The Blue Coats Keep Coming!

It’s time to put Wall Street in its place. They just don’t get it. After all the deriving, bundling, and Madoffing, they are up to another scheme: this time they hope to profit from your death, or so Peter Cohan, a Babson professor and author of You Can’t Order Change reports. It’s time for another “tea party” and the chanting of a revised slogan: “No securitization without representation!” Actually, it would be better if we held out for “No securitization” at all.
Here is how it works according to Cohan:
Wall Street's idea is that the thousands of securities in these bundles -- which will consist of life settlements from people with a diversity of diseases -- such as breast cancer, Alzheimer's, Leukemia, and heart disease -- will reward investors by paying them the difference between the amount that the policyholders get paid while they're alive and the size of their death benefit.
In simple terms, Wall Street will be setting up a casino so pension funds and other institutional investors can place a bet on your date of death. Wall Street will extract fees for running the casino -- just as it did with mortgage-backed securities (MBS).
And investors will rely on a new class of ratings agencies -- such as DBRS, co-founded by a nuclear engineering PhD -- which will measure the risk of these life settlement-backed securities (LSBS). And the risks are considerable. First among them is fraud -- unless a very ethical person takes the time to examine the medical records of each policyholder, there is enormous potential to simply make up fake policies -- just like the liar loans that brought down the MBS market.
Then there are the risks of people living longer than the actuarial tables predict -- which could cause LSBS investors to end up making very little money or even losing it. Or -- heaven forbid -- scientists discover a cure for the disease that threatens some of the policyholders and instead of dying an early and profitable death, those policyholders get healthy and live a long life.
Back in Boston around the time of the original revolution, bundling occurred when young couples, often teenagers, would be “bundled” in bed with each other, sometimes separated by a bundling board to keep them from having intercourse. The intention was to let them be intimate without the parents worrying about consequences of ultimate intimacy. Given the number of out-of- wedlock pregnancies that resulted during the colonial period, neither bundling nor bundling boards worked very well.
Today the same can be said for the bundling of loans into a trust and selling the product as a derivative. I doubt a bundling board would be any more effective than the original piece of timber. Therefore, securitization with representation would be about as futile. An all out ban on securitization is probably a better solution.
I discovered this summer that there are many different forms of the classic board game Monopoly. I learned this when I purchased the Deep Sea Fishing edition for a fishing-frenzied friend whose house I was occupying on Martha’s Vineyard for a couple of weeks. Art may imitate life, but when the cherished board game of our childhood imitates Wall Street in spinning off theme derivatives the way Ben and Jerry develops ice cream flavors, they don’t feel as right or good as say, Brahms’ Variations on a Theme by Haydn. It seems one can “monopolize” anything and what Wall Street is now proposing is just another monopoly game paid with not only your real money but your life. Let’s call them DDT’s (Disease-Death-Trades) before Wall Street comes up with a more euphemistic label.
I wonder if a board game can be made of this new Wall Street ploy. Perhaps a theme board game will lend legitimacy to the deal and assuage the fears of another, even more insidious bubble and bust already churning in the pit of my stomach.