The next Wall Street Bubble?

[Nikki Stone1]

http://www.nytimes.com/2009/09/06/business/06insurance.html?_r=1&hp

Wall Street Pursues Profit in Bundles of Life Insurance

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

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.

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...


(As if they hadn't destroyed us enough already.)

[Joanne98]

1. The health care industries the next bubble.

[Nikki Stone1]

2. How do you figure?

NT

[CatholicEdHead]

3. Profit on a variation of "Dead Peasants Insurance"?

Disgusting.

:puke:

[Nikki Stone1]

4. Ouch! But true

And immoral

[Phoebe Loosinhouse]

5. The life insurance industry should put up a stink about this.

But you never know. They might sell more policies in the short term, allowing some nice quarters of growth that their CEOs can cash out big from and they won't be around when the entire industry crashes, leaving all those widows and orphans uncovered.

So anyone can see this one coming like the train wreck it is, based on the mortgage industry experience. Who's gonna stop it?

[Nikki Stone1]

6. The fact that no one in government is talking about stopping it means that they tacity approve or

are just plain powerless.

[onethatcares]

7. how does this work?

let's say I have a 750K life insurance policy that I've been paying on for 35 years now, do the companies come in and give me 300K for it and then hold the policy until I die? If it is, YEEHAW, I'm a gonna be reeech :bounce: :bounce: :toast: :beer: :beer: :headbang: :patriot: Hell, gimme the money take the paper, I'm gonna be dead anyway.

Or is it some other way of screwing me out of my own money?

[Nikki Stone1]

8. It might actually help you. But the problem is more wide-reaching

Here's a comment from the article that I think explains the problem:

"This is either the next debacle for investors and the financial system, or the next bailout to be funded by taxpayers, or, more likely, both.

But the risk to this country doesn't end there, additional dangers even more extreme threaten. The article correctly notes that collapse of a financial product (and, indeed, the entire financial system) can occur because of the violation of assumptions, and such violation could apply to longevity. While such violations of assumptions might occur naturally (i.e. a pandemic), or through discovery (a disease cure), not addressed is the potential for investors with a stake in longevity to deliberately attempt to alter public longevity. Some such investors would have financial motive to oppose health care improvements, and might do so, sabotaging research, cures, or political reform of heath care availability. In the most extreme manifestation of manipulation, rogue investors might deliberately engage in acts of "health terrorism", introducing pandemics for their financial gain.

Speculation in longevity should not be allowed. Congress and the executive branch, do your job. (And that job isn't supposed to be protecting Wall Street)."

http://community.nytimes.com/comments/www.nytimes.com/2009/09/06/business/06insurance.html?sort=oldest

[Nikki Stone1]

9. My favorite comment on this so far:

http://community.nytimes.com/comments/www.nytimes.com/2009/09/06/business/06insurance.html?sort=oldest&offset=4

"All the economic news seems to involve firms profiting by acquiring larger and larger portions of what was traditionally middle class wealth. If you consider the nation as a living being, Wall Street and Banking has become little more than a giant tape worm starving the entire economy."

[Telly Savalas]

10. This instrument wouldn't be condusive to a bubble.

There can be bubbles in things like houses, tech stocks, and tulips, because theoretically there is no limit on what somebody would pay for such an asset. So speculators keep buying the assets at inflated prices in the hopes that they can sell it to someone else for an even more inflated price.

In contrast with a life settlement, nobody is going to spend more than $1 million for a policy that pays $1 million upon the death of the insured. If these things become a fad they may be overpriced relative to the risk involved, but the upper limit on the price will prevent a true bubble from emerging.