Could Wall Street Be Any Less Popular?

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Since it worked so well the first time around, Wall Street has spawned a new age of securitization – instead of mortgages, this time it’s life insurance policies. Before we spit on this one, here’s how it works:

  • A senior with a high-premium life insurance policy, for one reason or another, chooses to cash out.
  • Instead of taking a “cash surrender” directly from the insurance company, the old fella sells his policy to a “life settlement company.”
  • That company pays him a larger amount than the “cash surrender” would pay, but not nearly the totality of the policy’s value.
  • The company keeps paying the premiums. When he kicks the bucket, the company collects the insurance policy.

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That’s where the story would normally be over. But now, just like pools of subprime, Alt-A and prime mortgages, investment bankers are crafting securitized pools of these insurance polices. Basically, they pool together a bunch of beneficiaries that will likely die around the same time, buy up their policies from life settlement companies, package them into securities and sell them to investors around the world.

Heh. Really, could the idea of “Wall Street” be any more evil right now? Not only are they rehashing the same schemes that triggered the credit crisis in the first place, but think about it… they will make more money the sooner you die! If policyholders die sooner than expected, there will be no monthly premiums left to pay and the investors get a bigger share of the insurance payout. (And if people like our tech analyst Patrick Cox are right, a sudden surge in life expectancies could blow up these new funds… another crisis! Hooray!)

It’s no wonder Michael Moore has set his sights on lower Manhattan… we couldn’t think of an easier target. They deserve each other.

September 12, 2009

Ian Mathias is managing editor of The 5 Min. Forecast and Since working for Agora Financial, respected media outlets including, the Associated Press, Yahoo, and MSN Money have syndicated his writing. He received his BA from Loyola College in Maryland and is currently studying writing at the graduate level.