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Wall Street Wants You to Die

Really

Written by Nick Hodge
Posted May 11, 2011 at 11:55AM

We do a ton of research around here to keep you well informed on a multitude of topics.

This morning, I counted 51 windows open on my computer. There was the standard Gmail, portfolios (both personal and Alternative Energy Speculator), Yahoo! Finance, Weather Channel and Angel company website...

There was the Southwest and Hampton Inn websites I just used to book a trip to Boston for next week, where I'll be meeting with the CEO and touring the new factory of a rare earth miner and metal alloys producer...

And then there were 45 windows of research and articles about things I'd eventually like to tell you about — including such topics as the billions being spent on water in the Middle East, the increasing speed of China's elevators, building management buyout targets, Gates' and Buffett's new interest in uranium, and a survey on whether or not investors think the market is rigged (47% said yes).

Yet I'm not going to tell you about any of that today...

What I have to tell you is much more urgent, and could spare you more grief and financial anxiety than those other stories could ever make you.

Wall Street Wants You to Die

This is very serious.

On my way in to work the other day, I caught a piece of a local news radio program called Maryland Morning. The guest was Michael Greenberger, former head of trading and markets at the Commodity Futures Trading Commission (CFTC).

He was discussing life settlements and mortality swaps, the newest way for Wall Street to screw average Americans.

His explanation is perfect, so I'll give it to you from the primary source:

Life settlements are investment techniques that mirror what happened in the subprime mortgage situation that blew up the economy in the fall of 2008

In the subprime mortgage situation the banks cobbled together all the mortgages that they had let to potential homeowners into a big basket of investments, and they kept reshuffling them so it was confusing to understand what the principle financial question was. And there the question was: Will people who are not credit worthy pay their mortgages?

And they so confused the issue and got the credit rating agencies to give these investments AAA ratings that people were dying to buy into the subprime mortgage market and buy a piece of this bundle of thousands and thousands of mortgages. That turned out to be a catastrophe.

So shortly after the crisis — in the spring of 2009 these banks start thinking 'well now that everybody's angry with us over subprime mortgages, why don't we do this with life insurance policies?' So they go to individuals who have life insurance policies and agree to pay them a certain amount of money to give up their policy.

So they try to buy these policies as cheap as they can, take like thousands and thousands of these policies, put them in an investment vehicle, and have people invest in them.

And the trick is to hope that the people will die on the early side so the policies will trigger early and they'll make money. Because they'll make more money from that than they paid out to the people they were settling.

On the other hand, if people live longer, these investments may fall apart.

You understand what's going on here, right?

To be clear, life settlements on their own are nothing new. Those whose long-term plans change or whose premiums climb too high have always been able to sell their insurance policy.

What's new here is securitizing it — bundling numerous policies together and allowing others to invest in them.

Don't Fall for It

Just like the already-rich bet on the (in)ability of a lesser class to pay their mortgages, they're now betting on (and, indeed, hoping for) the early demise of the ill and elderly.

As Greenberger continued, “Wealthy investors are going to either win or lose on their investment on whether you die early or you die late.”

And just like the subprime industry, this industry is largely unregulated and has gotten off the ground under the radar screen.

The practice isn't illegal, but the fear is that banks will prey on the financially vulnerable and get them to sell life insurance policies against their best interest.

Is it ever worth it? Not usually.

Actuary and insurance advisor Scott Witt says, “Almost always, the policy being sold is far more valuable in the hands of the owner than it is in the hands of the person buying it.”

Financial advisor Tom Orecchio, a principal at Modera Wealth Management agrees: “All things being equal, the policy is worth more to your heirs than it is to an investment fund in Delaware. Ultimately, sellers may only expect about 20 cents for each dollar of a policy's face value.”

In a glimpse of how much companies care about you, insurance companies are furious at this practice.

If you're unable to pay your premiums and sell your policy to Wall Street, the premiums will be kept up until the payout. And if this practice keeps up, the insurance companies know how to fix it for you. They'll raise your premiums so they'll be too high for Wall Street to turn a profit.

Insurance companies are rooting for you to run out of money for your premiums; Wall Street just wants you to die.

Broader Point

The broader point here is that the system — if not broken yet — is nearing its breaking point.

Wealth is no longer created by selling a product or service for the market price, or by investing traditionally in stocks and bonds.

Corporations and the multi-millionaires who run them have undergone a systematic program to separate the rest of Americans from their money. And they've made the government their slave by feeding them an IV of that sweet, life-sustaining nectar: reelection cash.

Wall Street has turned to making things up because they're out of ways to make a legitimate dollar. They'd rather come up with evermore dire ways to separate you from the ones you make.

The dollar's in the toilet. Unemployment's high and not improving. Housing values continue their skid from the Street's last greatest idea.

And with nowhere else to turn, Wall Street is now trying to profit from the last thing you have left...

Your life.

Call it like you see it,

Nick Hodge

Nick Hodge
Editor, Energy and Capital

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