Comments on: How to downsize the US financial sector http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Anonymous http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57362 Anonymous Sun, 18 Oct 2009 12:27:00 +0000 http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57362 Greenspan is a derelict who did massive harm to our economy over last 2 decades. lock him up along with his remaining buddies at the Fed. Greenspan is a derelict who did massive harm to our economy over last 2 decades. lock him up along with his remaining buddies at the Fed.

]]> By: Marshall Auerback http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-6903 Marshall Auerback Sat, 17 Oct 2009 01:21:41 +0000 http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-6903 Well, I'm glad we agreed on most things, but the life insurance securitisations are a crazy idea. No one is preventing you from getting a life insurance policy. You might own a home (i.e. your property), but you're not allowed to play with explosive materials in your own home that might blow up the neighbourhood. You don't have an absolute right to do anything you want. No one prevents you from getting a home insurance policy. But we don't allow other people to buy fire insurance against your home. You might call that an "infringement of your rights", but to me that's akin to saying there shouldn't be laws against theft or murder. Here is how this great idea works works. Goldman and other Wall Street wizards will package a bunch of life insurance policies of individuals with an alphabet soup of diseases: AIDS, leukemia, lung cancer, heart disease, breast cancer, diabetes, and Alzheimer’s. The idea is to diversify across diseases to protect “investors” from the horror that a cure might be found for one or more afflictions--prolonging life and reducing profits. These policies are the collateral behind securities graded by those same ratings agencies that thought subprime mortgages should be as safe as US Treasuries. Investors purchase the securities, paying fees to Wall Street originators. The underlying collateralized humans receive a single pay-out. Securities holders pay the life insurance premiums until the “collateral” dies, at which point they receive the death benefits. Naturally, managed money hopes death comes sooner rather than later. Moral hazards abound. There is a fundamental reason why you are not permitted to take out fire insurance on your neighbor’s house: you would have a strong interest in seeing that house burn. If you held a life insurance policy on him, you probably would not warn him about the loose lug nuts on his Volvo. Heck, if you lost your job and you were sufficiently ethically challenged, you might even loosen them yourself. I'm afraid I can't agree that this is sensible public policy. The financialisation of our economy has gone far enough. Thanks for writing. Marshall Well, I’m glad we agreed on most things, but the life insurance securitisations are a crazy idea. No one is preventing you from getting a life insurance policy. You might own a home (i.e. your property), but you’re not allowed to play with explosive materials in your own home that might blow up the neighbourhood. You don’t have an absolute right to do anything you want. No one prevents you from getting a home insurance policy. But we don’t allow other people to buy fire insurance against your home. You might call that an “infringement of your rights”, but to me that’s akin to saying there shouldn’t be laws against theft or murder. Here is how this great idea works works. Goldman and other Wall Street wizards will package a bunch of life insurance policies of individuals with an alphabet soup of diseases: AIDS, leukemia, lung cancer, heart disease, breast cancer, diabetes, and Alzheimer’s. The idea is to diversify across diseases to protect “investors” from the horror that a cure might be found for one or more afflictions–prolonging life and reducing profits. These policies are the collateral behind securities graded by those same ratings agencies that thought subprime mortgages should be as safe as US Treasuries. Investors purchase the securities, paying fees to Wall Street originators. The underlying collateralized humans receive a single pay-out. Securities holders pay the life insurance premiums until the “collateral” dies, at which point they receive the death benefits. Naturally, managed money hopes death comes sooner rather than later.

Moral hazards abound. There is a fundamental reason why you are not permitted to take out fire insurance on your neighbor’s house: you would have a strong interest in seeing that house burn. If you held a life insurance policy on him, you probably would not warn him about the loose lug nuts on his Volvo. Heck, if you lost your job and you were sufficiently ethically challenged, you might even loosen them yourself.

I’m afraid I can’t agree that this is sensible public policy. The financialisation of our economy has gone far enough.

Thanks for writing.

Marshall

]]> By: Anonymous http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57358 Anonymous Sat, 17 Oct 2009 01:12:00 +0000 http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57358 petition @whitehouse to Downsize the U.S. financial sector http://act.ly/oy petition @whitehouse to Downsize the U.S. financial sector http://act.ly/oy

]]> By: LavrentiBeria http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57357 LavrentiBeria Fri, 16 Oct 2009 22:18:00 +0000 http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57357 What a steaming pile of crap this detestable little slug, Greenspan, is. After having practically insured the collapse we’ve all just experienced, we now have penitant on our hands? I mean, really! Exactly what value has there been to the professional life this eel has led over the last several decades anyway, the insertion of impression-creating cliche’s like “accomodative” into the lexicon? Sure looks that way, doesn’t it? Why even give this filth a platform? Better that he be held, interrogated and given a public trial. What a steaming pile of crap this detestable little slug, Greenspan, is. After having practically insured the collapse we’ve all just experienced, we now have penitant on our hands? I mean, really! Exactly what value has there been to the professional life this eel has led over the last several decades anyway, the insertion of impression-creating cliche’s like “accomodative” into the lexicon? Sure looks that way, doesn’t it? Why even give this filth a platform? Better that he be held, interrogated and given a public trial.

]]> By: Tim http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57356 Tim Fri, 16 Oct 2009 19:43:00 +0000 http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57356 What do we do about CDS contracts governed and enforced by BRITISH law or any other countries law. Allow all of the foreign assets of US financial institutions to be seized? Could this cause a run on US treasuries. I would also note Glass Stegall back in the day never applied to the foreign branches of US banks in places like London. What do we do about CDS contracts governed and enforced by BRITISH law or any other countries law. Allow all of the foreign assets of US financial institutions to be seized? Could this cause a run on US treasuries. I would also note Glass Stegall back in the day never applied to the foreign branches of US banks in places like London.

]]> By: Redeye http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57350 Redeye Fri, 16 Oct 2009 17:52:00 +0000 http://www.creditwritedowns.com/2009/10/how-to-downsize-the-us-financial-sector.html#comment-57350 Agree with everything but the life insurance securitizations. US Supreme Court in 1911 declared policies assets, no different than stocks or bonds. So keep your hands off my property, if I was dumb enough to buy it. What I mean by that is the life settlement market is made up of permanent life, not term. Permanent was created for high-net worth individuals with complicated estate planning issues. Since then, it's been increasingly marketed as an "investment," and a pretty craptacular one at that, unless you think retirees holding negative-cash flow instruments is a good idea. Allowing seniors to sell their policies for more than the cash value redemption is a win-win for everyone involved, except of course for the insurance industry, who is counting on the policyholder to take the abysmally low cash value, as more than 80% have to date. Face it, this is a $12 billion a year market that would only double in size should policies be bundled by Wall Street. That's still less than a drop in the bucket and carries zero systemic risk to anyone. There are plenty of good reasons to criticize financial innovation, but this isn't one of them. Agree with everything but the life insurance securitizations. US Supreme Court in 1911 declared policies assets, no different than stocks or bonds. So keep your hands off my property, if I was dumb enough to buy it.

What I mean by that is the life settlement market is made up of permanent life, not term. Permanent was created for high-net worth individuals with complicated estate planning issues. Since then, it’s been increasingly marketed as an “investment,” and a pretty craptacular one at that, unless you think retirees holding negative-cash flow instruments is a good idea.

Allowing seniors to sell their policies for more than the cash value redemption is a win-win for everyone involved, except of course for the insurance industry, who is counting on the policyholder to take the abysmally low cash value, as more than 80% have to date.

Face it, this is a $12 billion a year market that would only double in size should policies be bundled by Wall Street. That’s still less than a drop in the bucket and carries zero systemic risk to anyone. There are plenty of good reasons to criticize financial innovation, but this isn’t one of them.

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