sell their life insurnace polocies - they can keep them. It is just a secondary market for people to sell their polocies if they want to.
The must be expecting the commie ‘RATS to ram their unconstitutional ObamaCare through.
They must be gambling on 0bamaCare passing.
This like repackaging mortgages? These guys never rest,,,,
This sort of thing has been going on for over 20 yrs.
The states generally do a very good job in regulating insurance companies. The SEC is trying to get involved which is a bad idea. The states do a much better job than the fed.
Life settlement companies just offer to buy life insurance polocies. The holders do not have to sell them. Life sttlements make life insurance more valuable to the policyholders.
In the free market...if you don’t like it, don’t buy it. With a government mandate, so sorry chary. No sale. Get lost fascist.
That a peson will die is a much surer thing than someone with a credit score of 490 will not default on his mortgage.
Just another article clamoring for morgovt control.
Same game new name...at the taxpayer’s expense!
This is exactly what happens when America politicizes economics or practices realpolitiks; risk and benefits are without responsibility.
Ok, let me make this easy for those that do not comprehend Econ 101: Government and “Friends of Government” have now standardized privatizing profits and socializing losses at the taxpayer’s expense.
True, but with crap mortages getting mixed with decent ones, and labelling the whole bundle as good, their next step was to protect the investment by buying politicians to not interfere with freddy and Fannie.
When Goldman Sachs has a *direct* profit motive in hurrying death along in certain sectors, do you *really* believe they wouldn’t do something like buy off congress, and make those Palin death panels come to fruition? Or influence the politicians to create single payer? etc etc,,,
Creating a profit motive in death, when they hold such immense power as G-S does, is a bad thing.
Viatical settlements have been around for quite a while. The only thing securitizing the deals does is to increase the amount of capital available to buy out policies of seriously ill people who need their “benefit” now.
Some insurers offer viatical settlements to their existing policy holders, but the public market for such deals gives the policyholder access to alternative bids so they are not stuck with whatever the insurer will offer. This is a good thing. The insurers would love to be in a monopoly position, so no doubt would quietly support a ban on the public market mechanisms like this one.
What I don’t understand is why there is hostility to this activity of the open market by frequenters of this site. Odd!
Well, we all know what happened to those bundled mortgage loans when people lost their jobs and couldn’t afford to pay the mortgages; what happens if all these sick people suddenly find out they can’t afford to die?
“Creating a profit motive in death, when they hold such immense power as G-S does, is a bad thing.”
Why does this give me an uneasy feeling? The most powerful people in the world betting on death? What influence will they parlay when they own millions of these bets worth hundreds of billions of dollars? Can’t we just send them to Nevada?
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