The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Speculators Blow Up a Bubble

Sep 28, 2009

While top government officials and political leaders pretend they want to regulate finance capital, all sorts of speculators are searching for a new target for their deals.

With the collapse of “subprime” and other mortgages securitized in financial products, speculators have to find other outlets. According to the press, one of them could be speculation on life insurance policies.

When people with life insurance policies come up against a serious problem – illness or the loss of a job, for example – many have to terminate their policy, asking for their accumulated premiums to be paid out. The life insurance companies are big winners in these cases, because they return a lot less money than what was paid in.

Hence the idea that banks or “investors” could buy up a big number of contracts, speculating on the fact that many holders will not get a full pay-out.

Just as with subprime mortgages, they create new financial products, based on these packets of life insurance policies; then issue securities, and, based on these securities, issue still other financial products. Who knows what they are worth?

Two things about the whole scheme are sure: purchasers of life insurance will lose a big part of their savings, and shrewd financiers will make a mint by speculating on their distress.