[Marxism] Bankers plan to buy ‘life settlements'

J Rothermel jayroth6 at cox.net
Thu Sep 10 18:16:07 MDT 2009


Profiting on death


          10 September 2009

Investment banks are planning ways to bet on the life and death of 
individuals with life insurance policies, as described in an article 
published in the /New York Times /on Sunday.

“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 person,” 
/Times /correspondent Jenny Anderson reports. “Then they plan to 
‘securitize’ these policies, in Wall Street jargon, by packaging 
hundreds or thousands together into bonds,” to be sold to investors.

Investors will continue to pay out the premiums on the insurance and 
will collect the payout when the person dies. “The earlier the 
policyholder dies, the bigger the return.” In the example given, if the 
insurance is for $1 million, it is sold for $400,000, and an investor 
pays out $100,000 in premiums before the individual dies, the resultant 
profit will come to half a million dollars.

Of course, the great danger for an investor would be a sharp rise in 
life expectancy for a particular section of the population. “A bond made 
up of life settlements would ideally have policies from people with a 
range of diseases—leukemia, lung cancer, heart disease, breast cancer, 
diabetes, Alzheimer’s,” the /Times /notes, to safeguard against the 
danger of a cure for any one of these.

The process of buying and selling the life insurance of other people 
already exists (/BusinessWeek /ran a story in 2007 under the headline, 
“Death Bonds”), but “securitizing” these policies to make investment 
easy is still in its infancy. Yet the /Times /reports great interest in 
the possibility. “Our phones have been ringing off the hook,” one rating 
agent is quoted as saying. “We’re hoping to get a herd stampeding after 
the first offering,” said an investment banker. Credit Suisse and 
Goldman Sachs are among the banks taking an interest in the new venture.

The /Times /notes that the market could reach $500 billion, which “would 
help Wall Street offset the loss of revenue from the collapse of the 
United States residential mortgage securities market…”

There are several reasons to believe that a new life insurance 
securitization market—one wit dubbed the resulting securities, 
"collateralized death obligations"—could be very profitable.

First, with the desperate financial situation facing millions of people, 
there will inevitably be a large pool of poor or elderly workers who 
find themselves unable to pay their insurance premiums. They may also be 
in need of immediate cash to fund mortgage payments, medical expenses or 
other necessities for themselves or their relatives. As the economic 
crisis deepens, the willingness of individuals to part with their 
insurance policies at a low price will increase.

Second, investors will be essentially betting that individuals on 
average will be dying sooner than anticipated by insurance companies who 
originally devised the policies—that is, they will be betting that the 
curve of life expectancy in the population will dip.

Life expectancy in the United States has already begun to stagnate in 
recent years, particularly in rural areas. While life expectancy grew 
slightly in 2007, the last year for which numbers are available, this 
was before the onset of the economic crisis.

The most significant impact of the economic crisis will be a massive 
lowering in the living standards of the American people. Wages and 
benefits are being permanently lowered. The ability of sections of the 
working class to maintain a higher standard of living through debt 
backed by high housing prices has evaporated, and other forms of credit 
are also drying up. All of this will inevitably lead to workers dying on 
average earlier.

Finally, investors anticipate major cuts in health care spending as the 
outcome of Obama’s “reform” initiatives. After handing out trillions of 
dollars to the banks, the American ruling class is looking to cut social 
spending, particularly from Medicare and Medicaid.

As Obama declared in June, “The cost of our health care is a threat to 
our economy. It is an escalating burden on our families and our 
businesses. It’s a ticking time-bomb for the federal budget. And it is 
unsustainable for the United States.” Behind all the talk of “health 
care efficiency” and “unnecessary tests,” investors are well aware that 
the principal means of cutting costs is to cut services. The various 
proposals in Congress have focused in particular on containing the 
growth in Medicare spending. Government-provided health programs, 
including Medicare, have been one of the principal spurs for the growth 
of life expectancy during the 20^th century.

The interest in “death bonds,” besides its uniquely morbid significance, 
is symptomatic of a more general phenomenon: the parasitism of the 
ruling class. One could hardly imagine a more picturesque example of 
Marx’s description of the social character of a ruling class that gets 
rich, “not by production, but by pocketing the already available wealth 
of others.”

The present global economic crisis is intimately linked to the rise in 
power of a financial aristocracy that has accumulated its massive 
fortunes from processes ever more divorced from the production of real 
value. The growth of the speculative bubble in subprime mortgage backed 
securities was itself based on the attempt to suck up wealth from those 
least able to afford it.

The race to develop life insurance securities is only the latest, and by 
no means the last, gambling racket along these lines.

Government policies over the past year—under both Bush and Obama—have 
not only failed to limit the dominance of the financial aristocracy, 
they have in fact strengthened it. The largest banks have increased 
their monopoly over American finance, and the top executives and traders 
are anticipating record bonuses this year.

That the financial sector has been recalled to life even as the 
conditions for the working class deteriorate, even as millions of people 
are thrown out of their homes and jobs, as schools are shut down and 
social programs cut, is not accidental; the two processes are directly 
related.

That they should create a security to formalize this parasitic 
relationship is only natural.

Joe Kishore



http://www.wsws.org/articles/2009/sep2009/pers-s10.shtml




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