I’m so bad at economics that my Quicken checkbook program is slow. So when the financial catastrophe hit the news last Fall I was at sea. When I finally got the sailboat ashore, I had no idea what was going on, and still can’t make sense of it. Now that the government has promised to start regulating the Wall Street crowd when Congress gets back together this month, I asked my friend Bob the stockbroker to explain it to me.
“What is it that you don’t understand?” he started out, gently.
“Where my money went,” I said.
“The money I invested for you, right?”
We were sitting in Bucko’s Coffee Emporium. He was sipping a triple latte grande mocha espressocino. I was working a cup of coffee.
“Well, I know where some of it went,” I said pointing at his Ferrari sitting out front of the Emporium.
“I meant to thank you for that. You paid for the left rear tire.”
“I’ve known you all my life. You couldn’t get me a front tire?”
He shrugged. “Here’s what happened. The mortgage people needed money for new cars and tires and mink coats. So they gave mortgages to anybody who walked in the door.”
“I had to put up my first and second child as collateral back in the day. I haven’t seen them since.”
“But you got a nice house out of the deal.”
“True,” I murmured.
“Then the banks decided they didn’t want to hold on to the mortgages, because with the new non-regulations from the government they could sell the mortgages to somebody else.”
“Let me guess. The somebody else sold them to somebody else.”
“Yeah. You’re a smart guy. Want another coffee?”
“I need a mortgage to pay for this one. Go on.”
“Alright. So there’s all these mortgages. And these clever financiers. They decided they could make a lot of money by slicing up the mortgages and putting the pieces in different investment vehicles.”
“Ferraris. Lamborghinis. Aston-Martins,” I said morosely.
“They would have been better off. Anyway, they turned the shredded mortgages into securities that they sold. What could be safer than mortgages, right? Everybody wants to own a home.”
“But not everybody can afford a home.”
“There’s the rub. All those mortgages the brokers handed out like candy, a lot of them went to people who couldn’t afford them. So they defaulted.”
“Ah ha!” I said. “So those shreds of mortgages in all those securities were worthless, but nobody knew which pieces were actually bad.”
“Pretty much. So the banks lost confidence in each other and stopped loaning money to each other, which meant they couldn’t loan money to businesses and workers. So the economy, here and everywhere, pretty much stopped.”
“Until the governments threw money at it. Sort of greased the wheels of the stockbrokers’ Ferraris.”
He snapped his fingers and pointed at me. “Bingo!”
“What’s to stop it from happening again?”
“Caution. Everybody got burned, so they won’t do that again.”
I grunted into my coffee cup.
“But listen,” he said. “I do have a good deal for you. It’s perfectly legitimate.”
“I’m going to be sorry I bought you that fancy coffee, I know I am.”
“No, no, listen. What we’re doing is helping the elderly. They need money, so they sell their life insurance policies to us at a discount, say four hundred grand for a million dollar policy, right?”
“I guess that would help them out in a crunch.”
“Of course it would. Then we securitize them, meaning package them into bonds that we sell to investors. Pension funds and the like.”
“How do they make money?”
“When the original policyholder, the old person, dies, the money goes to the investors.”
“And nobody gets hurt?”
“Of course not. The investors pay the premiums on the policy in the meantime.”
“So the sooner the old person dies, the better the investor makes out, because he doesn’t have to pay the premiums anymore, right, and he gets the insurance money, right?”
“Right. What do you think of that?”
I stirred my coffee for a minute, lost in thought. Then I said, “Well, Bob, I have an idea that will let me make money from the investors.”
“What’s that?” he said, eyes glinting.
“I’ll call it Murder, Incorporated. We’ll specialize in old people who sold you guys their life insurance policies.”
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