Uh-oh! Wall Street is looking for a new source of profits, and it’s planning on securitizing (scary!) “life settlements,” life insurance policies that the sick and elderly can sell for cash while they’re alive.
The NYT warns us that we could be looking at subprime all over again. Has Wall Street learned nothing? The talking heads on CNBC have been worried about it all day.
Alright, take a second to catch your breath. First, as Felix Salmon notes, this is hardly new. Wall Street’s been looking to bundle and securitize these things since time immemorial with little to show for it. And there’s still little to show for it.
But beyond that, this hysteria misses a gigantic point. It wasn’t securitization that caused the financial meltdown. It was the bursting of the housing bubble. That’s it. Sure, there may have been a feedback loop, whereby securitization allowed more money to flow towards housing than there otherwise might have been. This we’ll grant you. There were plenty of factors that caused money to flow to housing, including Greenspan’s cheap money, the regulations that required AAA assets, the American dream, AIG, SIVs, bubble hysteria, TV shows about getting rich on housing, the savings glut in China, etc.
Still, securitization taken in a silo was not the problem, and the securitizes housing assets would have been just fine if the housing bubble had not collapsed. So unless you think there’s going to be a gigantic bubble in “life settlements” infecting all portions of the financial world, from top to bottom, you can safely ignore this history.