The last crash was caused by reckless investments in subprime mortgage-backed securities, an ingenious way to repackage and redistribute staggering amounts of credit risk to unsuspecting investors. After losing their house and their money, some investors may take comfort in their enduring marital relationships. Unfortunately, marriage is one of the riskiest bets of all, which makes it a prime, or should I say "subprime" target for Wall Street's masters of innovation.
After watching oil titan Harold Hamm pay his ex-wife $1 billion, I couldn't help but wonder where he went wrong in the relationship department. Then again, he's not exactly a shining example of risk management; he lost $10 billion in the oil price collapse, or the equivalent of 10 ex-wives. Most Americans can't afford to pay their spouse $1 billion or even $15,000, which is the average cost of a contested divorce. Where there's risk, Wall Street is not far away.
One of the remarkable features of modern society is the seemingly endless amount of ways to repackage risk and distribute it to those who have a demand for it. The wacky world of the insurance industry seems to know no bounds. From vanilla products like car insurance to the ultra-weird like Troy Polamalu's $1 million hair insurance, you never really know what you're going to see next. While there are certainly notable individual examples of insurance oddities, nothing has the potential to create widespread effects like marriage insurance.
Provided by Safeguard Guaranty, marriage insurance is sold in units for $15.99 per month, which covers $1,250 in potential divorce costs. That's $192 per year for one "unit," which gives the insurance company a break-even point of 6.5 years, not including overhead. They even have a divorce probability calculator that is based on over 20,000 interviews. Supposedly, it has an accuracy rate of 87%. They don't elaborate on their formula, but you can get an idea of their inputs by answering some of the questions.
If marriage insurance sales take off, it's only a matter of time before Wall Street repackages it and sells it to investors via subprime marriage-backed securities. A boom in marriage speculation would ensue. Did you see your neighbor with his mistress last night? Buy some MBS credit default swaps on him and tell his wife what you saw. Is your other neighbor away from home a lot? Buy some MBS insurance on his wife, seduce her, and when they get divorced, you can cash in. Consider it "inside her" trading. Does it sound preposterous? It's not any crazier than buying credit default swaps on poor people's mortgages and making $15 billion when they become homeless. Remember, everything is fair in the "free market."