It's bad enough that another immense and unstable asset bubble is building – thanks to inordinately cheap money (owing to the Federal Reserve’s near 0% interest rates) and stimulus money which continues to artificially jack up stocks as new credit defaults appear which bet against various nations’ bond worthiness. Many have warned the next burst bubble’s havoc may be difficult to contain, given the Fed has little room to maneuver and the bond -betting CDS (credit defaul swaps) are spreading.
Now, to add to that toxic speculative brew we see another even more sordid instrument emerging, called “life settlements”. These consist of buyers (“investors”) who purchase “bets” on life insurance policies. As a buyer, one claims the life insurance benefits when the original owner-seller of the policy dies. In this way, these instruments are reincarnations of an earlier form – viaticals – that appeared in the late 1990s.
The dynamic is described in the article ‘Grim Rewards for Reaping Death’s Benefits’ in The Wall Street Journal (Feb. 6-7, page B-10)
“Say you purchase a $1 million policy held by an 82-year old woman. Actuarial tables say she has five years to live. If you do the deal via Life Partners’ Holdings, Inc. – a major life-settlements firm, you must pony up $540,000. The woman gets $200,000 of that, the remainder goes toward future premiums and transactions fees.”
The article goes on to note that if the subject “dies on time” the investor earns a 13% annual return. But if she lives for another ten years the same investor will end up shelling out much more in premiums and the return sinks to 3%.
As the article puts it:
“Every year she soldiers on, your take shrinks”
Is it just me, or is there anyone else who sees something inherently wrong with this – including the potential for unintended consequences, say, like an unscrupulous investor “speeding up the game” a bit to maximize her or his returns?
Are these investors inhuman ghouls? Actually not. What they are is died in the wool capitalists in a run amuck market, looking for a buck any way they can make it! The capitalist-market system itself, not “Satan” or “Hell”, spawned these- folks – like it's spawned a whole constellation of consumption manifestations now blamed with wearing or tearing our civilization down: from rape- emulation video games, to Barbi dolls, to new war toys and weapons.
In the end it's the capitalist's true god- the free market- which is responsible for lowered standards across the board and increasingly less mental and physical health in the country. This market, fully amoral - is capable of tolerating 25 million malnourished kids who go to bed hungry each night, as well as 46 million people with no health insurance. Its only incentive is profit, making money. No religious or other moral standard applies.
As author Charles Reich poignantly notes in his book, Opposing the System, Crown Books, 1995, p. 22:
"A free market produces results that favor the health of society as a whole, because an essential balance is maintained. But in a coercive market, the balance is destroyed, the earning power of work and the standard of living of workers declines, and society as a whole is devastated while those with economic power gain an ever more unbalanced share of the nation's economic wealth."
This is exactly what we're experiencing now: a perversion in which the earning power of work and the standard of living of workers declines. This subversion of labor by capital is magnified in the speculative financial markets- which have now usurped the true wealth and production power of the country....a sign that it's an empire in decline - much like the earlier Dutch and British Empires - which surrendered making things to financial speculation. (For more on this, see the first chapter of Arrogant Capital, by Kevin Phillips).
What this shows is that while many self-proclaimed religious folks blame atheists and nonbelief for much of what is wrong with society, they’d do better to closely examine the capitalist-market economic system that underpins it. This system is both amoral (note – I didn’t say ‘immoral”!) and dominant. The reason is that any profit earned is blind to uses and intents, and it will just as effectively use the available processes and resources to produce a new form of raunchy X-box game as a new vaccine.
Similarly, in the circle of investments, it can give rise to such devices as viaticals and life settlements. Fortunately government has provided some controls to slow their growth and ensure they aren’t used indiscriminately. For example, longer assigned life expectancies – thanks to underwriters and their actuarial tables, means more risk in purchasing one of these things. That explains why the business volume has remained relatively low, compared to other securities – including credit default swaps.
In addition, the IRS has helped by ruling that death benefits received by investors be treated as ordinary income rather than merely as lower cost.capital gains. This means a wealthy person who puchases a life settlement will soon be shelling out 39.6% of his takings (once the Bush tax cuts expire in 2011) as opposed to 15% or 20%.
At least the government, then, is exerting some indirect control on these amoral entities.