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If Only T. Boone Pickens Had Died
October 7, 2012 5:04 PM   Subscribe

T. Boone Pickens and other wealthy, elderly Oklahoma State alums decided to participate in a scheme named "Call of a Lifetime", where they would allow the university to take out $10 million life insurance policies on them. What could go wrong?
posted by reenum (66 comments total) 6 users marked this as a favorite

 
Wealthy conservatives ramrod through tricksy financial dealings that don't pass the smell test, against the wishes of the independent bodies put in place to look after the holistic health of the organism, and it all blows up.

:-O

NO WAY.
posted by TheNewWazoo at 5:14 PM on October 7, 2012 [28 favorites]


The actuaries set the rates so that the insurance companies make more than they lose. The only way this could have worked for the university is if the actuaries blew it, and set the rates too low.

And since they didn't, then this is no different than taking that money to Vegas and gambling it on roulette, or using it to buy lottery tickets. With a wager that large, spread over such a large number of individual bets, regression to the mean kicks in and you are virtually certain to lose overall.
posted by Chocolate Pickle at 5:15 PM on October 7, 2012 [4 favorites]


When John Silber was president of Boston University, he seriously proposed that the school raise money by taking life insurance policies out on the students and reaping the benefits when they died prematurely.
posted by RonButNotStupid at 5:20 PM on October 7, 2012 [1 favorite]


My favorite part was when the crazy scheme was identified as a crazy scheme from the beginning.

The foundation’s president wrote in an e-mail that “it looks too good to be true” and hired outside consultants who warned that wealthier people—the program’s target audience—tended to outlive even the most optimistic predictions of actuaries. When another consulting group raised even more pointed questions, Bobby Stillwell, Pickens’s personal attorney, complained about their “rude and confrontational manner” and asked of the foundation’s president, “Why would he want to drag this down?”

Sometimes when you're trying to convince someone to not do something crazy you have to be a little rude and confrontational. I get wary of people who get hung up on other peoples' styles of speaking as a way of deflecting attention away from what those people are actually saying.
posted by bleep at 5:21 PM on October 7, 2012 [11 favorites]


The program is actually called "Gift Of A Lifetime"
posted by hippybear at 5:22 PM on October 7, 2012


The trouble with being a self-made billionaire is you think you can beat the house. But you can't — that's why it's the house.
posted by ubiquity at 5:25 PM on October 7, 2012 [4 favorites]


Brilliant financiers are actually pretty stupid about money? Who knew?
posted by Mental Wimp at 5:31 PM on October 7, 2012


If I understand the end of the linked article correctly, it's Pickens himself, not OSU, who's finally on the hook for the money owed to the insurance company (or, more precisely, the money owed to the bank that made the loan to pay the insurance company.) Is that right?
posted by escabeche at 5:31 PM on October 7, 2012


My favorite part was his hope to market the scheme to other foundations and begin collecting commissions on the policies.

In the financial world, we call that "sniffing his own exhaust".
posted by surplus at 5:37 PM on October 7, 2012 [2 favorites]


I have a hard time believing this story, because there's no way T. Boone Pickens isn't the name of a fictional antebellum plantation owner.
posted by 0xFCAF at 5:39 PM on October 7, 2012 [8 favorites]


(This is an example of what happens when rich folk fund stuff rather than the public sector: it tends to go on big buildings and glitzy programs rather than the mundane and necessary, and with little oversight and efficacy.

Obviously, TBP can do as he wishes with his money, but whenever I hear someone say "let the private sector pick up the slack, the government doesn't need to do it!" this is the reality. Lots of impressive stadiums, not so much baby formula.)
posted by maxwelton at 5:40 PM on October 7, 2012 [35 favorites]


...the school predicted that Gift of a Lifetime would eventually net its athletic department as much as $225 million. “Imagine endowing all of OSU’s Athletic Scholarships,” read the program literature. “Sound too good to be true? It’s not.”

[...] Many of the school’s biggest rivals were doing their best to cast Pickens’s plan as morbid. “It has a bad feel to it,” Joe Castiglione, University of Oklahoma’s athletic director, told the Los Angeles Times. Privately, more than 100 schools, hospitals, and nonprofits were already looking to create their own version of Gift of a Lifetime, including four universities that, like Oklahoma State, belong to the Big 12 Conference.

This dynamic—criticized in public, copied in private—was a familiar one for Pickens. Early in his career he’d gained infamy as a corporate raider, making the cover of Time in 1985 after trying to buy energy giant Gulf Oil. At 79 years old, he now was eager to see his alma mater’s fortune change, and in possession of nearly $3 billion to make more change happen.
...as long as it didn't actually involve donating any fraction of his billions of dollars.
posted by scody at 5:41 PM on October 7, 2012 [17 favorites]


So began a pattern. Every month, Lee and Turner would pepper Stillwell and Holder with e-mails and phone calls about the need to secure a loan. (Pickens wasn’t e-mailed because he didn’t and still doesn’t have an e-mail address.) And every month they’d receive some variation on the same response: “We’ll handle it.”

When this is a pattern with your financial partners, the smart plan is to call a lawyer. Preferably a time-traveling lawyer who can go back and explain what a bad idea it is. Or was. But you wouldn't believe her, because who's heard of a time-traveling lawyer?

OK, it's a bad idea. Well, with mine and Pickens, it's two bad ideas.

But mine is funnier.
posted by GenjiandProust at 5:41 PM on October 7, 2012 [6 favorites]


...as long as it didn't actually involve donating any fraction of his billions of dollars.

To be fair, he seems to have given them a lot of money. Well, as long as he was able to circumvent their procedures to hire coaches and stuff. Totally a job creator.
posted by GenjiandProust at 5:44 PM on October 7, 2012 [2 favorites]


I am not sure I understand the underlying scheme. Maybe I'm misreading the article. It seemed to me to be:

(1) T. Boone Pickens was a particularly healthy 79 year old.

(2) His doctor mentioned (perhaps jokingly?) that he was so healthy that he could get insured on the cheap.

(3) Meaning that insurance companies think that he will live longer than the typical 79 year old.

(4) T. Boone Pickens realizes that if he lives only as long as the typical 79 year old, purchasing insurance might therefore turn a net profit.

Is that it? That's the whole plan? "Insurers think I'll die in fifteen years, but I think I'll die in five"?
posted by Flunkie at 5:45 PM on October 7, 2012


Preferably a time-traveling lawyer who can go back and explain what a bad idea it is.

Alternatively, have the time-traveling lawyer go back and kill T. Boone Pickens. Just make it look like an accident.
posted by Horace Rumpole at 5:52 PM on October 7, 2012 [11 favorites]


Is that it? That's the whole plan? "Insurers think I'll die in fifteen years, but I think I'll die in five"?

Perhaps he was figuring on being the first against the wall when the Revolution starts. Sort of "the Revolution will be Monetized?"
posted by GenjiandProust at 5:58 PM on October 7, 2012 [6 favorites]


Hey, this story could have ended with the athletic department putting out hits on its donors. They should count their blessings.
posted by stevis23 at 6:00 PM on October 7, 2012 [4 favorites]


It was this or raise ticket prices.
posted by HuronBob at 6:03 PM on October 7, 2012 [2 favorites]


It must be strange going into a meeting knowing every single person in the room wants you dead, literally.
posted by deo rei at 6:03 PM on October 7, 2012 [1 favorite]


Recently I was invited by a friend of mine into what seemed like a very dodgy scheme: Take our insurance against an already sickly couple, and hope they die sooner in order to make money insuring them as a third party. This is the "Stranger-originated life insurance scam" also known as STOLI. I was told that "you cannot lose money", it's the "kind of investment only rich people make". I was also told that when the payout happens, you get (1) all the money you paid into the scheme back and (2) a huge quantity of money.

I asked: "How does the insurance company make money?"

I was told: that was the problem of the insurance company. Why are you asking such complicated questions?

My friend now pays 1/5 of his salary into this scheme, and will do so I expect 15-20 years. Needless to say I stayed away, both because I doubted the reality of the claims but also because it seemed that playing with people's lives was a very immoral thing to do.

That sounds like this.
posted by niccolo at 6:07 PM on October 7, 2012 [3 favorites]


I love the title of the article.
posted by Pope Guilty at 6:09 PM on October 7, 2012


“Imagine endowing all of OSU’s Athletic Scholarships,” read the program literature. “Sound too good to be true? It’s not.”

I'm not a sports hater like some on MetaFilter. In fact, I'm watching the Sunday night game right now. But really, this is the aspiration? Not, "Imagine if our deaths could sponsor ten new students every year from disadvantaged countries around the world," or suggesting some kind of entrepreneurial program to generate opportunities for job experience that students wouldn't otherwise get? Their big idea was, "Imagine if we could make the sports teams REALLY AWESOME."

That just seems disappointing.

I asked: "How does the insurance company make money?" I was told: that was the problem of the insurance company.

There was a company running commercials on talk radio a few years ago. They were selling gold, insisting that the price of gold was always skyrocketing. The brilliant thing was their guarantee: If the price of gold dips below what you paid for it, this company will buy yours back for exactly what you paid!

I have a rule. If I don't understand how a company is going to profit, then I'm not interested in doing business with them.
posted by cribcage at 6:12 PM on October 7, 2012 [4 favorites]


I love how, even if this crazy scheme had worked out perfectly for the university, all of the money would have gone to the athletics department.
posted by Bwithh at 6:12 PM on October 7, 2012 [1 favorite]


I'm open to correction about this, but I can't see how this could be anything other than the dumbest idea ever. Really. The Dumbest. I almost want there to be a way for this to make some sense, but I really can't imagine how.
posted by kiltedtaco at 6:14 PM on October 7, 2012


Recently I was invited by a friend of mine into what seemed like a very dodgy scheme: Take our insurance against an already sickly couple, and hope they die sooner in order to make money insuring them as a third party. This is the "Stranger-originated life insurance scam" also known as STOLI. I was told that "you cannot lose money", it's the "kind of investment only rich people make". I was also told that when the payout happens, you get (1) all the money you paid into the scheme back and (2) a huge quantity of money.

I can also see how this might stimulate the wrong kind of sociopath to take diabolical actions against the stranger that s/he insured. I acn see the Russian mafia promoting something like this. "STOLI", indeed!
posted by Vibrissae at 6:14 PM on October 7, 2012 [1 favorite]


Reminded me of this story, which I heard on This American Life.
An estate attorney in Rhode Island discovers the investor's Holy Grail: a financial scheme that guarantees only reward and no risk. All upside with no downside. The only catch? You have to die in order to get the money. But there's a loophole! Alex Blumberg from Planet Money and Jake Bernstein from ProPublica tell the story of how the attorney, Joseph Caramadre, figured out how to get someone else to die instead.
posted by stevil at 6:16 PM on October 7, 2012 [7 favorites]


Oh oh oh, great new TV show idea! Instead of Worlds Dumbest Drivers or Criminals, I want to watch Worlds Dumbest Investment Schemes, with explanations of each scheme's dumbness provided by Loni Love, Tonya Harding, Brad Loekle, and Danny Bonaduce.
posted by kiltedtaco at 6:18 PM on October 7, 2012 [5 favorites]


They should just give their linebackers a Pickens tackling bonus.

Not NFList!
posted by srboisvert at 6:18 PM on October 7, 2012


Death Takes a Policy: How a Lawyer Exploited the Fine Print and Found Himself Facing Federal Charges.

On preview: stevil has the link to the TAL show -- timing is everything! What I linked above is the more detailed story at ProPublica.
posted by maudlin at 6:18 PM on October 7, 2012 [2 favorites]


stevil, I thought of that same episode. and didn't the scheme end up imploding in much the same way?
posted by ninjew at 6:18 PM on October 7, 2012


I really dislike T. Boone Pickens
posted by triggerfinger at 6:21 PM on October 7, 2012


I still can't see how they forced it through, perhaps because the article is particularly difficult to read. Paginated AND the PageDown key doesn't work properly because of the stupid header.
posted by jeather at 6:34 PM on October 7, 2012


I am a professor at OSU* who pretty much ignores athletics. Having said that, Boone Pickens' money has made a lot of things beyond athletics possible here at OSU -- partly directly, because he has given the university a ton of money that *didn't* go to athletics (the money that takes OSU off the hook for this shitstorm, for instance), and partly indirectly as he inspires the university and its supporters to think bigger. This sometimes results in ill-advised programs, but what giant institution doesn't have some dumb ideas? It has also resulted in the art museum that I'm helping build -- so obviously I have a stake in this game -- but seriously, when was the last time a university art museum was in the news for being built, rather than sold off? There's some stuff to be proud of as a result of fundraising at OSU.

Re: cribcage's comment above, the plan was pitched about athletic scholarships because the OSU Foundation rejected it -- so the Athletic fundraising org ran it. Why pitch a non-athletics-related plan to alums who overtly are only interested in supporting athletics? That would be as ill-advised as the original plan.

I don't want to defend any of the actions described in this story, necessarily, but there's some sloppy reading going on.

*The views expressed here are my own, and not those of my employer.
posted by obliquicity at 6:37 PM on October 7, 2012 [4 favorites]


didn't the scheme end up imploding in much the same way?

No in the story from TAL the government decided it was wrong without a lot of real justification why, other than "it's OOGY."
posted by Potomac Avenue at 6:37 PM on October 7, 2012 [1 favorite]


Recently I was invited by a friend of mine into what seemed like a very dodgy scheme: Take our insurance against an already sickly couple, and hope they die sooner in order to make money insuring them as a third party.

Your friend is being defrauded by whomever is selling him on this scheme, because what he's doing is -- or would be, if it were actually going on -- illegal. You can't just take out life insurance policies on random people; you have to have insurable interest. I.e., you can take out a life insurance policy on your spouse or another family member, but not on some person whose existence doesn't have a benefit to you. The specifics of the law vary from state to state in the US, but there is no place where some general version of this principle isn't in force.

I suspect that it's this illegitimacy that is the linchpin of the scam: when the old people die, and your friend goes to collect what he thinks is coming to him, the whole thing evaporates and the scammer hopes that some warnings/threats about the illegality of the enterprise will keep your friend from going immediately to the cops. In that way it's similar to the Nigeria scams that promise illegitimate lucre; people are doubly unlikely to go to the Feds once they realize they've been scammed, if revealing the scam would also involve admitting involvement in something they should have reasonably known was illegal, if it had been true.

Coming back to the TBP thing, I presume that the university had to (or would have had to) show some financial interest in TBP's continued existence as a condition for getting the life insurance policies in the first place. This is pretty easy to demonstrate in the form of college students (since they can't continue to pay tuition or pay back loans if they're dead), but could be a bit odd in the case of a rich donor; he might easily have already been worth more to the university dead than alive, so the insurable interest seems a bit questionable. This is just another reason why the whole scheme is dodgy; the whole life-insurance system is set up to make it difficult to make "no lose" bets against someone else's life.
posted by Kadin2048 at 6:39 PM on October 7, 2012 [3 favorites]


You can't just take out life insurance policies on random people; you have to have insurable interest. I.e., you can take out a life insurance policy on your spouse or another family member, but not on some person whose existence doesn't have a benefit to you.

My favorite version of this is "dead peasant" insurance policies which corporations take out on their workers, often without telling them such a thing is being done.
posted by hippybear at 6:48 PM on October 7, 2012


I think T. Boone Pickens should make like Slim Pickens
posted by quazichimp at 6:51 PM on October 7, 2012


I don't understand. How did any of the entities involved truly think this was going to net money without being scam-ish or counting on the insurance company being dumb? TBP comes up with a iffy free money scheme, OSU folks fall for it, ends in tears. It seems multiple people here were not thinking at the top of their game here or something. Is there a clear, concise version of what happened, because the article describes a chain of events that just boggles my mind.
posted by 2N2222 at 7:03 PM on October 7, 2012


what's going on in this story is completely different from the TAL one. actually, it's the exact opposite.

the TAL story: life insurance companies eager to sell variable annuities to collect fees in an up market failed to do proper under-writing.

the OSU story: this foundation agreed to buy life insurance on a small group of people who have an unknown mortality distribution, and failed to hedge their market risk.

thinking about this story, i don't think it's too important. TBP knew he would be on the line, in some kind of moral sense, if it went bad. he was willing to give them $165M at one time, so I don't think $9M per year is really going to faze him. He still has a ton of money. He was probably going to give it to them anyway, sooner or later. so, there was no down side for him, given his interests. on the other hand, his upside was collecting fees if his scheme caught on. if he had started five to ten years earlier it might have started to approach the mortgage fiasco.
posted by cupcake1337 at 7:06 PM on October 7, 2012


scody: " ...as long as it didn't actually involve donating any fraction of his billions of dollars."

To be fair, Pickens has donated a whole lot of money to OSU over the years. He's still a little dumb at times and very self serving almost all of the time, but he's not one of those jackasses who hoards every little penny because "fuck you".
posted by wierdo at 7:07 PM on October 7, 2012


This scheme only could have worked if Lincoln had drastically underpriced the policies.

And if Lincoln had, what would have happened?

Lincoln could have paid only by raising its premiums on everyone else.

In other words, this was a scheme by the masters of capital to steal money from everyone else who happened to be ignorant of what they were doing, or who lacked the power to do anything about it if they did know.

Business as usual.
posted by jamjam at 7:58 PM on October 7, 2012 [7 favorites]


I think the core point the TAL story made was that it was the Insurance companies that wrote the contract, and if there is any organization that is in control of it's *fine print* is the Insurance companies. Sounds like this was quite different.
posted by sammyo at 8:02 PM on October 7, 2012


jamjam:

sorry, but i think you're a little misinformed.

i'm as cynical as the next person, but life insurance premiums are not set based on past losses, they are based on projected future losses.

if anything, higher mortality would have meant lower profits for Lincoln's stock holders, the "masters of capital."

there are many cases of the super rich pulling a fast one on regular people, but i don't think this is one of them.
posted by cupcake1337 at 8:10 PM on October 7, 2012


During the 1930's, gangsters in NYC tried this scheme on a homless Irishman named Mike Molloy.

The idea was to give him unlimited credit at a speakeasy one of the Plotters ran, and let him drink himself to death.

It didn't go as planned either
posted by Pirate-Bartender-Zombie-Monkey at 8:53 PM on October 7, 2012 [3 favorites]


I wondered why my husband throws away all the OSU mailings. Go Pokes?!
posted by dragonplayer at 9:05 PM on October 7, 2012


Cupcake1337, if you are as cynical as the next person, we live in an extremely naive world.

All my insurance premiums rose sharply in the wake of the financial collapse-- did yours?
posted by jamjam at 9:10 PM on October 7, 2012


I love how, even if this crazy scheme had worked out perfectly for the university, all of the money would have gone to the athletics department.

I love how $282 million got sucked right out of the athletics department.
posted by charlie don't surf at 9:16 PM on October 7, 2012


The important thing to keep in mind here is that T. Boone Pickens definite DOES NOT control an earthquake machine.
posted by Copronymus at 9:38 PM on October 7, 2012 [1 favorite]


time-traveling lawyer

This should be a tv show.
posted by never used baby shoes at 9:47 PM on October 7, 2012 [4 favorites]


i don't know if your situation is representative, but i'll assume it is. when you say your premiums rose sharply, i can only assume you're talking about health and property insurance premiums. maybe you could mean some kind of universal life policy, but i doubt it.

anyway, i'd guess that they went up because the assets held by insurance companies were yielding less, which means they have to assume a lower rate of return. i think this would result in higher premiums. yes, lower yields are a result of the financial collapse, and to the extent that they are a result of skull-dagery by the super rich they need their come-upin's, BUT THIS IS NOT ONE OF THOSE CASES.

there are other things going on that could affect your premiums, like increasing healthcare costs, or more directly for a particular person, your employer deciding to not subsidize your healthcare premiums as much.

anyway, another point you make is

This scheme only could have worked if Lincoln had drastically underpriced the policies.

that's not correct. Lincoln could have the correct price in the sense that it's the most accurate guess, but could just be unlucky. aside from that, there is no "correct" loading they could do. should they charge more to ensure they make money 99% of the time? 99.99% of the time? that's a matter of opinion, regardless of how accurate their estimate is.

the thing was OSU was betting on mortality risk and they didn't hedge it correctly. IF they had the collateral to back the loan they wanted it may have turned out ok for them.

my larger point in my original comment was that there are many things to be upset about, but this one is kind of a red herring. it distracts from the things we should really be upset about.
posted by cupcake1337 at 9:54 PM on October 7, 2012


All my insurance premiums rose sharply in the wake of the financial collapse-- did yours?

Not really sure what you're getting at, but some life insurance policies have premium costs that are (simplifying a bit) inversely proportional to interest rates. That's to say, if the insurance company figures they can get 7% return on capital, they can offer lower premiums than if they foresee only being able to get 5% return on capital at the same risk level. So if you have a policy with variable premiums, it's not unexpected that they might increase since interest rates have fallen and have remained so low.

But on the bright side, you can get a sub-4% mortgage. It's a savers/borrowers tradeoff, and insurance companies — life insurance companies in particular — are the ultimate "savers".
posted by Kadin2048 at 10:30 PM on October 7, 2012


If you created a set of actuarial tables that were significantly more accurate than the ones that the insurance companies were using, I'd have to imagine that the insurance companies would be willing to pay vast sums of money for access to those tables.

The fact that they weren't should have been the only thing that was necessary to determine that this was a scam.
posted by schmod at 11:01 PM on October 7, 2012 [2 favorites]


This should be a tv show.

Are we sure that Dr. Who isn't a J.D.?
posted by hattifattener at 11:05 PM on October 7, 2012


jamjam: "All my insurance premiums rose sharply in the wake of the financial collapse-- did yours?"

Well, the only insurance I buy is health and car insurance. Health care is constantly outpacing inflation, and I bought a new car in 2009. So I can't really tell whether the financial implosion affected my personal rates.

What I can tell you is that I read the Berkshire Hathaway annual reports, and premiums tend to rise when investment markets do poorly. But what the fuck does that have to do with the article?
posted by pwnguin at 11:05 PM on October 7, 2012 [1 favorite]


there's no way T. Boone Pickens isn't the name of a fictional antebellum plantation owner.

He's like Reacher Gilt. Making himself sound like a satirical snake oil salesman provides him with a perverse immunization against prudent suspicion. He needs a parrot that squawks "twelve and a half percent! twelve and a half percent!"
posted by justsomebodythatyouusedtoknow at 12:48 AM on October 8, 2012 [1 favorite]


And since they didn't, then this is no different than taking that money to Vegas and gambling it on roulette, or using it to buy lottery tickets. With a wager that large, spread over such a large number of individual bets, regression to the mean kicks in and you are virtually certain to lose overall.

Chocolate Pickle: I'm being a bit pedantic, but this is more central limit theorem/law of large numbers, not regression to the mean. But pretty much the right idea.
posted by pzad at 12:49 AM on October 8, 2012


Wealthy conservatives ramrod through tricksy financial dealings that don't pass the smell test, against the wishes of the independent bodies put in place to look after the holistic health of the organism, and it all blows up.

This time it will be different.
posted by DigDoug at 4:36 AM on October 8, 2012


The thing that blows my mind is that basically the easiest way this worked was if people died earlier than the actuarial tables forecasted - but then they let the insurer select the final pool!!. I guess they had to do that to make it legal, but that right there tells you it was doomed.

I'm glad T. Boone picked up the tab at least.
posted by JPD at 6:33 AM on October 8, 2012


Man I was kinda expecting a story of OSU-hired assassins from that lead. I was sorely disappointed.
posted by egypturnash at 9:03 AM on October 8, 2012


stevil, I thought of that same episode. and didn't the scheme end up imploding in much the same way?

Yes, but it imploded for the insurance companies, and it was their own fault. It was actually a much saner scheme than this T. Boone Pickens thing.
posted by qxntpqbbbqxl at 9:58 AM on October 8, 2012


Are you worth more dead than alive?
Life insurance is designed to benefit the living, a spouse or heirs, not those who perish. But Fiedler, who owns a firm called Innovative Settlements, knew that a life-insurance policy is an asset that can be resold to a friend or stranger just as a car, boat or house can. In a transaction known as a viatical settlement (for terminally ill patients) or a life settlement (for everyone else), the person selling his insurance gets an immediate cash payment. The buyer, in exchange, is named as the beneficiary and pays the premiums until the insured person dies. Life no longer afforded Robles a traditional way to make money, but to the right investor, Fiedler advised, his imminent death was worth a great deal.
posted by the man of twists and turns at 1:35 PM on October 8, 2012


Recently I was invited by a friend of mine into what seemed like a very dodgy scheme: Take our insurance against an already sickly couple, and hope they die sooner in order to make money insuring them as a third party.

Isn't this basically the same idea behind Credit Default Swaps? And we all know how well those have turned out...

As for the "Gift of a Lifetime" scheme, I agree with those who compare it with betting against the house in a casino: only to be done with money you can afford to lose. Because you will lose.
posted by Skeptic at 3:06 PM on October 9, 2012


Isn't this basically the same idea behind Credit Default Swaps?

no.
posted by cupcake1337 at 6:34 PM on October 9, 2012


Isn't this basically the same idea behind Credit Default Swaps?

no.


Thanks for your detailed and cogent answer to my question, but really, if you substitute "sickly couple" with "sickly company" or "sickly country", isn't it really the same?
posted by Skeptic at 8:08 AM on October 10, 2012


a credit default swap is as much about betting that a company will be downgraded as home owner's insurance is a bet that your house will burn to the ground, or life insurance is about betting that you'll die soon.

the investment in life insurance mentioned above does seem sketchy, but it's ignorant to paint all credit default swaps with the same brush. so, no, it's not basically the same because there can be some pretty good uses of credit default swaps in managing risk, whereas the life insurance scheme is purely speculative.

what you're doing is like saying all home owner's insurance is bad because some people burn their own houses down to collect the insurance pay out.
posted by cupcake1337 at 10:23 AM on October 14, 2012


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