'Life settlements' Wall Street's new game
Posted on: Sunday, 6 September 2009, 10:33 CDT
Wall Street is once again creating exotic investment vehicles, this time by securitizing life insurance policy settlements, U.S. financial analysts say.
Even as the United States is still suffering from a global recession partially brought on by collapse in value of securities created by packaging subprime mortgages, Wall Street is quickly moving to similarly package and sell so-called life settlements, The New York Times reported Sunday.
Under the programs, seniors and ill people sell their life insurance policies for cash, after which their policies are packaged together into bonds by investment bankers and resold to investors such as big pension funds.
Investors receive the policy payouts when the insured dies, and the earlier that happens, the bigger the return, though if people live longer than expected the investors could get nothing or even lose money, the report said.
Either way, the Wall Street firms selling the bonds pocket sizable fees. But, analysts told the Times, the process could wind up being expensive for consumers because insurance companies may be forced to raise premiums.
Other critics told the newspaper Wall Street's quick move back into offering exotic products so quickly after the subprime crisis is alarming.
Source: United Press International
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