Moore Securatisations?

Michael Moore premiered his latest film, "Capitalism: A Love Story" at the Venice Film Festival over the last weekend. True to his provocative style of "documentary" making, Moore concluded at the end of the film, according to this Reuters article, "Capitalism is an evil, and you cannot regulate evil."

The article also quoted him saying to the audience in venice: "Essentially we have a law which says gambling is illegal but we've allowed Wall Street to do this and they've played with people's money and taken it into these crazy areas of derivatives,"

While I cannot say I agree with Moore's conclusion (though I have not seen the film), I do see some merit in his argument on the differential treatments on gambling and Wall Street's behavior. Consider this other article on NYTimes.

To summarise, after messing with the housing markets by packaging and selling housing loans as securities which culminated into the Financial Tsunami and billions of dollars are pumped as bailouts, the Wall Street is slowly recovering and contemplating a new purpose: Bundling of life insurance policies.

It works this way: investment banks will purchase life policies from insurance companies, bundle and package them as securitised bonds and sell them to investors. This way, while they, the investment banks, earn a fee, the insurance companies monetise their insurance policies on hand in one lump-sum, the bond holders receive the regular yields as the policy holders continue to pay their premiums in installments.

For the policy holders, nothing changes or so it seems. They will continue to service their premiums and the payouts (if they are alive after years or decades) will, instead of coming from the insurance companies that sold them the policies, come from the capital of the bond funds which are to be subject to a minimum rating from a reputable rating agency.

One can almost read the caveat emptor clause on such bonds: "The instrument contains risk in that of the aging process of the collective policy holders, i.e. the longer they live, the less the realisable eventual returns to the bondholders."

Talk about re-regulating Wall Street. Don't bet on it.