welcome to the fest
 
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 

Since our mortgage backed securities worked so well...

 
Post new topic   Reply to topic    Sinfest Forum Index -> General Discussion
View previous topic :: View next topic  
Author Message
Sam



Joined: 09 Jul 2006
Posts: 9525

PostPosted: Sun Sep 06, 2009 8:48 pm    Post subject: Since our mortgage backed securities worked so well... Reply with quote

Try our new Life Backed Securities.

I am always excited when I catch wind of our newest utterly terrible idea. Yes, ladies and gentlemens, this is actually legal to pursue and investors are climbing over each other to shove their money into such a scheme.

http://www.nytimes.com/2009/09/06/business/06insurance.html?_r=1&hp

Quote:
Wall Street Pursues Profit in Bundles of Life Insurance

By JENNY ANDERSON
Published: September 5, 2009

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.
hmm i wonder if this is such a wise idea, let's just

Quote:
Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout.

But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.

“When they set their premiums they were basing them on assumptions that were wrong,” said Neil A. Doherty, a professor at Wharton who has studied life settlements.

Indeed, Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies.

Critics of life settlements believe “this defeats the idea of what life insurance is supposed to be,” said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. “It’s not an investment product, a gambling product.”
oh look it is our good friend perverse social incentive

Quote:
In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected.

It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.

It happened again last fall when companies that calculate life expectancy determined that people were living longer.
Yes. What a fantastic idea. There will be billions and billions of dollars at stake to not cure cancer or diabetes or fix our healthcare system.

Cheers.
Back to top
View user's profile Send private message
WheelsOfConfusion



Joined: 09 Jul 2006
Posts: 12208
Location: Unknown Kaddath

PostPosted: Sun Sep 06, 2009 9:06 pm    Post subject: Reply with quote

Confirmed: Wallstreet is out to kill us.
_________________
Back to top
View user's profile Send private message Visit poster's website
Usagi Miyamoto



Joined: 09 Jul 2006
Posts: 2225
Location: wish you were here

PostPosted: Sun Sep 06, 2009 9:53 pm    Post subject: Reply with quote

In theory, this could act as a sort of actuarial arbitrage, helping insurers that are more accurate at the expense of the less accurate, and improving pricing efficiency overall.

In practice, it would force insurers to cut way back on the variety and flexibility of the products they offered, so consumers would suffer. Say goodbye to universal life policies, many annuities, viatical settlements, policy ownership changing rights, heck, even reverse mortgages could be at risk.
_________________
The reward for a good life is a good life.
Back to top
View user's profile Send private message
ShadowCell



Joined: 03 Aug 2008
Posts: 6060
Location: California

PostPosted: Sun Sep 06, 2009 10:32 pm    Post subject: Reply with quote

So let me get this straight. Now they want to sell packs of life insurance policies for sick/old people, on the hope that those sick/old people will kick off and you'll get a sweet payout. But if the sick people get better or the old people live longer than expected, your pack of life insurance policies loses value because now you have to pay more premiums. So if you own one of those packs of life insurance, you have a financial incentive not to see sick people get better or old people living longer, so that they'll die sooner.

Right?
Back to top
View user's profile Send private message
Michael



Joined: 09 Jul 2006
Posts: 10690

PostPosted: Sun Sep 06, 2009 10:45 pm    Post subject: Reply with quote

But the whole idea of pension funds is that they make money if you die soon. How different is this?
Back to top
View user's profile Send private message
Sam



Joined: 09 Jul 2006
Posts: 9525

PostPosted: Sun Sep 06, 2009 10:50 pm    Post subject: Reply with quote

Quote:
the whole idea of pension funds is that they make money if you die soon. How different is this?


It's not like pension funds which are fed in through a public pool and thus benefit generally from people living longer because when people live longer they have longer and stronger productivity in life. In this case it is a private marketed incentive to make sure people get sick earlier and stay sick and die.


If they grab hold of the market with even a fraction of the same intensity that MBA's did, then you could literally have a situation where you could read the headline "cancer cured, stock market tanks amid fears"
Back to top
View user's profile Send private message
Darqcyde



Joined: 11 Jul 2006
Posts: 10425
Location: A false vacuum abiding in ignorance.

PostPosted: Mon Sep 07, 2009 3:41 am    Post subject: Reply with quote

And I thought dead peasant insurance was bad... Crying or Very sad

On the plus side this could be great news for scam artists

I'm dying *cough cough*..well huh, what do ya know? I spontaneously recovered after you bought my policy

_________________
...if a single leaf holds the eye, it will be as if the remaining leaves were not there.
http://about.me/omardrake
Back to top
View user's profile Send private message Send e-mail Visit poster's website AIM Address Yahoo Messenger
WheelsOfConfusion



Joined: 09 Jul 2006
Posts: 12208
Location: Unknown Kaddath

PostPosted: Mon Sep 07, 2009 3:56 am    Post subject: Reply with quote

Seems even more timely than before.
_________________
Back to top
View user's profile Send private message Visit poster's website
Him



Joined: 10 Jul 2006
Posts: 4189
Location: On edge

PostPosted: Mon Sep 07, 2009 11:54 am    Post subject: Reply with quote

This can't possibly go wrong.
_________________
A cigarette is the perfect type of a perfect pleasure. It is exquisite, and it leaves one unsatisfied. What more can one want? ~Oscar Wilde, The Picture of Dorian Gray
Back to top
View user's profile Send private message
mouse



Joined: 10 Jul 2006
Posts: 17209
Location: under the bed

PostPosted: Tue Sep 08, 2009 9:42 pm    Post subject: Reply with quote

you know, i just started seeing ads to get old people to sell their life insurance. i had no idea this was the thought behind it.

great. now we have a whole _new_ pool of people who will be against universal health care.


but perhaps first we will have a rash of cases like this classic reverse mortgage deal, and investors will move on to something else.
_________________
aka: neverscared!
Back to top
View user's profile Send private message
Display posts from previous:   
Post new topic   Reply to topic    Sinfest Forum Index -> General Discussion All times are GMT
Page 1 of 1

 
Jump to:  
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum


Powered by phpBB © 2001, 2005 phpBB Group