I love Wall Street :P

It has been a couple of months when everyone was cursing Wall Street guys for their extra advanced sense of innovation of securitizing mortgage products and selling them to innocent pension holders. I thought it will take at least couple of years for them to get back with something like this. But, these are not the guys who relent...They have come up something quite interesting...

"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."

The idea goes like this. Every policy holder knows he is gonna die and someone is going to claim their pension money. Let's say pension money is $ 1 million and the old man lives for next 10 years, assuming prevailing market interest rate of about 3.5%, one can calculate present value of $ 1 million would be $708,918.81. The pension holder can actually sell this to any financial institute at $ 400,000. It's a Win-Win situation for all, the banker earn and as well as the poor pension fund holder earns too. The sooner the old man dies, the better return one can have. Now, the banks can create collateral of thousand of such loans and sell in tranches to different class of investors.

Imagine, a pension holder in Sweden, praying for death of an Insurance holder in US for better return, so bad.

Read the full article here...