The Next Big Wall St. Scheme: Securitized Death

Wall St. has no shame.

We are approaching the one year anniversary of the near financial collapse of our global monetary system. Nothing has changed. No major regulation or overhaul of the Finance industry has happened.

It's just business as usual as the following article illustrates:

www.nytimes.com...

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

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. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.

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

Matt Taibbl's take, salient as usual:


trueslant.com...

The mechanism here is basically the same as the one used for mortgage-backed securities. Wall Street buys up life policies from elderly or ill people, who sell them for up-front cash that can be enjoyed before actual death (similar to those brokered arrangements with terminally ill HIV patients that received so much attention in the late eighties). They then take those policies and dump them into a securitized pool, where they can then be packaged as bonds and sold to investors who would get paid off when the policyholders die.

The mechanism works exactly the same as it did for MBS; in both cases the bank issuing the bond receives regular income in exchange for a promise to pay a lump sum when there is a “reference event,” which with mortgages is a default, but in this case would mean death.

What’s very amusing about this New York Times article is that, while describing this, there is no passage that reads anything like, “This utterly insane plan, which will condemn all those involved with it to an eternity of elaborate torment in the afterlife, is ironically being promoted by the very institutions that only just recently tried to destroy the world by creating similar casino-like gambits based on home ownership.”

The article does discuss the probable negative consequence that will come with a severe drop in the number of lapsed policies (until now, there were always a certain number of people who would let their insurance lapse either because they outlived their beneficiaries or could no longer afford the premiums; now, they will simply sell their policies instead of letting them lapse). The likely result here is higher premiums across the board for the ordinary person, which I suppose is an important point to consider.

But even beyond that… what the (snip)??? This feels like financial innovation as practiced by Josef Mengele meets the Zucker Brothers; not just evil, but wacky evil.

How much more will we take from these criminals?

:shk:

The CT alarm goes off when I think that Banksters will have a vested interest in the early deaths of millions of citizens...




[edit on 9/9/2009 by kosmicjack]

The mind boggles if

The mechanism works exactly the same as it did for MBS; in both cases the bank issuing the bond receives regular income in exchange for a promise to pay a lump sum when there is a “reference event,” which with mortgages is a default, but in this case would mean death.

So we have "death back securities" (DBS) Having had some experience on Wall Street and knowing how these finance types think it is not hard to extrapolate their line of reasoning from other CDO type schemes.

So the value of the DBS is (total insurance payout) - (payments to the "die-ee") Which means that the longer the die-ees live, the worse the value of the security so, to protect the bottom line, the attractiveness of the DBS may be sweetened by establishing classes of DBS like

AAA: Hard time even finding a pulse
AA: On life support with a do not resuscitate order
A: On life support
BBB: Terminal within six months
BB: Teminal within a year

Well, you get the idea.

But now if I buy these DBS, I'm paying the bank money every month as long as the die-ee doesn't and only collecting when the die-ee actually dies. Hmm, how long until syndicates are set up to buy up these DBS then, contracting out to experienced termination professionals, arrange to artificially move the payout to a more advantageous time frame (i.e. rub out the die-ee).

The mind boggles.

Originally posted by metamagic
Hmm, how long until syndicates are set up to buy up these DBS then, contracting out to experienced termination professionals, arrange to artificially move the payout to a more advantageous time frame (i.e. rub out the die-ee).

Exactly my thoughts! It's totally unbelievable!!!

I would be concernd that it would turn into a situation where if peple were living too llong the holders of the 'death security' bond might hire somene to help speed their return along. Say the day after you retire.

If this is allowed to happen, either through inaction by government or by the people, you are signing your own death warrants.

This is completely insane.

One thing has been made clear in the past year (although why it needed to be made clear is anyone's guess!) bankers and the wealthy have ZERO MORAL STANDING. They simply have NO CONSCIENCE and no sense of right or wrong.

If this trend is allowed to happen, these people will do whatever they can to make more money from the deaths of individuals. They will kill, they will "allow deaths" through the control of medical systems and services, you are essentially giving them permission to murder for profit.

This is inevitable if you allow this.

reply to post by ..5..


Do they really even need to do that? We already have the threat of "World-Wide Pandemic".

How convenient.

Hum, how will be buying into this so call insurance because to tell you the truth America is penny pinching right not, and death insurance is the last thing in their minds when they have to deal with health insurance, Medicare and Medicaid specially the elderly.

But then again the same fat rats that brought us the economic crisis are already doing what they are best creating more bubbles and profiting as usual, remember this time the government got their back with the promise of tax payer money.

Gee can anyone see a tie in to Obama's health Care bill, All your personal info will be computerized so available to the bankers and the mandate that doctor's talking the elderly into committing suicide....

I wondered when the bankers were going make a profit out of the health care bill and now we know.

This is the sickest and most evil idea they've come up with yet. Maybe I'm reading this wrong.

They are going to buy old people's life insurance policies that they've been paying into for god knows how long, at 40% of their value. They are going to take hundreds or thousands of these policies and sell them to investors who in turn make a ton of money as these people die off?!?! The earlier they die the more money the "investors" make?!?!?!

That is evil, just evil

I don't even know what to say to that.

EDIT: Ever hear the term "Black Widow"?

[edit on 9-9-2009 by Shadowflux]

Originally posted by kosmicjack

Originally posted by metamagic
Hmm, how long until syndicates are set up to buy up these DBS then, contracting out to experienced termination professionals, arrange to artificially move the payout to a more advantageous time frame (i.e. rub out the die-ee).

Exactly my thoughts! It's totally unbelievable!!!

I know. It's because America doesn't produce goods or manufacture anything anymore....so bankers create these crazy paper schemes to make money.

If bankers would loan out money for small businesses, and if the government would stop rewarding corporations for shipping manufacturing operations overseas so we could start making things again....well, that would make just too much sense, wouldn't it?

[edit on 9-9-2009 by nikiano]

reply to post by crimvelvet


Reminds me of a clip of something I saw on the tube once - there were two guys in an airport waiting for a plane to Vegas. They are looking out a window at the airport, and the rain is hitting the window. They begin betting on which of two raindrops will win the 'race' sown the window...

packaging policies for resale is nothing new, securitizing them is.

when the AIDS situation was at its worst, many sufferers were forced to sell their insurance policies so they could get the needed cash to pay for the meds. Once folks started living longer with the disease, the practice died down (no pun intended).

Then, several years ago, some insurance brokers came up with a nice new way to sell insurance to folks who would never buy it, due to the premium cost. Third party financing. It was always around but it was generally used by sick people who really needed the money for medication or medical uses. The new concept was directed towards older folks.
Take a 70 year old man who has the assets to pick up insurance to the tune of 5 million. the premium on that will be very, very high. So, the insurance broker arranges for a loan. The loan would be a two year loan. During the two years, if the insured dies, the beneficiaries get the money, less the loan repayment and the interest due on the loan. After two years, the insured has options. He can pay off the loan and start making premium payments (only done if he's really sick), he can turn the loan over to the lender (this is done in a manner that avoids phantom income for the debt forgiveness) or the insured can sell the policy.

Who was lending and buying these policies?

Banks and hedge funds.

I came across a few of these over the years and a client of mine was an insurance broker who made millions doing this.

The broker gets his commissions and he gets a piece from the loan as part of the up front payments and then, when the policy is sold, he gets a commission from the insured as part of the sale.

Brokers would do some sleezy things to convince folks to take the deal. Kick backs were rampant. Many states cracked down on this and made it almost impossible to pull off as they knew the payouts could bankrupt the insurance companies and they also knew that there was always the risk that the hedge funds who bought the policies could sell them to anyone, even criminals who might take a hit out on the insured.

And what if the insured wants to sell and he can't because he's too healthy?

Easy. The brokers packaged the policies so that there was a nice mix of healthy and not so healthy folks. Basically doing what the MBS folks were doing. Making sure the deal was good enough that they could unload some policies that might take a long time to collect on.

Once the banks dried up the lending, the funds and other banks stopped buying the policies. Many of these policies were turned over to the banks when the insured found the market for these types of sales had vanished.

So, banks are holding the policies as it is and now they are stuck with the crappy prospect of making premium payments and waiting for folks to die. What's a bank to do?

I know....repackage them and sell them on the open market.

Same game, different chips.

reply to post by Crakeur


Interesting that is what the banks are doing with bad asset now, the packaging them "again" good with bad in littler bundles for sell, another morgage bubble is been created as we speak.

What I don't understand is, who is stupid enough to fall for this.

reply to post by marg6043


on the contrary, they are packing them to create bigger bundles. an insurance bubble, not a mortgage bubble, will be created, if it becomes a big deal. I'm not really sure if this is something that has the potential to become as big a mess as the mortgage backed securities because, in this case, someone is going to have to pay the premiums. The insured isn't, so the game isn't resting on the shoulders of the little guy this time. Of course, the banks will be selling the bonds and trading the bonds so the buck, as it were, will be passed on to someone else.

Other People's Money -the best to play with

reply to post by Crakeur


And no forget that they have full backing from the government in the name of bailouts, anything the to big to fail institutions do will always be rewarded.

Originally posted by crimvelvet
Gee can anyone see a tie in to Obama's health Care bill, All your personal info will be computerized so available to the bankers and the mandate that doctor's talking the elderly into committing suicide....

I wondered when the bankers were going make a profit out of the health care bill and now we know.

Dude, that was mandated by Executive Order by Commrade Bush in 2004, not Commrade Obama.

Well this is a good idea. I can certainly see some seriously dubious practices taking place here. When they make direct profits from death, who's to stop said death from "Coming early"?

This is sick. And will be wrought with abuse.

[edit on 9-9-2009 by projectvxn]

I would love to say I am shocked by this, but unfortunately I am not. When it comes to making money, there is no boundary, no limitations, and no lines which cannot be crossed to those in the "business" of making money. How many cash strapped older americans would say no to getting a chunk of change from their insurance policy?

Specifically the older people who lost much of their retirement last year? I can see people with near terminal or terminal illnesses suddenly getting spammed to purchase insurance policies they never would have been eligible for. (as security for their loved ones of course!) Or how about large policies now being availible for those going off to war?

What I want to know is what steps do the insurance companies go through to make sure they are never responsible for having to pay out the premiums? Do they sell the policies to the banks so that the banks are then responsible for paying out the money? Do the banks package them up and sell them on the market so that they are no longer responsible for the payout? And if that is the case who then becomes responsible for they pay out? We the taxpayer maybe?

I am trying to get my head around this, because I know that wall street desperately needs another bubble of some sort. I thought it was gonna be some sort of "green" based initiative, but this life insurance thing seems like a more viable plan. Then of course there is the whole idea of ensuring good profits by making sure the original policy holder does not "out-live" their usefulness.

Im thinking denial or delay of medical treatment, and some unforeseeable accidents. (Not so many as to cause undue attention of course) There will of course be some sort of "regulation" to make sure there is not fraud, but then the lobbyist will take care of that soon enough. Or maybe Im being too much of an optomist to even think there will be any sort of regulation?

Originally posted by sylvrshadow
What I want to know is what steps do the insurance companies go through to make sure they are never responsible for having to pay out the premiums?

the premiums have to be paid or the insurance lapses and the investors lose. Who pays the premiums is the thing I don't get but I would venture a guess as to the bond sale being the pool for premium payments and there will be some benefit proceeds kept in the pool to pay out premiums that are ongoing.

The whole thing is a mess and when the insurance companies start raising rates to deal with the payouts, the consumers will be the ones getting hurt.

Originally posted by sylvrshadow
I am trying to get my head around this, because I know that wall street desperately needs another bubble of some sort. I thought it was gonna be some sort of "green" based initiative, but this life insurance thing seems like a more viable plan. Then of course there is the whole idea of ensuring good profits by making sure the original policy holder does not "out-live" their usefulness.

Energy Credits are also being built into the next "big thing." Check out Mike Taibbi's article about Goldman Sachs and their bubble crushing practices.

This definitelly needs a push.

I wonder why the people dont go ape about THIS issue, instead of beeing let down as fanboys by AJ, and cry in millions of threads about it