QEInfinity

The concept reminds me a little of AIG insuring the losses on derivatives. As the market exploded and boomed, banks got nervous, so they placed all that risk at the feet of AIG. AIG was quite happy to take on the additional risk, as from their perspective probably very few of these derivatives (ultimately mortgage backed securities) had gone bad. Of course when the SHTF it's not some slow movement, you have a huge number of policies requiring paying out at the same time and destroyed AIG. As a previous chap pointed out, the issue would be the combination of a tsunami of claims. If you consider how much money is in housing, and then what an effect on a 20% could mean. Essentially unplayable.