Longevity Swaps: Betting on How Long You Will Live

By 2007, the derivatives market had grown globally into a $516 trillion industry,  and, at the time, Warren Buffet warned of the "ticking time bomb".

Buffet wasn't the only one who warned about derivatives. "One month after Henry Paulson left Goldman Sachs as CEO with a net worth of over $500 million to become the new Treasury secretary, he spoke to the White House staff at Camp David: “Paulson held up over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street’s face and affect the whole economy.”

So, after the explosion of complex mortgage-backed securities brought down our financial system in 2008, and the speculators have been bailed out at our expense, they have the balls to speculate on our mortality. That's right, one of Wall Street's latest innovations is longevity swaps...waging in death futures.

What are longevity swaps? Well, it's the practice of hedging people's lives.  Some refer to them as death bonds.

Essentially, they are unconventional assets (little connection to more conventional stock and bond prices). Like mortgage backed securities, longevity swaps, ideally, would consist of policies from those who have diseases such as Leukemia, diabetes, cancer, heart disease, etc., in which investors buy into those life insurance policies and are paid when individuals die. Obviously, in this case, when cures are developed, the value of the life settlement plummets.

Remember, there are no profits in finding cures.



Another type of transaction involves "mortality catastrophe bonds," in which bond buyers contribute to pots of money that insurers can tap into if large numbers of people die in a disaster.

The bonds help insurers limit their exposure. If disaster doesn't strike, the investors get their money back with a preset return, typically a premium above some benchmark interest rate.

Goldman Sachs, of course, has already entered this market. When sick or elderly Americans need cash, they can sell their life insurance policies to companies that will pay them a fraction of the value.

Wall Street pursues profits in life bundles.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will 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, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements 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.

Risks in Derivatives Markets

Systemic risk is the aggregation of default risks; since default risk has been exaggerated, so has systemic risk. Finally, this debate seems to have ignored what we call "agency risk." Features of widely used incentive contracts for derivatives traders can induce them to take very risky positions, unless they are carefully monitored.

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The Human Popsicle, Quest for Immortality I

Back in the dark ages, before the world became a nightmare for the average Libra (Libras don't like too many choices), an exam was my largest anxiety producing event. In order to calm myself, I would think , I’m going to be dead in a few decades anyway…it’s not like my tombstone will read, 'too stupid to pass calculus test ...’

I self- tranquilize, using this method, quite often; although, it can, and sometimes does backfire, because I end up thinking...why bother ...unless I can put it on my tombstone? Most of the time, however, this approach reduces my anxiety to the point I can focus.

Additionally, when going through periods of what I perceive to be “intense suffering”, for instance, adjusting to the invention of the cell phone, the knowledge of my own mortality can also provide solace. Other than that, death is at the very bottom of my to-do list.

Our own mortality can provide a certain degree of comfort with the knowledge that there is an end to what can sometimes seems like unending anguish, but most of us avoid our ephemeral condition like the plague, and sometimes to the point of insanity.

Take cryogenics for example. The wood frog is one of the only animals that is able to come back from a deep freeze. Unlike almost every other living creature, the wood frog thaws from the inside out. The frog's liver pumps out an extraordinary amount of glucose, which ends up concentrated inside its cells, producing an antifreeze like substance. This substance prevents the inside of the cell from freezing and reducing it to what would normally render the cell useless. In contrast, the water in our cells expands as it freezes, shredding the inside of our cells beyond repair.

However, even wood frogs cannot come back after being submerged in liquid nitrogen, the freezing process used in cryogenics. Scientists say the chance of "Mr. Freeze-Pop" thawing to life is a big fat zero at this point. And they cannot envision anything in the future that would make this a possibility. Unfortunately, for anyone reading this, my unscientific brain disagrees with the scientist. If humanity doesn't destroy itself in the next millennium, Mr. Freeze-Pop, will, indeed, come back to life, only to wish he were dead.

Can you imagine how you would feel after being frozen for hundreds, perhaps thousands of years? And even if you don't feel all that bad, what's next? It's not like you are going to live forever...you're just going to die again. In the meantime, everyone you knew died a long time ago and everything you knew no longer applies. In other words, why not just launch yourself into space with the hope of landing on an undiscovered planet, populated with the mutated progeny of *Michael Jackson?

It's a good thing, cryogenics is so expensive. It's an even better thing that only an infinitesimally small fraction of our population can afford to participate in the quest for immortality. It's no wonder health care is gradually becoming a privilege or luxury of the elite. "Immortalness" is very expensive, after all and not all it's cracked up to be.

* From what I've heard, the plan is to isolate what made Michael Jackson so "special", -- after he dies, of course -- in order to export it to the nearest black hole, faster than the speed of light...one of W's better ideas. Anyway, since W's knowledge of astronomy and rocket science is questionable, I'm sure the "special" export, will instead, serve to furnish some unearthed planet in our vast universe(s) with "moonwalking", noseless, gender non-specific inhabitants.

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There is Venal Public Disgrace and Then There is Mortal Public Disgrace

As the Catholic Church categorizes sins as venal or mortal, we must decide which public disgrace deserves our time and effort and which ones do not.

NPR's gallery highlights nine separate men who have publicly "disgraced" themselves in front of a nation and the women who "chose" to stand by them. Did these women really choose or were they strongly encouraged? Did all of these men "disgrace" themselves or were some set up to take a fall?






Whatever the case may be, we have to ask ourselves:

Did the disgraceful person's behavior interfere with what we elected them to do?

If “victims" did result from the disgraceful person's actions, did those who were harmed, "consent" or were they innocent bystanders?

Hilary Clinton was the clear "victim" in the Clinton/Lewinsky scandal, however she is an adult who consented to be in a relationship with a man whose charisma oozes from every pore, and flirtatious behavior is legend. Hilary is only a victim as far as any of us are victimized when we choose to engage in intimate relationships. In other words, the Clinton "scandal" was none of our business. On the other hand, the people who spent untold amounts of money and time to expose our President of the United States as a womanizer, something all of us already knew on some level, yet elected him anyway, intentionally put our country at risk.

As for Larry Craig, there is no doubt he was set up to take a fall by a police force that had nothing better to do, than to spy on adult men, urinate. Once again, his wife, although sad, is at most a gullible person or overly trusting, but not a victim in the true sense of the word. However, Larry Craig's case presents another problem, hypocrisy. As horrible as hypocrisy is, it's not enough to convict someone, in and of itself...if that were the case, we should all be sentenced to unemployment.

President Nixon's conduct clearly violated his public duties, the oath he took, the public trust and disrupted the function of government, a perfect example of "mortal" public disgrace. However, the answer is not always obvious, as in the case of Edward Kennedy and possibly Eliot Spitzer, as there has not been enough time to get all the facts; nevertheless, we must not group all ignominious behavior as if it is all the same. As sad as it must have been for Hilary and Larry Craig's wife, their husband's lack of self-control, cannot be compared to the conduct of someone, whose lack of ethics or disregard for human life, results the suffering of many, it’s almost impossible to quantify.

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Iraq Last in Child Survival Rates.

Killing Iraqi children -- “collateral damage” -- has long been acceptable to U.S. officials as part of their long-time foreign policy toward Iraq. From sanctions in the 1990s, responsible for the death of an estimated half-a-million Iraqi children, to the current war we're engaged in it is apparent that Iraqi children are expendable. It's no wonder the Pentagon has long had a policy of not keeping count of the number of Iraqi people, including children, it kills.

Recently doctors issued a plea to Tony Blair to end medical shortages -- of simple equipment costing very little -- in the war zone causing too many children to die in hospitals. International lawyers backed the doctors when they said the conditions in hospitals amount to a breach of the Geneva conventions that require Britain and the US as occupying forces to protect human life.

The Geneva Conventions require the US and UK to "maintain order and to look after the medical needs of the population" which they are clearly not doing. Many children are dying due to lack of oxygen masks; sterile needles; the right-sized needles; surgical gloves; inexpensive vitamins and other very ordinary things every hospital should be equipped with. There is no excuse.

The chance that an Iraqi child will live beyond age 5 has plummeted faster than anywhere else in the world since 1990, according to a report released Tuesday, which placed the country last in its child survival rankings.

One in eight Iraqi children died of disease or violence before reaching their fifth birthday in 2005, according to the report by Save the Children, which said Iraq ranked last because it had made the least progress toward improving child survival rates.

Iraq's mortality rate has soared by 150 percent since 1990. Even before the latest war, Iraq was plagued by electricity shortages, a lack of clean water and too few hospitals.

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