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.
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Like a reverse mortgage but on yourself?
ReplyDeleteIf I held such a policy and sold it to these criminals for immediate cash, I would very scared for my life. The sooner you die, the more money they make.
ReplyDeleteThink about it...
"Mystery murderer bludgeons 1,306,576 elderly to death with lead pipe"
ReplyDelete"The MO is the same. We're concerned that this serial killer will strike again" said Officer Himmelstein of the NYPD.
all we need to make this a success is a little obamacare, complete with rationing
ReplyDeleteIt's time for Wall Street to shut down!
ReplyDeleteAll we need now is to keep bushcare, the status quo we have now and the banks and insurance companies can work with doctors and tell them to make a mistake on this patient or that patient and they get paid more money, then split the blood money with the doctors, who would kill patients on purpose to make more money, what a great idea. Davos are you a nazi?
ReplyDeleteOMG !! What if some investors/companies try to get their money FASTER ?? !!
ReplyDeleteThat was the whole point of this article... 10:26
ReplyDelete