Sunday, September 6, 2009
The New York Times has a disturbing front-page article, New Exotic Investments Emerging on Wall St. (by Jenny Anderson), recounting the latest "exotic investment" Wall St. is planning -- securitization of "life settlements." Life settlements involve the sale of life insurance policies by the ill or elderly for cash to promoters who then bundle them and sell participations to investors. Securities professors are familiar with viatical settlements from the 1996 SEC v. Life Partners opinion, in which the D.C. Circuit bizarrely stated that these interests were not securities because the investors' reliance on the efforts of others only occurred at the pre-investment stage and thereafter profitability turned on the number of years the insured continued to live. The article quotes professionals as saying these are the "next big thing" because the risks of the investment do not correlate with market-based investments, thus allowing for diversification of risk. In the 1980s, viatical settlements proved to be poor investments because with drug therapies, the life expectancy of AIDs patients proved to be longer than "bargained for." But Wall St. says that they have become more sophisticated and that there are ratings agencies that can accurately assess the risk of these investments.
Never underestimate the unrepentent greed of Wall St.