Wall Street's Death Panels

Lynn Parramore writes:

We hardly know where to begin with this one.

Apparently, Wall Street wants to apply that miraculous financial method of securitization — you know, the one behind the mortgage debacle and the global financial crisis — to life insurance policies. They expect to make a killing…provided we all die a little earlier.

That’s not morbid cynicism. Here’s how it works, according to the New York Times: ”[Bankers] plan to…packag[e] hundreds or thousands [of life insurance policies] 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.”

The Times says the life insurance industry is worth $26 trillion. Earlier this year, in February, the Wall Street Journal reported “life settlements” were already earning one company five times more profit in 2008 than in 2007.

In both articles, there’s a whiff of, “It’s good for the consumer.” Life insurance holders who might otherwise let their policies lapse may continue to get payouts, or those payouts may be bigger. But we’re not entirely certain we want anyone in insurance to have a financial interest in seeing us or our parents die off sooner rather than later.

Meanwhile, the details are Orwellian. To make life settlement securitization profitable, the Times writes, “A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet.”

We never really thought accusing Wall Street of being pro-cancer would be anything more than ad hominem hyperbole. Oh, how naive we were.

So we’ve grown smart enough to see that investors have a deadline to get this securitization moving: The world awaits an outbreak of Swine Flu II — the one scientists expect to be really deadly…and which certain banks now expect to be really profitable?