Once again Wall Streeters have found a way to take an old idea and make it dangerous enough to ruin people's lives. First it was different types of bundled mortgages; now it's life insurance.

http://www.nytimes.com/2009/09/06/business/06insurance.html?th&emc=th

Wall Street Pursues Profits in Bundles of Life Insurance

While there were many factors that contributed to the current recession, the demise of once esteemed financial institutions is certainly a major factor and can be directly attributed to the greed behind the creation of new forms of mortgage backed (and not so backed) derivites and "bonds". 

Mortgage backed securities are not new to Wall Street.  I was trading them myself, as an over-the-counter and third market trader for various firms and banking institutions a few decades ago. But, these new securities were reworked versions and became so convoluted that no one could determine their value and they could no longer be traded. They were labeled "toxic" and it stopped business in it's tracks - globally.   Hello major financial collapse and recession.

But before the fall, Wall Street made bazillions on these securities.  And they were so unscrupulous that they continued to offer these securities even after the problems began to surface. The very people who created these toxic securities could no longer figure out their true value - they knew they were a mess but continued to offer them anyway because the word hadn't gotten out yet.

So, now Wall Street has another new idea about an old market - the viatical insurance market.

What's viatical insurance? Basically, people with a very limited time to live sell their life insurance policies at a discount to the death benefit.  They get to use the cash before they die and the people who buy these discounted policies get the full death benefit when the time comes. This market has been around for a very long time and became quite active when there was zero long-term life expectancy for AIDS victims.  It fell off a lot when people with AIDS started living much longer lives and the value of the transactions diminished.  Of course there is still a viatical insurance market, but it's mostly been handled in the insurance industry.

Most people I speak with are unsure how permanent life insurance works to begin with. This includes many Wall Street traders and brokers who make millions and own life insurance because they want to protect their families' lifestyle if something should happen to them. Usually, people are totally confused about cash value, premiums, built in costs, death benefit expenses,etc.  They just get it for protection for their family, or to leave something to friends or a beloved charity. This is what insurance does.

Well, back up the truck because Wall Street has found a new way to put together a complicated derivitive with a huge return: bunching life insurance policies into pools (like those "sick" mortgages were) and marketing them. 

People will be able to sell their life insurance policies and receive more money than if they just cashed them in, or worse let them lapse. Then Wall Street will package the policies into "securities".

But, we've seen how greed on Wall Street works.  What if the insured people behind these policies don't die soon enough to make the policy pools a good investment?  Will these people be hiding from Wall Street traders (or their hit-men) trying to improve the value of their pools? Kind of scary isn't it? Maybe even very scary.

For hundreds of years, Wall Street grew rich on good corporate financial values - good earnings, innovative management, low debt ratios, etc .  Why don't they think this is a good idea any more?