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Monday, September 7, 2009

Securitizing Life Insurance: Wall Street Death Panel in the Works

Hat tip to Ned Hodgman at Understanding Government!

If you thought Wall Street's securitization of subprime home mortgages was a bad idea, wait until you hear their latest sure bet: securitized subprime 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 [Jenny Anderson, "Wall Street Pursues Profit in Bundles of Life Insurance," New York Times, 2009.09.05].

Hmm, let's see... a bunch of Wall Street bankers who stand to make more money if the sick and elderly die sooner... can you say death panels?

A few other disturbing lines from Anderson's report:
  • "'We’re hoping to get a herd stampeding after the first offering,' said one investment banker not authorized to speak to the news media." Hmmm... investment bankers cheering herd mentality... why am I not encouraged?
  • "'Predators in the life settlement market have the motive, means and, if left unchecked by legislators and regulators and by their own community, the opportunity to take advantage of seniors,' Stephan Leimberg, co-author of a book on life settlements, testified at a Senate Special Committee on Aging last April."
  • "But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed?" Great: one more reason for big money interests to oppose health care reform and keep America behind the rest of the world in health care outcomes and efficiency.
Some of my conservative friends are still fighting the Cold War, seeing Communist plots around every Presidential press release. Please forgive me if I see more cause for alarm in capitalist/plutocrat plots to do crazy things like securitizing life insurance and profiting from the early death of fellow citizens.


  1. Well, Cory, at least we, the pipsqueaks of the United States of America, have a choice.

    In November 2010, we can choose whether we want to get ripped off by the government or get ripped off by the corporations.

    Long live the Libertarian Party!

    Long live the Libertarian Party, dagnab it!

  2. Where do you get "Subprime" out of these Life Policies? The original life policies are legitimately owned by consumers and underwritten by financially-secure life companies.

    My understanding is that those who have paid up life policies and perhaps haven't saved enough money for the retirement they dreamed of, are allowed to dip into a portion of the value of their life policy, by selling it to a third party at a huge discount from face value.

    This concept is similar to reverse mortgages, where seniors sell their home equity to a third party for 30 or 40% of what full value might be, to raise cash.

    The largest risk will be unscrupulous door-to-door salespeople or telemarketers who take advantage of the elderly's trust, purchasing the paid up life policies at a lower value than what they really should be given.

    Most life insurance companies will provide upfront death benefits to policyholders who are terminally ill, which is more advantageous to the consumer and removes the middle-man profit or spread.


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