Sunday, September 6, 2009

Wall Street To Securitize People's Deaths?

The New York Times published a pretty creepy article on Saturday (September 5th). The article focuses on Wall Street's new plan to make money. What's so bad about Wall Street making money?

Well, their new plan is to buy life insurance plans from elderly and sick people for cash. The example that the New York Times gives is someone selling a million dollar policy for a $400,000 payout, but the payout amount would all depend on the seller's life expectancy. These "life settlements" would then be bundled together to form bonds that can be sold to investors. The investors would start paying for the person's policy from then on. When the person dies, the investors collect on the policy. Apparently, the faster the person dies, the more money the investors make. However, regardless of whether you die sooner or later, Wall Street firms will profit off of fees collected from creating the bonds and facilitating transactions. You could say that Wall Street is planning to "securitize" people's lives (or deaths, as it may be) into a kind of CDO. And we all know how great that whole CDO adventure played out for Wall Street, right? What could be dangerous about creating a similar class of financial products with sick people's life expectancy as the focus?

Apparently, these type of "life settlement" investments aren't new for banks. They already exist in a lot of portfolios. Whats new is the plan to securitize these "life settlements" and market them as a big-time asset class of their own. Keep in mind, this isn't something banks are just talking about potentially doing. The Times states that Credit Suisse is "building a financial assembly line to buy large numbers of life insurance policies, package and resell them — just as Wall Street firms did with subprime securities." Estimates are putting the market for this class of investment product at $500 Billion, according to the article. I don't doubt it one bit. Considering how many people are losing their jobs or facing pay cuts and how high medical bills are these days, does anyone really doubt that there are a whole lot of elderly and sick people out there who would be eager to sell their life insurance policies for an immediate cash payout? Especially if they foresee a future inability to pay their premiums?

So whats the upside? Right now a lot of people just let their life insurance policies lapse. If they're lucky they'll still get a small payout but its usually not much compared to the premiums they've payed up to that point. Under this "life settlement" proposal, policy sellers get a bigger payout and eventually investors get their payout too. So insurance companies end up paying out on their policies more often than they do now. But, insurance companies could end up just raising rates and premiums to make up for the difference, which could end up leaving the average policyholder worse off. Wall Street profits. Insurance companies profit. The consumer pays up.

Still, its hard to really get that angry over a proposal like this. As I pointed out, these type of "life settlements" are already held in a lot of investment bank portfolios. And, who am I to say what kind of financial relationships elderly and sick people should or shouldn't engage in?

But there are so many disturbing ramifications that come out of this proposal that I can't help but be worried. The article mentions that investors lost out on these type of investments in the '80s when people with AIDS ended up living longer thanks to new medications. It also mentions that risk managers are planning on diversifying these bonds based on illness type. If one bond happens to represent too many people who all have one type of illness, then that bond could prove to be unprofitable if a cure for that illness is ever discovered. Am I the only one who finds it disturbing that it'll now be in the interest of some Wall Street investors for sick and old to people to die faster and for certain medications or medical procedures to be suppressed or kept inacessible to the public if they're too successful at actually making people live longer? I mean, don't some of these major banks also have large stakes in pharmaceutical and healthcare companies? Couldn't that present a very serious and disturbing conflict of interest? The article doesn't address these questions.

Then theres this:
Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.
So, not only will investors be making money when some people die but some investors will also be making money by simply placing bets on life expectancy in a kind of virtual market. Great. Thank God we bailed out these banks, otherwise they wouldn't have been able to come up with these great investment products that will surely work to make America more economically competitive with the rest of the globe.

Seriously, how predatory can Wall Street get? Whats the thought process here? "I guess if the American consumer is too tapped out to buy our junk we'll just reap profit from his death and place secondary bets on the over/under for his life expectancy"? I mean, people aren't going to sell their policies for "life settlements" just because. Usually its because they have too much debt, lost their job or because they simply can't afford the medical costs of staying alive otherwise. So the American consumer is really being squeezed for every last cent he can cough up here. All of this almost sounds like a slur a communist would attack American capitalism with ("Wall Street profits off of death!") but its reality. I guess that's how deranged and parasitical some aspects of American so-called "free enterprise" have gotten.

Welcome to the Brave New World, I guess? So let me know, how do you feel about this whole plan?

You can find the article here: 'Wall Street Pursues Profit in Bundles of Life Insurance'

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9/7/09 addendum: Like this post? Want to read more about this topic? Read my longer follow-up post which goes more in-depth by clicking here.

28 comments:

  1. Why am I not suprised? The frightening part of this scenario comes to fruition when it is revealed that drug companies are buying up large blocks of these offerings. Then watch for the next serious pandemic to errupt soon after. As I always tell sceptical friends, having worked in retail for 10 years, I know what people will do for ten dollars, what the hell would someone do for a billion dollars?

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  2. Old news...life settlements have been going on for years. Where have you been? I got into the insurance business ten years ago and they were around before that.

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  3. Then all they will need is a convienient pandemic to really cash in!!!!

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  4. How hard would it be for investors to hire people to "expedite" the insured's passage to the other side? This is creepy!

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  5. I'm not at all surprised at this development. Ever wonder why we have social security numbers. The federal reserve uses them as security on the open market. Do you happen to know how I can cash in on my number?

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  6. This reminds me of the North Korean communist propaganda graffito seen in Seoul in 1950, after the Americans liberated the city: "Don't Die For Wall Street!" That seems like good advice now.

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  7. Greed knows no bounds!

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  8. Pretty damn good- especially in an engineered pandemic. And if the meat market can also harvest their organs on top of it all for another cool million per cadaver? ...why I'd say what could be better??? And the really toxic ones could just be ground up for cattle feed to keep the mad cow deaths escalating.

    Depopulation 101! With a cash fillip on the side. Its a psychopaths' jackpot.

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  9. If stock shares are sold on Wall Street for our health insurance companies (which I understand they are) which is part of our current healthcare issues, what is this article telling us? The implications are absolutely obscene......

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  10. We've all heard how it was securitization of debt that was the cause of the present banking crisis, with toxic assets polluting the accounts of banks worldwide. And now they're doing the same thing all over again with another class of assets, Goldman Sachs, who else, at the forefront. Am I dreaming or what? It was not even one year ago when the sh*t hit the fan.

    I can just hear a sinister dialogue between a greedy investor and investment banker trying to sell these securities, discussing the odds of recovery for cancer patients etc.
    Medical professionals will have incentives in letting people die. It's terrifying.

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  11. Anonymous said...
    "I'm not at all surprised at this development. Ever wonder why we have social security numbers. The federal reserve uses them as security on the open market. Do you happen to know how I can cash in on my number?"

    Start by researching Admirality/Maritime Law and the Common Law. Become aquainted with the UCC and also look into what the #'s on your Birth Certificate REALLY mean.
    Oh yeah...once you have, you had best be prepared to take ethier the red pill, or the blue pill....
    Best wishes in your quest

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  12. They've gotten the word that the commies in the White House are going to start killing off old people.

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  13. A complete disrespect of humanity and life..
    Capitalism is good. But morality should be involved too

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  14. I recently read that Warren Buffet has shifted his investments from energy to pharma

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  15. I wonder how much it cost to get into heaven? Greed is king!!

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  16. Watch out for the hit squads!!!!!!!!!!!!!!!!!!!

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  17. Globalisation Consumerism hey. Its starting to consume all of us. Its insane and I am amazed that most Americans do not realise that you are all slaves. Please wake up,become outraged and commence another Revolution. We need to destroy debt based fractional reserve banking. It should be quite clear by now just how EVIL it is. Its Satanic.

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  18. Also, I am concerned about the "insider" knowledge that might be driving this. It would be so easy to make your 'bets' on elderly dying, when you know that there is a plan in the works to purposely allow the elder populations to die during a pandemic or other such catastrophes. And considering that so many people are writing and warning people NOT to take the swine flu shot, and government saying old people do not need it becuz they probably immune....it sounds like there may be people with inside knowledge of a 'culling' on the agenda.

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  19. And there's no way, of course, that this could end badly now, is there?

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  20. Unlike others, I am surprised at the degree to which bankers seek to obtain money. But I am confused as to why we let them. We have the power to stop them and we should. Except, that this money philosophy is being sold to us at all angles(i.e, tv, news etc). We need to get away from the conecpt of money! After all, it's just a mean of trading goods for services. Our focus should be on People.

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  21. I was 'encouraged' by the advertisement on the left side of the page wanting 'High Net Worth Investors' to look at their website for life insurance settlement products.

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  22. anyone remember the movie soylent green

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  23. And just in time for Obamacare and "end of life" counseling for the sick and elderly!

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  24. I tried to do this YEARS ago, I was working in Plainsboro NJ,
    And I made an offer to older maintenance men, that I would buy two life insurance policies for them, they can put whoever they wanted to be beneficiary and the other policy would be me and I would pay both of the monthly bills.


    The insurance agent said it wasn’t legal, amazing Wall Street wants to do it and it’s legal.

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  25. Of course our government will protect us. That is their job. It's only a coincidence that they bailed out their buddies in the financial industry that are putting these programs together and that the most recent healthcare bill does not hammer down the price of drugs from the pharmaceutical companies that support the plan.

    No, it appears that, once again, the average citizen without the massive resources of either industry or the government is used for the benefit of the elites.

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  26. Now Wall Street's latest scam is to bundle life insurance policies purchased from the sick and the elderly into securitized death bonds and funds

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  27. Devil's Advocate: What does everyone have against widows and orphans?

    Like all government mandated expenses, Funeral costs are sky rocketing. Have a spouse? Children? How will they pay the mortgage or university? Life insurance can help mitigate many of these costs.

    As the expense of these goes up, so does the cost of covering them. By allowing the general public a mechanism to finance Life Insurance, bringing more money to the pot, you can get higher payouts for less money. More investors competing for fewer insurance policies. Basic supply and demand would suggest that this would drive the cost of obtaining Life Insurance down.

    Save the widows and orphans. Buy this investment.

    For the record: I don't have *any* life insurance, and I don't finance anyone elses. I would also say this looks like another bubble waiting to happen.

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  28. A person in the insurance biz for 10 years says these things have been going on for a long time. So that makes them okay, I guess. Like turkey vultures circling the weak and dying, now there's a species we might all try copy.

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