Monday, September 07, 2009
Gambling with Death (The Seventh Seal)
No matter how many times Wall Street gets zapped by risky investment schemes, it seemingly has no limit for sticking its finger back into the light socket…and plugging in our fingers as well. Last year’s financial collapse triggered in large part by repackaged subprime mortgage securities, credit-default swaps, collateralized debt obligations and other strategies has not dissuaded banks from trying yet another get-rich-quick plan: securitized life insurance policies.
Increasingly, the sick and elderly are cashing out their life insurance policies to meet immediate financial needs, and bankers have figured out a way to profit from this dire situation. The plan on Wall Street, which is still being formulated, is to package hundreds or thousands of these “life settlements” and sell them as bonds to investors who will see a return once policyholders die.
The scheme will work for investors as long as enough Americans who cashed out their policies die sooner rather than later. But the banks will still make money off the sales of the bonds, regardless of how long people live.
Credit Suisse is leading the way in this new field of investment, but others, such as Goldman Sachs, are close behind. To hedge their bets in case researchers find a cure for a particular disease, the banks will buy policies from people with a diversity of diseases, such as lung cancer, heart disease, leukemia and breast cancer.
-Noel Brinkerhoff
Wall Street Pursues Profit in Bundles of Life Insurance (by Jenny Anderson, New York Times)
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