What do Bear Stearns, Deutsche Bank, Lehman Brothers, Merrill Lynch, UBS, Wachovia and Wells Fargo and other big securities firms have in common? No conscience. For decades we have thought that Wall Street will do anything for money. Now we are sure.
Two years ago, about 250 people attended an event in New York to discuss yet another exotic product to come out of Wall Street. This spring, as the subprime mortgage market was crumbling, nearly 600 representatives of most largest players in the finance industry met to talk about the product, one they could sell investors which had enough pricing difficulty that large mark-ups could easily be generated. That product is “death bonds.”
In brightly lit rooms with a festive atmosphere, the wizards of Wall Street discussed how they could profit off diseased and dying folks who happen to have life insurance. Death bonds are securitized products which, instead of mortgages, are backed by life insurance policies.
Almost one-third of Americans own life insurance – guarantees to pay a total of trillions of dollars. Yet, many policy owners are unable to pay the premiums, often because they are ill and can’t work and/or have medical costs consuming their resources. While some of those insured simply decide they would rather have the money while alive, others desperately need “life settlements” to pay for medical needs or avoid bankruptcy.
Viaticals, as death bonds are often called, are the result of policies being sold to investors, who then keep up the premiums until the sellers die, then collect the payout. The quicker the death, the higher the profit. Viaticals have been around for years, but were handled mostly by smaller firms with rampant fraud surrounding the industry. Hedge funds then seized on the opportunity to profit. Now, Wall Street sees huge profits in selling bonds backed by such policies, since valuations are problematic, which affords CMO-like sales pitches and higher mark-ups than on generic debt instruments.
Like many mortgage backed securities, there is a guarantee these will pay someday, so long as the insurance company remains solvent, because everyone will die sooner or later. Lets just hope impatient hedge fund managers and other investors do not decide to hasten the process in order to increase their returns.
Shepherd Smith and Edwards represents investors nationwide in claims against those in the securities industry. We handled claims in all types of investments. If you are a victim of worngdoing and suffered losses in any type investment contact us to arrange a free consultation with one of our attorneys.