Selling the future for cash now

That's the A1 above-the-fold headline in the Strib paper edition this morning. The paper was on the breakfast table; I glanced at the headline and assumed it was about the sale of tobacco bonds by the state in the latest installment of kick the can down the road. But it wasn't. It was about a vulnerable adult who sold her structured settlement for cash, and not much cash, either.

A victim of childhood lead poisoning, the Minneapolis girl was awarded a $786,000 personal injury settlement that was to pay her $1,255 a month for life, plus periodic lump sum payments of $70,000.

But once she turned 18 and the payments began, Griffith, who is legally a vulnerable adult, nearly lost her entire nest egg to a pair of companies that buy structured settlement payments in exchange for cash upfront.

In two deals, she sold $352,000 of her settlement for just $77,000, and she was trying to sell most of what remained to one of the companies when a judge stopped the transaction in the summer of 2010.

The article wasn't about the tobacco bonds, but if I sat down to write an allegory of the decision to take some cash in exchange for the income stream from the tobacco settlement (intended to help the state defray some of the continuing costs of medical care for smokers), I could not have written a better one.

Here's bullet point number four in a piece in Minnesota Budget Bites from the Minnesota Council of Nonprofits:

A number of states have already issued tobacco bonds, and the current outlook isn’t too positive for investors. According to Forbes, “In November 2010 Standard & Poor’s downgraded 51 tobacco bonds in 16 states to junk status, citing decreasing tobacco use.” With that kind of history, Minnesota tobacco bonds would likely need to pay higher interest rates to attract investors, again making the bond sale less profitable.

Moreover, it is a lousy time to try to sell debt because of the turbulence in the financial markets.

Unlike our vulnerable and spendthrift lead paint victim, however, it's unlikely that there will be a judge available to step in and stop the foolishness.