The Simple Accountant

Wall St. Securitizations Reincarnated for Life Settlements

A secondary market for life insurance policies is an interesting notion, and Mr. Merkel's points on the effect on the insurers are very important. The life settlement, from an investor's point of view is somewhat like a zero coupon bond with an uncertain maturity. The yield on the instrument varies according to the longevity of the insured. Packaging a number of these tends to smooth the yield of the entire pool and make the cash flows easier to forecast within a range, allowing a valuation to be placed on shares.

In concept, the securitization of life settlements is not entirely new; as early as the early 1990s I had done some work with a group which established limited partnerships holding pools of life settlements, and sold partnership shares to investors. They tended to appeal to fixed income investors looking for higher yields without excessive risk of principal loss. It's an odd business, but one that seems to appeal to both buyers and sellers.

To answer Mr. Steinberg's question, in the former case, the general partner/sponsor of the LPs had administrative staff who kept track of the status of the underlying insureds, by what method I am unsure.

Sure It’s Legal … But Is It Right?

Well said, Mr. Summers. A good dose of moral outrage is a welcome antidote to much of what passes for analysis of the crisis. In London, Lord Turner has raised the question, to the applause of many and the ridicule of others. But what about the targets of our outrage? "They" are us. Quite simply, they are. Our politicians, our bankers, our corporate managers, our doctors, the whole thieving lot of them. They are us. An old, now retired vice president in my employer firm often would say in meetings, "silence is consent" (albeit in a very different context).

So long as times were good and accounts were flush, we were silent. Now it's all gone to the dogs, and some of us would round up the scoundrels and "put a cap in them" gangster style. No, my friends, we all got here together. Revenge is a satisfaction that wears off quickly. No use for that. We have A LOT of work to do from here to make things right again. WE do. You and I and all the rest of us.

Second Round of Massive Deleveraging About to Hit U.S. Banking System?

There is little support for what seems to me to be the author's excessively bearish view on the banks. Certainly the situation warrants investor caution, but to some extent that is almost always the case.

Even in a fairly dire scenario, there is no reason for a run on any of the major banks, just as there wasn't in the Lehmann case. That was a policy failure. See for example Elizabeth Warren's discussion on this matter in the recently aired PBS Frontline documentary, and her interview on the program's website.

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Very good analysis, for the most part, though some points are debatable, particularly the anti-SEC bits. Yes, they failed to do their job, but that doesn't preclude them from shaping up and getting on with it.

In terms of stimulus, we could look at the country as if it were a business firm. Parts of its capital stock are depleted and could benefit from being refurbished. This means that investment in growth producing capital goods is the order of the day. Spending for its own sake, as you point out, is part of the problem rather than the solution.

The important distinction that one hopes (I have little confidence) the authorities will keep in mind, is the difference between spending and investment. The "projects" detailed in the essay are too much of the former and too little of the latter.