October 9, 2009
Well, well, well! You have just got to admire this — buy up paper, package it into bundles and sell them to investors. Now where have I heard this before? Hum! Oh, yeah! It was such a little thing that I had forgotten! It was the cause of the Wall Street crash last year that cost Americans $15 trillion in value and another $4 trillion to fix it. The only difference is last year was caused by buying up subprime mortgages, credit-default sways, etc., and this year it life insurance policies. Well, you have to give Wall Street credit – they never give up on finding ways to make large amounts of money by swindling other people out of their money rather than adding value to society.
The idea is to buy up life insurance policies of people who are dying and/or elderly people who are expected to die soon. They buy these policies at about 40 percent of face value. This article by the New York Times describes it this way: “[ pay] $400,000 for a $1 million policy, depending on the life expectancy of the insured person” and “the earlier the policyholder dies, the bigger the return”. So here’s the pitch — ‘sign right here on the dotted line, then drop dead getting out of the chair’. The Times calls this “a return to the good old days”.
As the Times article points out, insurance companies will have to raise premiums in the short term because they will have to pay out more money in claims. The reason is that many elderly people let there insurance policies lapse, therefore the insurance companies never have to pay out anything although they’ve collected premiums for years, sometimes decades. But once the policy is bought by investors, the premiums will always be paid until the insured dies. So expect your life insurance premiums to rise some where in the not too distant future. And if you are a supporter of this sort of business, be sure and send a “thank you” note along with your increased monthly premium payment each month.
Somewhere back in the origins of mankind, some upright-walking human-like creature figured out a way to become a fat cat by preying on others of his kind. He probably did that by conning the other creatures that it was in their best interest to supply him with all the food and water they collected. He grew fatter and stronger while the others grew thinner and weaker. It wasn’t until they were taking their last breaths of life from starvation that they realize how self-destructive it was. That gene is still alive and well today, congregated mostly on Wall Street and in the boardrooms of America.
Steven Pearlstein, on this same subject line, quotes a report called “Overcoming Short-termism” that says “[short-termism] has now become hard-wired into the culture of Wall Street and corporate America”. Nothing could be closer to the truth. I have posted before that this generation of Wall Streets and corporate leadership know of no other way to make money, and worse yet, they have taught nearly two generations to think the same way, which is live for today and worry about tomorrow when tomorrow comes.
But what should Wall Street worry about? We’ve proven five times in the past 100 years that the taxpayers will bail them out after they’ve become fat cats by bankrupting the bank.
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