If our New Jersey Representatives and Senators have any sense at all, they'll ban this horrible idea now:
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 reporter, Jenny Anderson, goes on to show that people buying life insurance policies have a history of preying on seniors and that this plan will almost certainly lead to insurance companies increasing their rate. Furthermore, it will lead to widespread fraud as happened when Wall Street did this to mortgages. Oh, one more thing: investors in these "securitized" products may (surprise, surprise) end up with huge losses if people live longer than a model made by a PhD mathematician/nuclear engineer expects.
The article does not mention an interesting twist. I remember Bob Menendez once criticized companies for taking out life insurance policies on their own employees:
Recent news reports have revealed that many large companies purchase so-called "dead peasant" life insurance policies on low-wage employees without their consent or knowledge. When the employees die, their families receive nothing. Instead, the companies reap the benefits, and in some cases use the money to fund compensation packages for high-level executives.
I can't wait for the day when companies can collect cash from their own pension fund by "selling" their employees' insurance so the pension plan can "invest" in the idea that the employees will die young.
Evidently there have already been some sort of Senate hearings, so perhaps Bob Menendez and Frank Lautenberg know of this scheme, but I honestly hope everyone but Scott Garrett will work against it. I have no hope for Garrett.
I'll leave you with the Times quote where the investment banker admits Wall Street is trying to create a bubble:
"We're hoping to get a herd stampeding after the first offering" |
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