Tuesday, May 24, 2011

Wall Street Intends to Profit From Your Death

How Wall Street Intends to Profit From Your Death

By Keith Fitz-Gerald, Chief Investment Strategist, Money Morning

I just spotted the next global "black swan."

But I think it actually looks like a giant Pteranodon.

I'm talking about so-called "death derivatives."

The Lowdown on "Death Derivatives"

After betting trillions on everything from liar loans to mortgages that never should have been issued in the first place, the big banks are back and they're betting on death - yours and mine.

It seems that Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), Deutsche Bank AG (NYSE: DB) and others now want to help securitize "longevity risk" through a newly created derivatives market.

I don't know whether to laugh or cry.

Here's the deal. The banks want to collect billions in fees from pension funds and other institutions by issuing insurance that will manage the risks associated with living longer than the financial planners planned.

What Wall Street is proposing is to package up the fees from these instruments into bonds that are then securitized and sold to investors via a secondary marketplace the banks themselves will effectively create - a "death derivatives" market.

You might think this is farfetched, but the idea is actually far enough along that several financial institutions have already created mortality -rate indices that will be used to price and trade these death instruments.

For example, David Blake, director of the pensions institute at the London-based Cass Business School, helped JPMorgan and Credit Suisse Group AG (NYSE ADR: CS) develop mortality indices for the United States, Germany, the Netherlands and Wales in 2007. He told Bloomberg that this is to help buyers and sellers price derivatives more accurately and to boost confidence to create a more liquid market.

In my mind's eye, I can see and hear the nightly business news report that would result:

"The Dow Jones Industrial Average fell 200 points in trading today, while the death-note index spiked another 53 points on news that the nation's new healthcare plan failed to prevent market-related heart attacks."
Or how about this one:

"In an effort to maintain profitability and meet future liabilities, the Dewey, Cheatem and Howe Insurance Co. late today bumped off another class of policyholders. This continues a recent trend that began due to pressure from some of Wall Street's leading investment banks."
The conspiracy theorists are going to go nuts.


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