New Levels of Greed and Depravity
Wall Street has never been shy about skirting ethics to make money. Nor have they ever lacked creativity in ways to create wealth out of nothing. The current crisis is a direct result of that behavior. Given the housing sector crash and its effect on the securities market due to the mortgages being bundled into mutual funds/etc. they have had to find new ways to create wealth out of nothing. Well, I must say that they have reached a new low. They now are planning to carry that practice over to “life settlements.” Here is a brief synopsis:
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.
These are called viatical settlements and they became popular in the 1980’s during the AIDS epidemic. They fell out of favor for a time, but it looks like they are about to come back into vogue. While I don’t really care for the idea of purchasing someone’s life insurance at a discount, to profit from later, I am more concerned with a side effect of this practice. It will raise insurance premiums across the board for the public. Wall Street will see this as a win as well, since earnings at insurance companies will increase, and while they get to double-dip, we get screwed over.
Even more alarming, is that this is the EXACT same practice that threw us into our current economic crisis. It is merely the insertion of life insurance policies for mortgages. The practice of creating wealth out of nothing other than manipulating the system needs to stop.