Banks Running Wild--The Subversion of Insurance by "Life Settlements" and Credit Default Swaps

Marshall Auerback and L. Randall Wray

Economics Policy Note Archive from Levy Economics Institute

Abstract: Oblivious to any lessons that might have been learned from the global financial mess it has created, Wall Street is looking for the next asset bubble. Perhaps in the market for death it has found a replacement for the collapsed markets in subprime mortgage–backed securities and credit default swaps (CDSs). Instead of making bets on the "death" of securities, this new product will allow investors to gamble on the death of human beings by purchasing "life settlements"--life insurance policies that the ill and elderly sell for cash. These policies will then be packaged together as bonds—securitized—and resold to investors, who will receive payouts when the people with the insurance die. In effect, just as the sale of a CDS creates a vested interest in financial calamity, here the act of securitizing life insurance policies creates huge financial incentives in favor of personal calamity. The authors of this Policy Note argue that this is a subversion--or an inversion--of insurance, and it raises important public policy issues: Should we allow the marketing of an instrument in which holders have a financial stake in death? More generally, should we allow the "innovation" of products that condone speculation under the guise of providing insurance?

Date: 2009-10
New Economics Papers: this item is included in nep-ias and nep-pke
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.levyinstitute.org/pubs/pn_09_09.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.levyinstitute.org/pubs/pn_09_09.pdf [301 Moved Permanently]--> https://levyweb.bard.edu/pubs/pn_09_09.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:levypn:09-9

Access Statistics for this paper

More papers in Economics Policy Note Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).