Life Insurance for Profit: A Story about Vinny and Vito

Update: I wonder if maybe this post is too obtuse.  In case it isn't clear to readers, I was trying to make up a playful parable that mirrors, at least in some ways, the situation with Mr. Paulson (Vito), Goldman Sachs (Vinny) and the SEC (FBI). The implicit fictional characterization of Mr. Paulson (at least) isn't quite fair.  But it did make the story a little more fun to tell.


Vito, an underworld Chicago mob boss, is becoming increasingly concerned about his extended family of criminals.  Tensions with a rival gang have heightened and one of his boys recently got wacked.  Things are bound to get worse in the coming months.

Vito is searching for an upside to this quandary.   So he seeks out his friend Vinny who works in the  insurance business.  Vito tells Vinny about his situation and that he’d like take out life insurance for all the members of his extended family.  A LOT of life insurance.  You see, he’s pretty darn sure at least some of his boys will get wacked.  This way, no matter how the gang war works out, Vito wins.

The key to this scam is to be sure that the insurance company doesn’t know that it is Vito buying the insurance.  So Vinny goes back to the brokerage he works for and tells them about all the new clients he has found.  He doesn’t tell them it's Vito who's buying.  He just describes Vito’s boys--the ones being insured--in generic terms that seem fairly innocuous (male, 45, smokes 2 packs a day, works in security detail, etc.).  The brokerage doesn’t see the scam, brokers the deal, and gives Vinny a fat bonus for selling all that insurance.

To sweeten the deal further, Vinny takes out life insurance on Vito’s boys too.

Vito is elated.  He just can’t lose in his war with the rival gang. In fact, he wins by losing. So war breaks out between the gangs, most of his boys get killed, Vito collects his insurance indemnitities, and retires to the Caribbean, a happy man.  Meanwhile, the city of Chicago burns in the afterglow of the gang war.

An FBI investigation into the incident uncovers the whole scam.  They couldn’t pin any crimes on Vito who ran a tight operation and made sure no crimes could be traced back to him.  But the FBI was able to show quite clearly that Vinny withheld crucial information from the insurance company when he brokered the insurance deal.  If the insurance company knew it was Vito who was buying, there's no way they would have gone for it.  So Vinny was prosecuted and thrown in jail.

The question is: Would the gang war have happened and Chicago burned if Vito was prevented from taking out life insurance on the boys?  Who's really guilty here, Vito or Vinny?