THE SPINE SEPTEMBER 6, 2009
It's big news. The top news in the Sunday Times, columns five and six right under the logo.
No, the banks have not been chastened. And Jenny Anderson's article tells you just how little they have learned.
This is a traffic in the odds of death. Or the odds on the proximity of death.
Ms. Anderson has a very clear description:
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. 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.
"May you live a long life" or, as the Jews say, "biz a hundred un tsvantzik."
In churches and synagogues—I, unlike Barack Obama, don't know what goes on in mosques—congregants pray for the health of their friends and family. Especially when they are actually sick. Jews call this a "misha beyrach." Now, the heavenly hosts will also be hearing contrapuntal themes. Maybe there'll even be a contra-chorus: "What's taking you so long? Get a move on."
Goldman and Credit Suisse are apparently deep into this business already.
Of course, there is the problem of rating these bundles of insurance policies. I suppose that the grouped policies of those "near death" will be graded Triple A. The policies of healthy folk might be Double C. But putting hundreds of policies of similarly fated individuals into one classification and then another defined cohort into a different risk profile will be a very challenging matter. Still, they did it with mortgages. Oops, they didn't. That's how this whole calamity began.
One of these rating agencies, DBRS, is now "reviewing nine proposals for life-insurance securitizations from private investors and financial firms..."
Which of the Washington regulatory agencies has this new death-watch investment on its agenda?