Thursday, January 24, 2008

Investing in Death Redux

Death bonds. Mmmm. Yummy!

Now, some may consider that tacky and tasteless, and its possible that it is. But this is my blog, dammit.

I'm really in love with the idea of securitization and finding different cash flows to securitize, so this article on caught my eye.

Now, securitization is getting a bum rap lately due to the so-called Subprime Mortgage Crisis. I find that bum rap to be unwarranted, especially when you consider that an entire line of people in the chain made really bad decisions for which they mostly do not want to be held accountable for. Yes, fraud was a factor in a great many cases, but at the end, people chose to sign on the dotted line for a number of reasons and in many of those cases, they were bad reasons. However, if the lives of you or your family were not at stake, then you really have no excuse for the decision you made. Suck it up. Yeah, it hurts, but pain is one of the universe's way of letting you know that you did something detrimental, and hopefully you'll learn from the experience.

Anyway, getting off my soapbox and back into this conversation, I really wonder what the models look like. As the point was raised in the article, there hasn't been an extreme mortality event in a very long time. While the chances of such an even would appear to be rather low, even controllable to some degree (as much as the whims of humans can be managed), natural disasters look much more difficult to model from a risk perspective. I would think that anyone participating in the cat bond market would be looking very closely at death bonds. Of course, that human psychology factor probably scares off a lot of the potential investors, since psychology cannot be modeled well, if at all. Isn't the mark of a prudent investor that they know what they don't know?

So what untapped securitization markets are there? Catastrophe and death are covered. You have to wonder where the greenfields of securitization are. Hmmmm.

Until next time, friends. Look for 2008 goals soon, as I made a promise to a friend to get that up by 5:00 PM EST this coming Monday.

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