Wall Street to Make a Killing On Early Deaths

Wall Street to Make a Killing On Early Deaths

September 7, 2009

According to the New York Times, Wall Street investment banks have been searching for an another exotic investment instrument with which they can literally make a killing.

The bankers’ plan is to buy “life settlements,” life insurance policies that ill and elderly people sell for cash— depending on the life expectancy of the insured person. The banks would then “securitize these policies by packaging hundreds or thousand together into bonds. They will then resell those bonds to investors, who receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return. There is also an incentive to ensure that the policyholders do not live longer than expected, because the investor would then either get poor returns or even lose money.

For Wall Street it is a win-win situation, because the banks would profit with sizable fees for creating the bonds, reselling them, and then later trading them.

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