Deadly Derivatives!

And after writing the question on Ethics & Financial Crisis you thought what about the next batches of GBS MBA what will they have to write about there cant be anything bigger and unethical than the Sub Prime Crisis! BITE YOUR TONNGUE~
Ladies&Gentleman welcome to "Death Derivatives"

After the Sub prime explosion Wall Street investment ia back with another idea to make money and that makes the Sub Prime Crisis looks like sissy!(Wharton has a nice article on this @2002!!)
A life settlement generally refers to the sale of a life insurance policy by a policyowner for less than the face value but more than cash-surrender value of the policy to third party investors.

The I bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash say a 50%-70% discount depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, 'street speak'- by packaging hundreds or thousands together into bonds. They 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 it is A WIN WIN for the I bankers - They would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But actuarial experts 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.

Wall Street-Insurer Zero Sum Game?
Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout.

But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.

Wall Street is obviously ecstatic for a simple reason: With $26 trillion of life insurance policies in force in the United States, the market is HUGE.

Not all policyholders would be interested in selling their policies, of course. And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment.

But even if a small fraction of policy holders do sell them, some in the industry predict the market could reach $500 billion.

Goldman Sachs apparently wants nothing to do with this and have called themselves out of this business early(tradable index of life settlements) ? are we in for a another round of CDO' ?