Big Business sinks lower and lower

[Senator Jack]

Cover story for this week's Business Week


http://www.businessweek.com/mediacenter/podcasts/cover_stories/covercast_07_19_07.htm

Death Bonds
Inside Wall Street's most macabre investment scheme yet

(Excerpt)

'Death bond is shorthand for a gentler term the industry prefers: life settlement-backed security. Whatever the name, it's as macabre an investing concept as Wall Street has ever cooked up. Some 90 million Americans own life insurance, but many of them find the premiums too expensive; others would simply prefer to cash in early. "Life settlements" are arrangements that offer people the chance to sell their policies to investors, who keep paying the premiums until the sellers die and then collect the payout. For the investors it's a ghoulish actuarial gamble: The quicker the death, the more profit is reaped. Most of the transactions are done by small local firms called life settlement providers, which in the past have typically sold the policies to hedge funds. Now, Wall Street sees huge profits in buying policies, throwing them into a pool, dividing the pool into bonds, and selling the bonds to pension funds, college endowments, and other professional investors. If the market develops as Wall Street expects, ordinary mutual funds will soon be able to get in on the action, too.'


When do they start hiring hitmen to collect?

Regards,

Senator Jack

 

[Samsa]

This puts me in the mind of Gogol's "Dead Souls."

 

[Foofoogal]

This is a step below PayDay loans and I thought that was as low as one could go.

 

[jake_fink]

Patrick Bateman, Gordon Gecko and the eighties had nothing on the souless nastiness of today's (business) world. Go Wall Street!

 

[Feng_Li]

That sounds like the premise for a B SciFi/Cyberpunk movie...

 

[Ben]

This has been going on for a while. It took off in the 1980s when the AIDS epidemic was hitting hard. As I understand it, a lot of people who had the disease were selling the beneficiary status on their policies to have money to live it up now or pay for treatment. When the retrovirals came into being, many people survived long after the investors thought they would, and the investors lost money.

 

[Gaige]

That sounds like the premise for a B SciFi/Cyberpunk movie...

Was thinking that very thing.

 

[Haversack]

Feng_Li said: "That sounds like the premise for a B SciFi/Cyberpunk movie..."

Well, Heinlein's first short story involved the life insurance industry killing off a guy who invented a device that predicted the date of an individual's death. And, Spider Robinson once wrote a short story about birth certificates coming with an expiration date. And of course, 'organ-legging' has become a reality. So,...

Haversack.

 

[griffer]

I don't see the issue.

Disaster bonds, the entire insurance business, death pools- all the same.

Guess what, people die.

It's not magical or mysterious, it's mundane.

Not trolling, I just don't see the issue. There is nothing unethical or illegal. Consumers and investors are making informed decisions.

 

[Senator Jack]

Errr... The life insurance companies want you to live longer so you keep paying premiums. That's how they make money. The death brokers are hoping you're going to kick off the day after signing. Not just a wee bit gruesome?


Regards,

Senator Jack

 

[Paisley]

I don't really see the issue, either. People are voluntarily selling their life insurance policies. The buyers aren't controlling or influencing when the sellers die. It might be wierd if the buyer and seller knew each other, but I don't think that's the case here.

 

[dhermann1]

That's also the premise of the murder mystery.
Ghoulish? A matter of opinion. Charles Addamsesque? Definitely.
One might almost say Hitchcockian.

 

[griffer]

Errr... The life insurance companies want you to live longer so you keep paying premiums. That's how they make money.

Ever heard of annuity?

Or a pension?

 

[Senator Jack]

I know. Making money off of death. Big Deal. We're doing it right now. Enjoy the good times.

 

[griffer]

Sorry, Senator. My point was more specific than that.

An inusrance company PAYS an annuity out until death, so there is a profit motive for the annuitant to expire early. Exactly the same as the death bond.

A comany has a profi motive for their retired employees to expire early limiting the expense of the pension.

 

[Twitch]

Life insurance. How people misunderstand it. You're betting the company you are going to die before they'll receive enough premiums to break even and they're betting you won't. That alone is bizarre.

And how many times have I heard people talking about life insurance like, "I'll get $xxx,000 when I die. YOU won't be getting squat You'll be dead!

I've borrowed against and later repaid life insurances. Law firms that make lump sum payments to people with structured settlements have been doing it for decades so what's the big deal?

It takes less than 2 grand to get creamated and have documents done. Cash in your $100,000 policy for $60,000, give your loved one 2 Gs and do something fun with the rest!

 

[Undertow]

I do find the whole thing slightly morbid, but I've always found the entire idea of Insurance slightly morbid. Essentially, you pay a company a premium in the event that you should be mutilated, etc., or in effect, you're paying someone under the assumption that one day you will be harmed. Home owners, death&dismember, life, auto, disaster; all that stuff is morbid in and of itself.

So in other words, I don't find this particular issue any more morbid than I already find Insurance in general.

But I do like this post; I wasn't aware it was possible to cash out your life insurance policy. I better get to work while I'm still young!