Wall Street Still Doesn’t Get It - Another Goldman story

[WhiskeyGirl]

A Wall Streeter buys the life insurance policies of individuals with terminal illnesses, packages them into securities, and profits when the underlying collateral dies. In his most recent movie, Michael Moore documented the practice of taking out “peasant insurance” on employees. Now we learn that firms continue to carry life insurance on former employees, hoping they will die untimely deaths so that the firm can collect. We know how devastating unemployment is for most people, ruining their marriages, mental and physical health, and social life. Hey, why not fire employees in the midst of the worst downturn since the Great Depression, when chances of finding another job are nil? That ought to hasten death. And if a firm can hold life insurance policies on former employees, why not take out policies on down-and-outers who never worked for the firm? Death is the new profit center, packaged and sold by Wall Street insurers.

Zero premium life insurance?

Second, there is of course Greece. Goldman Sachs (GS) sold them financial products to disguise their budget deficits. Of course, Goldman argues that it was doing nothing unusual—it has been creating complex products to hide risk for decades. Goldman gets huge fees, but of course the risks always come back to bite its suckers. However, in the case of Greece, Goldman might have bit off more than it can chew. From 2001 through November 2009 Goldman created financial instruments to hide European government debt, for example through currency trades or by pushing debt into the future. But not only did Goldman help (and perhaps even encourage) Greece to take on more debt, it also apparently brokered credit default swaps on Greece’s debt—making income on bets that Greece would default...

Taxpayers bailout out AIG who bailed out Goldman?  Who sold all those derivatives?

Finally, according to a report, Citigroup (C) is going to launch a new derivative that will allow gamblers to bet directly on financial crises. Rather than betting on the death of an individual, firm, or government Citi would create a tradable liquidity index, the CLX. Essentially this would allow one to place a bet that a liquidity crisis would occur. If funding costs spike in a run to liquidity the derivative sellers would have to pay. Recall that our current financial collapse began with just such a liquidity “event”: the commercial paper market dried up, which meant that holders of mortgage-backed securities could not continue to finance their positions. The CLX products are supposed to hedge the liquidity risk of a spike of funding costs. The problem, of course, is exactly the one faced by those who had bought CDS “insurance” from AIG: counterparty risk. As Cambridge Professor Chris Rogers says, “This is basically a kind of insurance product. The main issue is: how good is the party issuing it? If it’s going to be paying out huge numbers in the event of a crisis, will it be able to meet obligations?

And that is what this whole Wall Street house of cards boils down to: risky bets, private profits, socialized losses. Worse, yet, it misaligns interests so that Wall Street profits are higher if there is economic and social instability—and Wall Street is powerful enough to generate exactly those conditions. Until Wall Street is constrained and downsized, it will continue on its path of death and destruction.

more here - http://wallstreetpit.com/16932-inventing-new-ways-to-bet-on-the-death-of-peasants-economies-and-nations