Robin Cook - Death Benefit

Eventually it turned out that many of the executives at the brokerages selling CDOs and at the financial institutions here and in Germany and Japan and elsewhere who bought them were completely ignorant of what a CDO actually was. They knew what asset-backed securities were, but the assets here were mortgage bonds packaged together and sliced up and sold in bundles. Many of the individual loans the bonds were backed by were subprime loans that would never be paid off, and only a few loans needed to fail before the whole package defaulted. It was inevitable that this would happen.

When Russell explained to Edmund precisely what the subprime loan crisis was going to mean to CDOs and other financial products and for the system as a whole, Edmund was unnerved and excited at the same time. He immediately, and secretly, used his own money to short his own firm and made bets on the failure of other companies exposed to CDOs. He continued to sell the doomed bonds even when disaster was inevitable. He made staggering amounts of money and after a while he told Russell, a loyal company man who’d never dreamed of acting that way, what he was doing. As Edmund predicted, Russell wanted in, and Edmund gave him some of his action.

As the banking catastrophe unfolded there were many victims: investors who’d lost their money, shareholders who found their stocks worthless, countless workers who lost their jobs. Men like Edmund Mathews and Russell Lefevre were not among them. Amid a clamor that the bankers involved should go to jail, they left the firm with close to $100 million in compensation between them.

Edmund had enjoyed his first weekend of unemployment to some extent, taking Darius to soccer practice without bringing his BlackBerry, having dinner with Alice and another couple in town, reading the Sunday paper. But by 9:05 A.M. on that first Monday, he was bored stiff. In his home office, he had two screens showing Bloomberg and MSNBC and he noodled around, making minor trades for a few tens of thousands of dollars through his online account. At ten, he called Russell and suggested they get back in the game on their own.

Okay, Russell, what’s the problem?” Edmund said, after handing Russell a glass of ice water. The men stood at either end of the island in the middle of the state-of-the-art kitchen. Edmund flipped Russell a place mat before he could put his water-beaded glass on the butcher block.

“I was playing tennis with Teddy Hill-”

“Teddy Hill? He’s got to be sixty-five. I hope you went easy on the old boy.”

“Ed, this is serious. I play with Teddy because he knows everyone, and he tells me things he hears. As he did today. When he told me, I practically ran off the court, left him standing there.”

“Told you what, Russell?”

“We’re being shorted big time.”

Russell was right. This was serious.

When he called Russell during his first Monday of alleged freedom, Edmund found that Russell was as anxious as he was to get something going. Unbeknownst to Edmund, Russell needed to be earning. In 2008, he found himself personally long on real estate, owning a portfolio of properties in Florida and California suddenly worth a lot less than their outstanding mortgages. When Russell had fixed his problem, he was low on cash and needed to leverage his severance money into something more substantial.

As they had done many times as part of a large corporate group, the two men took a weekend away to a hotel in Boca Raton to brainstorm. Before getting down to business, Russell insisted on going to the local mall to pick up some T-shirts for his four kids. Edmund waited for Russell outside the Gap and watched people passing by.

“Look at the people, Russell,” Edmund said when his partner returned. “What do you see?”

“Families, strollers, couples, lots of old people. What’s on your mind?”

“Right. Old people. It’s Florida, famous for oranges and old people. What do old people have?”

“I dunno, high car insurance premiums?” Russell said.

“That,” Edmund said, “but this generation also has lots and lots of life insurance.”

And Edmund told Russell his idea. It was called “Life Settlement.”

The partners figured they had stumbled upon something big. Russell crunched numbers for weeks while Edmund discreetly got advice from his old contacts: lawyers, traders, bankers, ratings experts, and hedge fund managers. The idea was legal, and it was doable. And Russell said the numbers were watertight.

“The only way this doesn’t work is if we have the Second Coming and Jesus stops people dying,” Russell said.

“And we know that’s not going to happen.”

In early 2010, LifeDeals, Inc., was formed with Russell as CEO and Edmund chairman of the board. The start-up money was most of their $100 million take from the subprime debacle, and they used it to buy up life insurance policies from thousands and thousands of Americans desperate for cash. Edmund hired the most aggressive salesmen he knew and told them to hire even more hungry people to go out and pound pavement and buy policies for no more than 15 cents on the dollar. There were millions of Americans who needed money for long-term care, or to finance an operation when they didn’t have medical coverage or, as was increasingly the case, even when they did, but the coverage wasn’t adequate or the insurance company figured out a way not to pay. LifeDeals had to pay the balance of the premiums, but when the policyholder passed on, as they would as surely as night follows day, the payout was theirs.

Within six months, the LifeDeals board was confident enough to take the company public. Edmund and Russell held options that made them very wealthy once again, but they wanted capitalization to buy more policies. Edmund’s favorite statistic was that there was more than $26 trillion in life insurance policies sloshing around out there for the taking. Their plan was to start securitizing the policies, aggregating them, and selling bonds. This time, the assets behind the securities were cast-iron, personally guaranteed by the grim reaper. And thousands of people every day were walking away from policies they had paid into for years because they couldn’t afford the premiums. They were waiting to be picked off.

Edmund liked to think his company could someday be worth a trillion dollars.

Who is it?” Edmund asked.

“Teddy doesn’t know. He heard it from a friend who heard it from a friend. But he trusts the party. Swears it’s true.”

“It’s just someone being a wiseass,” said Edmund.

“No,” said Russell. “It’s a biggish bet. Whoever it is, they’re sure we’re going down the toilet.”

“Well, we fucking well better find out who it is before we catch a cold.”

Russell knew the implications as well as Edmund. They needed a large institutional investor to underwrite their securitized package, and if it was known on the street that LifeDeals was getting shorted, that partner would be very hard to find. Everyone remembered what happened in 2008.

“We need to start going through the 13Fs right away,” Russell said, referencing the quarterly statements institutional investment managers had to file with the SEC outlining their holdings.

“And I need to start making some calls.”

Russell had left Wall Street with more intact relationships than had Edmund, and he could easily plug into the rumor mill. It was, after all, a very small community. Edmund didn’t need to say anything, both men knew what was at stake.

COLUMBIA UNIVERSITY MEDICAL CENTER NEW YORK CITY MARCH 1, 2011, 7:30 P.M.

Off by themselves, Pia, Lesley, and Will were sitting in the mostly empty hospital cafeteria nursing cups of postprandial tea and coffee. Seeing what Rothman and Yamamoto were working on had left each of them shell-shocked. As medical students, they were well aware from an academic standpoint what was being done in the lab and having seen it with their own eyes made it real and concrete. They’d been to the future, and it was difficult to absorb.