In my opinion, financial innovation should provide some social benefit and definitely outweigh the potential social costs. But for some that is a too rigorous of a standard. Arguably, "financial innovations" such as credit default swaps or collateralized debt obligations would fail such a standard. Or could it be that 'too much of a good thing is bad'. We truly need a national debate or discussion regarding financial innovation.
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
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