The world’s most favored and heated topic of conversation is money. It dominates every facet of life, and it is true to say that most people handle it badly. Governments manage it particularly poorly, as I have mentioned often in other articles. This being so, I decided to do a bit more in-depth reading about money over the past few weeks.
My first port of call was a book called ‘What Money Can’t Buy’. It is an absolute classic, written by Michael Sandel. Its sub-title is ‘The Moral Limits of Markets’ and it vividly outlines the extremes to which people go in using their money to gain them privileges that others cannot aspire to.
But, in doing so, they really gain nothing of consequence for themselves or anyone else. They have simply found yet another innovative way to waste their money, while they degrade the dignity of humanity.
What concerned me most was the way in which Sandel reveals how little the American financial markets have learned from the Great Financial Crisis of 2008. There is a chapter in his book about a new sub-prime market in Life Assurance.
Every day, American Insurance Companies are aggressively marketing to senior citizens a financial product that they call a Life Settlement Policy. These policies are really a blatant bet by outsiders on the age that an unknown insured person will die.
The policy is marketed to an oldie on the basis that he or she will never pay a premium because the insurer will sell the policy immediately to an investor who will get all the money when the person dies — provided that the investor pays the premium every year.
For the insured person, the attraction is that the investor is required to make an immediate cash payment to them for the right to bet on his or her life, usually enough for them to take a pleasant world holiday that may otherwise be beyond their reach.
The investor is usually a bank, which then packages hundreds of these policies into bonds that are sold to other investors in just the same way that mortgages were marketed at the height of the sub-prime fiasco. The bondholders then take out insurance against loss with different insurance companies, which then sell those policies as bonds too. And so it goes on indefinitely until an Eskimo in the Arctic owns a share of a policy on your life.
The viability of all this for the investors depends on lots of old people dying sooner than they are expected to. This presumption grows more doubtful every day, as longevity is now a rapidly growing feature of the life of the world. It is just no longer wise to bet on people dying early. This is why the original life insurer is in the game. They are wagering that their policyholders are very likely to live a long time.
In case you feel it necessary to lie awake at night worrying about the forthcoming crash of life settlement policies, you will become even more sleepless when you know that the sums insured now cover trillions of dollars and are nowhere near their zenith. This means that the crash will be a big one and you will be better off if you are sleeping at the time.
Just as a slight diversion to emphasise what social distortion money can cause, Sandel tells us about the day when Mark McGuire hit the most home runs in a season in the history of American Baseball. The guy who caught the ball in the grandstand was able to sell it at auction for three million dollars.
A couple of seasons later, when someone broke McGuire’s record, the chap who caught the ball that day was punched and kicked until he gave it up. Twenty people who were involved in the brawl spent time in hospital and the battle for the ownership of the ball wound up in the courts.
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
10 posts so far.