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Forum Post: Death Derivatives - Banking on Your Early Demise

Posted 7 months ago on April 1, 2014, 3:03 a.m. EST by gnomunny (6614) from St Louis, MO
This content is user submitted and not an official statement

JP Morgan has "more software developers than Google, and more technologists than Microsoft," says Anish Bhimani, the Chief Information Risk Officer at JPM. " . . . we get to build things at scale that have never been done before."

From Wall Street On Parade: "According to the U.S. Patent and Trademark Office, JPMorgan created the LifeMetrics Index in March 2007 as an “international index designed to benchmark and trade longevity risk.” The index was said to enable pension plans to hedge the risk of payments to retirees and incorporated “historical and current statistics on mortality rates and life expectancy, across genders, ages, and nationalities.” From 2010 through 2013, JPMorgan has received patent approval on four longevity related patents."

According to Buzzflash: "In plain language, this means that JPMorgan Chase is betting that people die sooner rather than later. That is because JPMorgan will need to pay the insurance companies if they have to payout more money than they had actuarially predicted because the people they cover are living longer. The bottom line: JP Morgan is looking to profit from early deaths. The longer the insured individuals live beyond an agreed upon average age, the more the bank must reimburse the insurance companies."

Also from WOP: "Reuters reported on August 26, 2013 that the long-term longevity bets taken on by the big banks have now started to cause pain as international capital rules known as Basel III require more capital to be set aside for longer-dated positions. The article noted that "JPMorgan likely has the biggest holdings of long-dated swaps because it is the biggest swaps trader on Wall Street, responsible for about 30 percent of the market by some measures, traders at rival firms said."

"One extremely long longevity bet taken on by JPMorgan was reported by Insurance Risk on October 1, 2008. According to the publication, JPMorgan entered into a 40-year £500 million notional longevity swap with Canada Life whereby Canada Life would make a fixed annual payment in return for a floating liability-matching payment that would increase if the annuitants lived longer than expected. JPMorgan was believed to have passed on some of the risk to hedge fund investors but retained the counter-party risk. Because many of these deals are private, the full extent of JPMorgan’s exposure in this area is not known.

"In September of last year, Risk Magazine reported that the Basel Committee on Banking Supervision, the International Organization of Securities Commissions and the International Association of Insurance Supervisors had published a report in August warning regulators that longevity swaps may expose banks to longevity tail risk – meaning, for example, that actual death rates in a given portfolio may vary dramatically from a large population index.

"One adviser is quoted as follows in the article: “You can see from the position paper that this market has a lot of characteristics that regulators don’t like in terms of banks getting involved in it. It’s based on long-dated risks, upfront payments and a serious element of hubris in assuming that the banks can model these risks better than the people who originated them. It’s potentially a market big enough to cause serious problems if it caught on and went wrong.”

Wait a minute, have JPM's tech gurus made a mistake? Have the execs lost their minds? Historically, human life expectancy has been going up, not down, right? So it seems these "LifeMetrics" indices are a guaranteed loser. It would seem so, according to a Feb 14 Bloomberg News report, which claimed AIG was "taking a $971 million impairment charge before taxes for 2013 on its holdings of life settlement contracts because people were living longer than expected."

But then, I seem to remember coming across an article somewhere last year . . . can't remember where exactly, so I Googled "life expectancy decline" and "life expectancy decreasing." A random sampling of article titles: "Life expectancy in US drops for first time since 1993 (Bloomberg)." "Life expectancy for less educated whites in US is shrinking (NY Times)." "Life expectancy declines among least educated whites (Harvard.edu)." "Falling life expectancy in the US (Forbes)." Women, it seems, have fared the worst, losing an average of five years to males three. Mother Jones has a map, and WSWS has a pretty good in-depth article.

So, just like your typical Vegas "whale," JPM's not about to let that early $971 million loss deter it from what it must consider a sure thing.

And lest you think that JPM's partners in crime aren't capitalizing on the human condition, fear not. The Vampire Squid rolled out its first "social impact bond" in May 2012, investing about $10 million in a NYC program aimed at reducing juvenile repeat offenders. According to the source, "Goldman achieves a return if there is at least a 10 percent decrease in the number of young people who return to jail." Considering Goldman's track record, plus the fact that any source I checked suggests the rate of recidivism for New York juvenile offenders is high, I'm just trying to figure out Goldman's angle.

~~~

And that's where my draft ended when I typed it a few weeks ago, so thanks to JGriff, and credit to Truthout for posting this article which clearly explains their "angle:"

http://truth-out.org/news/item/22730-goldman-sachs-outrageous-scheme-to-profit-off-jailed-young-offenders

Personally, I wondered whether it was possible to "short" bonds, but apparently the scheme is more clever. If the program is a success, the bank makes a profit (at taxpayer expense). If it's a failure, it's considered a "charitable contribution," a tax write-off.

They have this shit down to a science, don't they? "Heads I win, tails you lose."

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7 Comments


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[-] 8 points by shadz66 (19985) 7 months ago

A culture of lying, scamming & 'front running' pervades all of Wall Street but people are in the dark about the level of avarice, larceny and plain criminality by all the 'faux complexity' - the latter instituted in order to facilitate the former, when all they're really doing is 'laying bets' !!! In compliment of your post, fyi see:

''U.S. stock ownership is at a record low and less than half of Americans trust banks and financial services. And in the last two weeks, the New York attorney general and the Commodities Futures Trading Commission in Washington have both launched investigations into high-frequency computerized stock trading that now controls more than half the market.''

Although I whole heartedly recommend the link - there is still reason for clear concern and some hard questions when Goldman Sucks are getting involved in any new scenarios because they aren't in it for altruism or rectitude of course. Thanx for your timely forum-post & also fyi :

radix omnium malorum est cupiditas ...

[-] 4 points by gnomunny (6614) from St Louis, MO 7 months ago

They can call it "front-running," but it's stock manipulation, pure and simple. Insider trading at light speed.

"Katsuyama and his team went out and began selling and explaining what they had discovered to the big mutual funds, pension funds and institutional investors, people who had suspicions that they were being front-run but didn’t know how."

So, if some of the biggest institutions didn't know this was going on, then who did? I don't think we have to look too far to figure that one out ("see Paragraph 1"). And an endorsement from G-S is about as altruistic as those "social impact bonds."

Rolling Stone: "The Vampire Squid Strikes Again"

Counterpunch: Pity JPMorganChase

It's Our Economy: Jaw-dropping Crimes of the Big Banks

And at a bit of a tangent, but no less surprising (since "all things are connected"), from Wall Street on Parade: JPM VP's Death in London Shines a Light on Bank's Close Ties to the CIA

And, a tad closer to the OP, from that great American institution The NYT: Income Gap, Meet the Longevity Gap

Solidarity, my friend.

[-] 6 points by shadz66 (19985) 7 months ago

Matt Taibbi's ''Vampire Squid'' piece is a 'must read' for all OWS supporters and is very ably backed up here with all your other links above and your NYT link was as disturbing as it was instructive. Further :

''Remember, the purpose of Quantitative Easing is to support the balance sheets of a few over-sized banks and to finance the federal budget deficit at an artificially low rate of interest. In other words, QE supports failed banks and federal fiscal irresponsibility. In order to successfully carry off this blatant misuse of public policy, the price of gold, a measure of the dollar’s value, must be suppressed. The Federal Reserve’s lack of integrity speaks volumes about the corruption of the US government.'' from :

Also consider that : ''It means that stocks are ridiculously overpriced, and the reason they’re overpriced is because the Fed has been juicing the market with easy money and monthly liquidity injections. Chief US Equity Strategist for Goldman Sachs, David J. Kostin, was even more blunt than Hussman. He said, “The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock.” from :

Solidarity & Viva OWS !!!

fiat lux ...

[-] 5 points by Renneye (4004) 7 months ago

I'm trying to picture how the internal meetings look like, when they're sitting there talking about how early folks are going to die, and how the banks will make money on each one of them.

How truly evil.

[-] 5 points by Nevada1 (4790) 7 months ago

Hello Renneye, Good question.

[-] 2 points by gnomunny (6614) from St Louis, MO 7 months ago

Hi Ren, good to see you stop in, heheh. Evil indeed.

Here's a good article about something I believe you were the first to point out here, the "dead peasants" insurance policies, and certainly pertinent to the OP, since it deals with the big banks profiting off the deaths of individuals, in this case their current and former employees, the latter of which is technically illegal, I think:

http://wallstreetonparade.com/2014/03/document-jpmorgan-chase-bets-10-4-billion-on-the-early-death-of-workers/

[Removed]

[-] 3 points by elf3 (2738) 7 months ago

This stuff is all really interesting and I want to read it I do but time is just a premium these days - I think that's why there "seems" to be so much apathy these days - it's just the obsessed and relentless who bother to filter and sort through all this stuff. So may I suggest if you've done the labor - short and sweet summarize what we need to know? Link us to important facts and documentaries ...but let your passion educate the masses - the working folks who need to wash their unmentionables and feed their kids dinner, or mash some potatoes before the next work day - be the news - those interested trust Occupy that's why they check it out - let's stop having debates with the other side...I'm guilty sometimes it's hard not to get drawn in - but we know our cause and we live the reality. Occupy it's time to stop defending ourselves and go on the attack!!! Give the people the real news!!

Also good to let people log-in while still in their comment cuz when you forget and lose your post - nothing more frustrating and more of that valuable time gone to waste :-(

Also typically independent thinkers are kind of quiet and introverted and also don't like to be ruled ... are there ways we can get involved where we won't feel forced to partake in joiner activities or these gong shit classroom sessions and such - I just want to go somewhere and hold my sign man - I really do...but my threshold for the other stuff is meh

Can I also suggest infiltration impersonation stuff - do what the other side does - hold signs like your the tea party but with our points and cause all over it - that will really frigging confuse the media and WS!!!!! - didn't you kids ever play neighborhood hide and seek and stay out until the street lights came on? ... strategy !!!

if you do just remember to wear your golf windbreaker and tennis shoes lest ye be found out