OMFG Wall Street has finally lost it completely. Death bonds!

[Idog1976]

It's just the wizardry (well more like necromancy) of the marketplace at work!

http://www.marketwatch.com/story/life-settlements-could-be-wall-streets-next-act-2009-09-06

By MarketWatch
SAN FRANCISCO (MarketWatch) - Wall Street is developing a product that packages life-insurance policies into investable bonds, and the plan already is generating controversy, according to a media report Sunday.
Investment banks expect to buy life insurance policies that ill and elderly people sell for cash, then package hundreds or thousands of them into bonds. Institutional and other buyers would be the primary buyers of these bonds, receiving a payout when people with the insurance die, the New York Times reported in its online edition.
With $26 trillion of life insurance policies in force in the U.S., the market for these "life settlements" bonds could be immense, the Times said.
Investment banks stand to profit from the creation, sale and trading of the bonds.
Wall Street has been searching for a product to replace the once-lucrative mortgage business, and life settlements policies are being seen as the answer, the Times said.
The article cited industry predictions that the market for the bonds could reach $500 billion. It noted that Credit Suisse Group /quotes/comstock/13*!cs/quotes/nls/cs (CS 49.97, 0.00, 0.00%) , for example, bought a firm that originates life settlements and has dedicated efforts to structuring deals and selling the bonds.
In addition, Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs (GS 163.09, +0.12, +0.07%) has developed a tradable index of life settlements, allowing investors to bet on whether people will live longer than expected or die sooner than planned, the Times said, adding that spokesmen for Credit Suisse and Goldman Sachs declined to comment.
The report said that investment banks are following the model used with the packaging of subprime mortgages, which were supposed to be high-quality and less risky, but proved otherwise.
But the Times noted that Standard & Poor's and Moody's, which gave out many triple-A ratings for subprime mortgage securities, are more wary about life settlements bonds.
Yet if its efforts are successful, Wall Street's gain could come at the expense of the insured.
Experts on life settlements told the Times that insurance premiums could rise in the short term if insurers have to pay out more death claims than they had expected.
The article explained that policyholders often let their life insurance lapse before they die, and in that case the insurer does not have to make a payout.
But if a policy is part of a securitized bond, investors continue to pay the premiums. With more policies on the books, insurance companies could make more payouts and less money, the Times report said.

 

[TradeNurkicNow]

I'm too lazy to read this. Please just break it down into how it's Obama's fault. Thanks.

 

[Ed O]

Not a bad idea, I don't think. Life insurance is already a spooky, almost surreal translation of human life into math , and if people prefer to receive money now for their life insurance, rather than after they die: that seems reasonable to me.

Of course, it indicates that life insurance is probably oversuggested for many many people.

Ed O.

 

[Idog1976]

I'm too lazy to read this. Please just break it down into how it's Obama's fault. Thanks.

Well you see, in between Obama's education at the Massadrah in Indonesia, weekly flights to Moscow, tending an organic garden and making a Tie-dye shirt at The Farm Barack would also spend a few days at the Hayden Lake compound in Idaho.

Being the kind of type-A evil genius Barack is, he of course took time to learn investment banking. The idea for death bonds came to him during one of his eight daily prayers in the direction of Mecca. "By Allah, that's an idea worthy of Joseph Stalin or perhaps Abby Hoffman, I'm not really sure who those guys are but regardless this idea strikes another blow for godless communism, let the free market reign supreme!"

It went down something like that I reckon'!

The above was inspired by Hoojacks inspired sig. picture.

 

[Idog1976]

Not a bad idea, I don't think. Life insurance is already a spooky, almost surreal translation of human life into math , and if people prefer to receive money now for their life insurance, rather than after they die: that seems reasonable to me.

Of course, it indicates that life insurance is probably oversuggested for many many people.

Ed O.

Wait, you think it's a good idea that desperate senior citizens who are desperate to buy medication etc. sell their life insurance policies (their legacy to loved ones) to investment bankers for pennies on the dollar? Then the investment banker in turn has an incentive to hope seniors die so they can collect on the policy?

Yeah, you're right how could that go wrong?

 

[Ed O]

Wait, you think it's a good idea that desperate senior citizens who are desperate to buy medication etc. sell their life insurance policies (their legacy to loved ones) to investment bankers for pennies on the dollar? Then the investment banker in turn has an incentive to hope seniors die so they can collect on the policy?

Yeah, you're right how could that go wrong?

As opposed to ... what?

NOT selling them for pennies on the dollar and going without money right now?

I support their right to get their life insurance money now if they WANT to, whether it's for full price or pennies on the dollar to the Easter Bunny.

That an investment banker is going to root for any given senior to die is RIDICULOUS. The investments will be pooled and sliced and diced.

Of course, one might argue that "investment bankers" (and/or people who have invested in these funds for their retirement) could pressure government to create and environment where seniors die faster (death panels? Free Big Macs?) but that would be offset by insurance companies trying to stave off collective death so they don't need to pay policies off.

Ed O.

Ed O.

 

[Idog1976]

As opposed to ... what?

NOT selling them for pennies on the dollar and going without money right now?

I support their right to get their life insurance money now if they WANT to, whether it's for full price or pennies on the dollar to the Easter Bunny.

That an investment banker is going to root for any given senior to die is RIDICULOUS. The investments will be pooled and sliced and diced.

Of course, one might argue that "investment bankers" (and/or people who have invested in these funds for their retirement) could pressure government to create and environment where seniors die faster (death panels? Free Big Macs?) but that would be offset by insurance companies trying to stave off collective death so they don't need to pay policies off.

Ed O.

Ed O.

I think this is the exact same argument anti-UHC folks were using with their "Death Panels" which are not a confirmed fact. This is businesses saying they are creating an investment incentive for Seniors to die earlier. You are right about the Seniors getting money for their policies now. I disagree with the vehicle. If the Life Insurance corporations wanted to redeem them now at a lower price I wouldn't have a problem with that.

3rd party life insurance is simply too dangerous to allow. To my knowledge I can't take a life insurance policy out on say you or anyone not my spouse or perhaps child. For sure I can't buy them for strangers. Don't you think criminals would take them out on homeless people and then help them along if that were the case?

I'm not arguing that JP Morgan would hire a hit man to kill an individual I'm saying you are sowing the seeds for a Logan's Run type scenario as you suggested. Over time the incentives for banks to see a generation die off would far exceed the assets of any one individual to keep their life maintained. You might see eugenical policies regarding age put into place down the line. The potential for corruption is far too great in my opinion.

 

[barfo]

Wait, you think it's a good idea that desperate senior citizens who are desperate to buy medication etc. sell their life insurance policies (their legacy to loved ones) to investment bankers for pennies on the dollar?

As I understand it (I actually know a couple of people who do this) the focus is not so much on convincing seniors to sell existing policies, but finding seniors willing to sign up for a policy in return for a pile of cash.

But you are right - someone who does this is creating a situation where another person will profit from their death. It's a little creepy.

barfo

 

[Ed O]

But you are right - someone who does this is creating a situation where another person will profit from their death. It's a little creepy.

That's why life insurance exists, right?

Someone dies and someone else gets paid.

Ed O.

 

[barfo]

That's why life insurance exists, right?

Someone dies and someone else gets paid.

Ed O.

Well, yes. You usually assume that the wife and kids have other reasons to want you alive, however. The purchaser of your policy has no reason to want you alive.

barfo

 

[Idog1976]

As I understand it (I actually know a couple of people who do this) the focus is not so much on convincing seniors to sell existing policies, but finding seniors willing to sign up for a policy in return for a pile of cash.

But you are right - someone who does this is creating a situation where another person will profit from their death. It's a little creepy.

barfo

OK, that wasn't my reading of it, but if you know people who do this I will take your word for it. Still seems highly susceptible to corruption. Glad you agree on the creepy factor.

 

[Ed O]

Well, yes. You usually assume that the wife and kids have other reasons to want you alive, however. The purchaser of your policy has no reason to want you alive.

But there's a direct one-to-one correlation between the person dying and the wife and kids getting money... there's nothing approaching that with these bonds.

There is possibility for influence on policy shifts, but that already exists in a variety of ways (young people don't ALWAYS want old people to keep on living, using resources, and voting in the interests of old people... at least not at a macro level) but I don't think it's likely and I'm certainly not worried about it happening.

Ed O.

 

[barfo]

But there's a direct one-to-one correlation between the person dying and the wife and kids getting money... there's nothing approaching that with these bonds.

True, but you can also buy individual policies from the insured. It doesn't have to be sliced and diced into a instrument the way this article describes. If you wanted to sell me your life insurance, you could.

barfo

 

[The_Lillard_King]

So if I buy into one of these bonds . . .. I am hoping people die, or better yet a natural catastrophe?

 

[Eastoff]

So if I buy into one of these bonds . . .. I am hoping people die, or better yet a natural catastrophe?

maybe you want to find yourself some swineflu and spread the love?

 

[Eastoff]

a vaguely related story
http://money.cnn.com/2009/09/08/news/economy/health_care_vaccinations/index.htm Kind of scary!

 

[TradeNurkicNow]

You must spread some reputation around before giving it to Idog1976 again.