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[bacasper]

"Hmm, the mortgage bubble has burst. What can we raid next? I know - life insurance!"

What the hell's a "re-remic"?

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Wall Street Pursues Profit in Bundles of Life Insurance

By JENNY ANDERSON
Published: September 5, 2009

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

The bankers plan to buy �life settlements,� life insurance policies that ill and elderly people sell for cash � $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to �securitize� these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return � though if people live longer than expected, investors could get poor returns or even lose money.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

The idea is still in the planning stages. But already �our phones have been ringing off the hook with inquiries,� says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.

�We�re hoping to get a herd stampeding after the first offering,� said one investment banker not authorized to speak to the news media.

In the aftermath of the financial meltdown, exotic investments dreamed up by Wall Street got much of the blame. It was not just subprime mortgage securities but an array of products � credit-default swaps, structured investment vehicles, collateralized debt obligations � that proved far riskier than anticipated.

The debacle gave financial wizardry a bad name generally, but not on Wall Street. Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products.

In addition to securitizing life settlements, for example, some banks are repackaging their money-losing securities into higher-rated ones, called re-remics (re-securitization of real estate mortgage investment conduits). Morgan Stanley says at least $30 billion in residential re-remics have been done this year.

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[Rusty Shackleford]

This practice, in and of itself, isn't really that bad. They are offering a service to people who want to sell something they own. However, if fraud is committed (which is likely considering what they have been getting away with lately), then of course people should be thrown in jail.

[visitorq]

[bacasper]

[mises]

I don't know much about insurance. So they would have benefit from shorter lifespans? Good thing Wall Street doesn't invest in drug and other medical research.

[bacasper]

[mises]

That's the process of taking packaged securities, unpacking and then repacking them to better price risk. If the assets are priced and then rated appropriately they are a useful way of cleaning up some corners of this mess. Of course, they won't be priced at fair value (or insured value) and they won't be rated appropriately so somewhere there is a greater fool just about to get screwed.

[bixlerscott]

The banksters are at it again? Not a bit surprising. Call it the fleecing of America and the world. Call it the unfettered seemingly uncontrollable path to the eve of destruction.