Detailed Information about Harvard's Swaps
This article in Bloomberg’s goes into great detail regarding the problems faced by Harvard due to their toxic interest rate swaps. The issue came to the fore when interest rates dropped and Harvard was forced to post massive amounts of cash collateral. Disturbing for us as well is the following information: “Cornell University in Ithaca, New York, posted $38 million of collateral on $1.5 billion of swaps, according to a Moody’s report on the Ivy League School.”
While indeed these instruments seem to offer the promise of cheaper investment costs, at what real cost do they come? As Leon Botstein, the president of Bard College, says in the article, “We shouldn’t be in the banking business, we should be in the education business.” Of course we would remove the second word “business”, but that is beside the point for the moment…
Harvard, like Cornell, was forced to sell billions of dollars worth of bonds in order to unwind these toxic investments, as well as provide cash for day-to-day operating experenses. Audaciously, “Harvard and JPMorgan celebrated the bond issue by hosting a cocktails-and-dinner party at the French restaurant Mistral, in Boston’s South End neighborhood, where appetizers start at $15 and entrees cost about $40, according to e-mails obtained from the state finance agency. JPMorgan invoiced the agency $388.78 for three employees who attended….”
Posted on 2009-12-23 11:10:03