The financial wizards are at it again, and this time they're not betting whether you'll default on your mortgage. They're betting on your life.
The financial folks on Wall Street, as always, are looking for certainty and to curtail risk. At one point, mortgages seemed to be a sure thing. People need a roof over their heads, and home prices have always gone up at least somewhere in the country, so if you securitize—that is, package various mortgages for people of varying financial health and geography—you mitigate risk. We all know that logic didn't pan out.
According to The New York Times, finance wizards are using a similar line of thinking for life insurance. In a nutshell, bankers are making one of the surest bets there is: you will die.
Financial folks tend to like complexity, so there's more to the story. Seniors who need cash (and with the markets of late, many of them do) may want to cash in their life insurance. They have several options. They could cash in their life insurance, or for even more money, they could sell the insurance to a so-called "life settlement company."
In the latter case, the previously insured walks away with cash. Meanwhile, the life settlement company keeps paying premiums, and the policy is securitized, packaged together with other policies and sold as bonds to big pension funds and the like. When the insured dies, investors get the payout. According to the Times, the earlier the person dies, the bigger the payout. If the person lives longer than expected, investors could incur a loss.
I understand the logic. Wall Street is looking to make money off that last bastion of certainty in this world: death. Still, to me it's a tad twisted, like something out of Aldous Huxley's Brave New World, and plenty aren't happy about it. The Times quoted Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, saying that "this defeats the idea of what life insurance is supposed to be. It's not an investment product, a gambling product."
It saddens me, because it seems our best and brightest are putting much effort into making money with money—with no physical product, durable or nondurable, that benefits anyone.
I wish I would read less about financial wizards and more about people like Dean Kamen, who spoke at last year's FABTECH® & AWS Welding Show, and is speaking this week at a nanotechnology conference at McCormick Place in Chicago. Kamen, best known for the Segway®, founded FIRST, For Inspiration and Recognition of Science and Technology, an organization in which engineers and related technology professionals mentor students through a robotics competition program. His company, DEKA Research and Development, is making products aimed at making the world a better place: innovations for the disabled, water purification for the impoverished, and so on. During his keynote last year, he said he'll need sheet metal fabrication and welding technology to make his visions a reality.
He called out to his fabricator audience: "I need your help."
Doesn't this sound better than making loads of money because somebody happened to die early?