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excerpt: ""The geniuses of Wall Street have decided that the next big thing is betting on death. Yes, Wall Street will be rooting for sick people to die right away, at least as soon as the dying sell them their life insurance policies. It's the latest version of a Death Panel: it gives investors a reason to stop health care reform. ""
More Innovation from Wall Street: Securitized Viaticals
Seeded on Sun Sep 6, 2009 1:56 PM EDT
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- Public Discussion (12)
Here’s how it works. Sick people need money. Most folks have term policies that aren’t worth anything to them while they live. They can’t pay for health care with money that won’t be there until they die. So, they sell their policies to Wall Street firms for something less than the face value but a good bit more than nothing. Wall Street wizards package them into bonds.
They found a rating agency ready to assign them AAA ratings. Of course, DBRS, and its math whiz with a degree in nuclear physics, have figured out that one needs to diversify to spread the risk:
A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet.
- 1 vote
#1 - Sun Sep 6, 2009 1:56 PM EDTMore from the NY Times:
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.
The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.
- 1 vote
This is absolutely a bad idea i think. It is a recipe for a new bubble and an economic disaster. But hell the investment firms that sell these vehicles will make out like bandits as usual. Effin disheartening:
Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products
- 1 vote
It's the latest version of a Death Panel: it gives investors a reason to stop health care reform.
More ghoulishness from the right. Betting on death is about as dark as you can go.
- 2 votes
I remember reading years ago about AIDS patients selling their life insurance policies to "new" beneficiaries, in order to get money for medical care. It was disgusting then, and it is now. And, now they want to bundle them into "securities". Faugh.
This is right up there with companies that buy annuities from people. At least with the life insurance policies, the seller isn't going to be hurt by the sale (although families could be). With selling annuities early, some people will run out of funds to live on and suffer the consequences.
I had a client who died and had her estate buy an annuity for a wayward grandson, so he'd have money to live on the rest of his life. He tried to redeem the annuity, and the company wouldn't redeem it, per terms of the original purchase. However, he did find a company to buy it from him (something that the client hadn't foreseen). So, he got a greatly reduced lump sum payment from selling the annuity and he ran through it in no time at all and then he was left with nothing to live on.
Vultures is right.
- 1 vote
#2 - Sun Sep 6, 2009 2:30 PM EDTHi VerbalBarb,
Yes I remember that with the AIDS patients as well.
It seems that in the article from the New York Times it did indicate that insurance premiums could go up because they will end up paying out more claims then they normally do.
The big winners in this will be Wall Street. The families of those that sell their policies for 40 cents on the dollar would be hurt but nobody is guaranteed n inhertiance anyway but I would guess that others will be hurt as well.
- 1 vote
It's too bad the insurance companies can put the kabosh on this sort of thing by limiting beneficiaries to individuals, not corporation. Of course, then they'd find a way around that.....
- 1 vote
I think your all forgetting that the people who hold the policies WANT TO SELL THEM. It's not like Wall Street is preying on the sick . . . the sick want the money now . . . Wall Street wants the money later with interest . . . and this has been going on for years. . . and what are the consequences for the sick who do not have access to a lump sum of cash?
I think this is hyped up drama
#4 - Mon Sep 7, 2009 7:23 PM EDTI don't think you understand the concept entirely. Wall Street would not wait to make money on this. It would become a trading vehicle. The consumer of term life would be hurt by this also.
Your comment on hyped drama is the same comment that most people made during the mad era of repackaging mortgages, CDOs etcetra. That did not turn out so pretty good.
- 1 vote
Sure the trades should be reguloated to insure the overall stability of the life insurance market . . . but this idea that there is some moral imperative is just nonsense.
Not sure I would want to invest in this new bundled insurance vehicle.
All it would take is a nasty flu to kill a few hundred thousand elderly bankrupting the smaller insurance companies, causing any windfalls into a loss.
As far as the ethics, I don't really care, if someone wants to cash out a policy after having paid into it, I don't see any moral problem with it.
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