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The NY Times has a depressing front page article on what Wall Street is eyeing as its next big thing—bundling life insurance:
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.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.
In spite of some criticism that premiums might need to be raised, one company that rates investment risk says, "our phones have been ringing off the hook with inquiries," and one investment banker boasts, "We’re hoping to get a herd stampeding after the first offering."
The Times goes into detail about what the plan may entail; James Cox, Duke University professor of corporate and securities law, says, "It’s bittersweet. The sweet part is there are investors interested in exotic products created by underwriters who make large fees and rating agencies who then get paid to confer ratings. The bitter part is it’s a return to the good old days." Guess this is a good time to listen to This American Life's breakdown of the subprime mess, The Giant Pool of Money (transcript PDF).
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Three cheers for capitalism!
I'm moving off the grid. See you later, America.
"The earlier the policyholder dies, the bigger the return "
With a government run health care system looming, I can see why this might be potentially very lucrative.
Right. The elderly are all going to die early because the big bad government is going to take over their health care... that is already provided by... the government (medicare). idiot.
With life expectancy overall going up, this doesn't seem like the best long-term investment strategy.
Thats it! I've had it! I'm living forever.
Let's face it insurance companies make money by not paying off. The only sure bet is life insurance because the death cetrificate is proof that you've gone to your reward. My father lived to be 97 and had a $5000. full life policy which he made monthly payments for more than 50 years. When he was 85 he showed me a letter he got from The Metropolitan Life Insurance Company, his carrier, congratulating him on his 85th birthday but notifying him that the double indemnity clause in his policy is cancelled. He had already beaten their odds makers so that had to cut him down some way. This is what they do and while you're fighting with them to collect your benefits they were investing your money and making even more money.
Warren Buffett's Berkshire Hathaway Company, owns many insurance companies. His theory, and I believe it to be correct, is the "Float", the money in theoretical escrow, earns a great deal more money for the company.
The bankers should have learned a lesson by now and maybe they did because these investments appear to be a good bet. Incidentally, Berkshire Hathaway's float is in excess of $50Billion.
This is all good an fine, but when they do find a cure for cancer, AIDS, etc. then they should absorb the losses all on their own, even if it means bankruptcy. No more bailouts for Wallstreet fuc*ing people over. They should have never received a red cent this time around. Wah wah, we lost money. Our investors don't want us to lose money. Please give us money. The time for handing out money to overpaid financial guys is over. So if they can make a buck, great, if not, don't come crying to the public for a handout.
This is just another scheme to extract wealth without creating anything of value.