Wall Street Bets on You Dying–What Could Possibly Go Wrong?

Jan Buckler and Kathleen Tillwitz of DBRS, bringing you the market crash of 2015.

Jan Buckler and Kathleen Tillwitz of DBRS, bringing you the market crash of 2015.

I know you haven’t recovered from the housing bubble yet, but hey, good news–Wall Street has figured out the next big thing! As the New York Times reported this week,

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.

Doesn’t that sound great? It should work as well as, say, packaging mortgages together into bonds. Now, if you’ve been keeping track over the past 10-plus years, Wall Street gave us the dot com bubble that burst and destroyed your nest egg, regardless of whether you were day trading or prudently investing in a diversified portfolio. Then, just as you may have recovered from those losses, Wall Street sold us the housing bubble that sent millions of our retirement plans into  the crapper and crippled our economy. Should that chasten the Masters of the Universe? Of course not. No, we’ve earned another trip to bubble country. How much will this cycle of madness cost us? By us, of course, I don’t mean Wall Street, because they will make money regardless of the outcome, feeding off Tom Wolfe’s crumbs:

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…

Critics of life settlements believe “this defeats the idea of what life insurance is supposed to be,” said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. “It’s not an investment product, a gambling product…”

Undeterred, Wall Street is racing ahead for a simple reason: With $26 trillion of life insurance policies in force in the United States, the market could be huge…

“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media…

Let’s mark this week as the beginning of the next bubble cycle, but let’s also note that documenting the madness of this “industry” that has become a casino will do us no good. Wall Street is moving forward without a shred of shame or even irony–we’re talking about betting on when our most vulnerable, the sick and the elderly, will die (talk about your death panels!). And when it’s over, we can blame the poor and minorities who were stupid enough to gamble, in this case on the life insurance policies that should be there to save their families from catastrophe. And then we can extend Wall Street the capital to retool for the next iteration of this winning formula.

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