The world economy has not even recovered fully from the excesses of Wall Street in the sub-prime mortgage crisis, and these fellows are all set to seek out the next opportunity in financial speculation. A report today in mint describes one such exotic instrument already being explored on Wall Street. A paragraph from the article explains it simply, and clearly this time the stakes seem higher and the risks wilder.

The bankers plan to buy “life settlements”, life insurance policies that ill and elderly people sell for cash—$400,000 (around Rs1.95 crore) 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. (http://www.livemint.com/2009/09/06215505/New-exotic-investments-emergin.html)

A sick way (no pun intended!) to make money. If anything, this has all the elements of a blockbuster bubble and the crash thereafter. Now it remains to be seen whether the governments around the world have learnt anything from the last crisis. What made the story more humorous was that this story was printed along side another hopeful story – one about the global economy starting to expand.

Oh well, boys will be boys, Wall Street will be Wall Street and MBAs will be rascals.