We Must Say "No" to Death Bonds

On Sunday, I woke up to the New York Times to find out that Wall Street is no longer content to pick our pockets while we're alive. Now their financial alchemists are aiming to profit from our deaths, and they are assuredly going to solicit unwary public pension funds to underwrite this morbid venture.

You can read the article here, but let me summarize what's at issue -- namely, life insurance.

Typically, parents and spouses purchase life insurance to protect their dependents from financial distress in the event of their own untimely deaths. As a single mother of a fifteen month old child, I can tell you how important access to affordable life insurance is for assuring peace of mind.

But now that the sub-prime home mortgage fiasco that wrecked our economy is behind us, Wall Street needs a new way to exploit the vulnerable. And they seem to have found it.

Wall Street has realized that the desperately ill are willing to sell their life insurance policies at a deep discount to get the money they need for their final expenses, a practice bankers call "life settlements." The banks cash in for a handsome profit (the difference between what the policy is worth and what it was sold for). And because Wall Street pays you today, but collects only when you die, what they make depends entirely on how quickly you die! If you linger or recover, they lose money. It doesn't take much to guess which outcome they're rooting for.

So what does this mean for those of us who need life insurance? Well, with Wall Street squeezing out ghoulish profits at the expense of insurance companies, the answer is higher premiums on new policies. It's not hard to see how many of us could be locked out of the insurance market altogether.

Even worse, Wall Street wants to securitize these life settlements in exactly the same way they securitized mortgages. Bundling these things into "structured products" is just a fancy way of saying Wall Street wants to make enormous bets using borrowed money to speculate on how quickly people will die.

It's been tried before. I remember in the height of the AIDS epidemic, speculators saw an opportunity to profit from an "incurable" disease, purchasing patients' life insurance policies for a fraction of their worth. Fortunately, new treatments were developed that dramatically extended the life of HIV-positive men and women. It cost speculators a small fortune.

That was a relatively fringe business. The talk on Wall Street today is of a $500 billion market made up of individuals suffering from terminal illnesses ranging from cancer and Parkinson's Disease to ALS and Multiple Sclerosis. This asks the question: will corporate America use political influence to delay the development and spread of new treatments that might save lives, but cut profits?

This isn't idle speculation. Breakthrough treatments are often expensive and initially appear unlikely to succeed. So the line between "responsible" lobbying and exploitation will be difficult to discern and maintain.

To avoid these unsavory repercussions, we must remember something we've learned from our present economic crisis: some banks are simply "too big to fail," which means either they get rich, because we die quickly, or they go broke, because we cure cancer, and we have to bail them out again.

As a candidate for New York City Comptroller, I promise New Yorkers right now that I will never let our pension funds invest in any securitized life insurance policies -- or what should rightfully be called "death bonds." I also will demand that all of our fund managers refuse to buy them. Furthermore, I will work with other pension funds to organize a boycott of death bonds. And I call upon my fellow candidates for City Comptroller to join me in my fight against Wall Street's latest get-rich-quick gimmick.

The first obligation of a public servant is protecting her constituents -- that's what service means. Obviously, that obligation is incompatible with investments in a business that makes money when constituents die early and loses money when they survive. I would never gamble that bad things will happen to New Yorkers. I would only work to prevent them.

Comments

[StephenBarry]

If Wall Street had its way, they would bottle-up all atmospheric oxygen and force us to work for a canister a day and some food. After all the houses are foreclosed, they would store us in warehouses like battery hens. Then when we are too old or ill to work, they would withold a canister from us and cash in on the insurance policy. Murder ? No, a mere rationalizing of corporate resources.

When the toxic assets ripen, there will be nothing to foreclose except warm bodies. They will either need to kill us or drop all of our protections - medicare / medicaid / FDA / environmental etc to help us shuffle off the mortal coil.

[oustfan]

I think that's what they're trying to do... unfortunately, our government keeps helping them. They would all go bankrupt without DC.

[oustfan]

It's noble of you to want to take away more choices from the elderly under the assumption that they are incapable to decide what is best for them.

Are doctors "rooting for" sickness? Are firemen "rooting for" fires? Just because a professional gets paid when bad things happen, it doesn't mean that they not providing a service that people want.

[StephenBarry]

1) Firemen are wage earners and do not profit from more fires.
2) The American Medical Association used the mantra "sanctity of life" ad nauseum for decades to keep people on life support for as long as possible. When the insurance companies refused to pay the bills, the use of the mantra ceased. Now patients are refused service and thrown out on the street (see Michael More's film "Sicko"). Doctors root for illness when they get paid for it.
3) Police are on salary but are made to write more tickets to meet quotas, so they do root for more bad drivers and drunks.
4) Judges are on salaries but have been paid bribes to incarcerate people in privately run facilities. These judges do root for crime when they are incentivized.
5) Investment bankers will certainly root for death because they will make billions in profit.