Wall Street Vultures Betting on Death: If You Die Early, They Cash In

September 6, 2009

(ChattahBox)—Since the near collapse of Wall Street from the sub-prime mortgage crisis, traders have been jonesing for a return to the adrenaline rush they once enjoyed from the slew of exotic financial instruments cooked up in the dark recesses of special hedge fund units.

And according to a piece in the New York Times, they have found it with a ghoulish scheme gambling on death, by repackaging life insurance policies sold for a fraction of their worth by sick and desperate elderly people. Once people die, the investors make money. And it’s much more profitable if you die sooner rather than later please.

The concept of so-called securitized-viaticals is not new, but what’s different now, is the scope and large-scale bundling of the securitized life settlements into bonds. Sick and dying people with life insurance policies sell them to life settlement companies for a fraction of their value, but typically 20 to 200 percent more than the low cash surrender value offered by the life insurance company holding the policy.

The life settlement companies continue to pay the premiums to keep the policy in force and cash out when the insured dies. The sicker and closer to death of the owner of the policy, the better it is for the life settlement company.

Now, Wall Street is scooping up the policies from the life settlement companies and repackaging them into securitized bonds, with the seal of approval of a Triple-A rating from a bond-rating agency to attract investors. This is the same gambit Wall Street traders used to create the risky collateralized debt obligations and sub-prime mortgage instruments that nearly destroyed Wall Street.

But this time, traders are not only returning to their former risky exotic instruments, but are betting on our early deaths and hoping that a new cure or treatment for a terminal disease is not found. Any development that raises the odds in favor of a longer life, like improved health care because of the passage of health care reform, means that investors in life-insurance securitizations would lose money. There is something fundamentally wrong with an investment in a person’s early death.

And there is money to be made at every stage of the process. The firms receive fees for creating the instruments, reselling and trading them, with the bond agencies cashing in as well.

Goldman Sachs is making it easy to invest in a person’s early death without ever having to invest in the actual bonds, by providing “a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned.”

The rating agency involved in the ” early death investments,” DBRS, employs a “mathematics whiz” who has created computer models to manage the risk of investing in life-insurance securitizations. The risk being of course, people living longer than expected.

The math wiz, Jan Buckler, also has a PH.D. in nuclear engineering and she has devised a scheme of packaging the bond instruments based on the type of disease to lower the risk. She recommends bundling policies with a mix of certain diseases such as leukemia, lung cancer, heart disease, breast cancer, diabetes and Alzheimer’s.” The theory is, if too many people with breast cancer are in the securitization bundle and a cure is developed, the value of the bond would drop.

Wall Street is betting against a cure for cancer.

The financial industry and the life settlement companies, are in dire need of regulation and reform. And the life insurance companies are ready to do battle to push back against large-scale trading of life-insurance securitizations.

Sarah Palin was looking for her death panels in the wrong place.


Comments

11 Responses to “Wall Street Vultures Betting on Death: If You Die Early, They Cash In”

  1. PDavis on September 6th, 2009 8:59 pm

    And how long before Goldman Sachs is buying up companies that do medical research and putting them out of business, or orders them to quit attacking minor problems like cancer and develop a cure for acne?

  2. dean on September 6th, 2009 9:25 pm

    How is this morally any different from the life insurance companies themselves betting on your death with premium prices based on age, health, occupation, recreational activities, etc.???? They have always been based on longevity, or “how soon will you die” tables. If there wasn’t money to be made in offering the policies to begin with, there would be an industry for them. Maybe if they were called “death insurance policies”, to reflect what they really are, no one would feel there is something fundamentally wrong with an investment in a person’s early death.

  3. albrunomd on September 6th, 2009 9:33 pm

    ,,,not sure that this will work???

  4. Computer Investing - REFILE-Nikkei gains 1 pct in thin trade, exporters up - Reuters | Gadgets And Computers. on September 6th, 2009 11:18 pm

    […] Wall Street Vultures Betting on Death: If You Die Early, They Cash In – Chattahbox.com(ChattahBox)—Since the near collapse of Wall Street from the sub-prime mortgage crisis, traders have been jonesing for a return to the adrenaline rush they once enjoyed from the slew of exotic financial instruments cooked up in the dark recesses of […]

  5. Rakeback on September 7th, 2009 12:38 am

    I think this is all about money.We must really have to know that Human beings are not just about money.There are lot other things also like relations.

  6. Ridge Runner on September 7th, 2009 8:35 am

    “Any development that raises the odds in favor of a longer life, like improved health care because of the passage of health care reform, ”

    Your excessife suspicion of services provided by private institutions and inordinate gullibility about the beneficence of services managed by public institutions are both evident in this piece. If I were defending insurance company interests, I would be happy to see the suppression of this competitor to my patrons; monopolistic offers of a viatical settlement to their distressed policyholders. And if I were a holder of bonds backed by insurance policies acquired through viatical settlements, and valued above all making a killing on such bonds, passage of a “single payer” government insurance program would be high on my agenda of desirable events – – imagine “everyone” getting medical services as efficiently as the customers of VA hospitals – – the death rate would be spiking upwards and my profits would be rolling in like a tsunami. Obamacare: “throw me in that briar patch, Brer Fox!”

    On the other hand, since I’m concerned about the quality and availability of medical services more than making a killing on viatical settlement bonds, it’s encouraging that Obamacare is looking as lively as the dead parrot in the Monty Python skit.

  7. Wall Street Vultures Betting on Death: If You Die Early, They Cash … : USA Today Insurance on September 8th, 2009 4:53 am

    […] Read More: Wall Street Vultures Betting on Death: If You Die Early, They Cash … […]

  8. Dan on September 8th, 2009 8:02 am

    There’s obviously no bias in your writing (see tounge firmly impanted in my cheek). If you had appropriately researched the topic here perhaps you’d have uncovered the many possible positive aspects of this type of transaction. For a variety of reasons, there are many retirees who carry more life insurance than they need. Further, many cannot — or choose not to — afford the ongoing premiums. Did you know that some 80% of life insurance policies issued in the US never mature? The larger majority are surrendered to the carrier for built up cash value or simply allowed to lapse. The life settlement market gives consumers the option of selling their unwanted policy to investors for a multiple of what they’d get by surrendering the policy to the carrier and, certainly, generating a lump sum of cash from a policy you’re otherwise planning to let lapse is much better option. Further, the larger majority of these transactions are not done with “sick, dying people” or “desperate elderly people”. Thanks for scaring some consumers away from an opportunity to recover financially (again, tongue is firmly implanted in cheek).

  9. Matt on September 8th, 2009 5:05 pm

    Absolutely right Dan. Unfortunately this article lacks any research into the topic and reacts reflexively to a idea that seems “scary.” As a financial professional who works with these products they are highly scrutinized, regulated in the majority of states under current state insurance law, and most often done by credible well run organizations who place the privacy of the insured at the forefront of the transaction. Those people who choose to sell a policy are greatly benefited as are the investors who choose to supply the capital for the transactions. Cheers Sue, for writing on a topic you know very little about….and for writing it with a pointedly misguided viewpoint.

  10. Sebouh Akharjalian on September 10th, 2009 5:57 am

    Profiting from death,
    Government policies over the past year under both Bush and Obama have not only failed to limit the dominance of the financial aristocracy, they have in fact strengthened it. The largest banks have increased their monopoly over American finance, and the top executives and traders are anticipating record bonuses this year.
    That the financial sector has been recalled to life even as the conditions for the working class deteriorate, even as millions of people are thrown out of their homes and jobs, as schools are shut down and social programs cut, is not accidental; the two processes are directly related.

    That they should create a security to formalize this parasitic relationship is only natural.

  11. Goldman Sachs Ends Cash Bonuses for Top 30 Execs, But Pay Untouched | ChattahBox News Blog on December 11th, 2009 1:40 pm

    […] a move that many critics are calling a PR stunt, Goldman Sachs, perhaps the most despised firm on Wall Street, after AIG, announced on Thursday that it would not pay out end-of-year cash bonuses […]

Got something to say? **Please Note** - Comments may be edited for clarity or obscenity, and all comments are published at the discretion of ChattahBox.com - Comments are the opinions of the individuals leaving them, and not of ChattahBox.com or its partners. - Please do not spam or submit comments that use copyright materials, hearsay or are based on reports where the supposed fact or quote is not a matter of public knowledge are also not permitted.