Skip to comments.How Harvard Nearly Went Bankrupt After A Rogue Interest Rate Swap Went Very Sour
Posted on 10/18/2009 6:13:00 AM PDT by TigerLikesRooster
How Harvard Nearly Went Bankrupt After A Rogue Interest Rate Swap Went Very Sour
Submitted by Tyler Durden on 10/16/2009 17:45 -0500
The school that epitomizes the dangers of groupthink (especially by very intelligent people) and tends to get caught in both the virtues and vices of its own ingeniosity, saw just how expensive hubris can be in 2009. Harvard's endowment dropped 27.3% in 2009 to $27 after hitting roughly $10 billion higher the year before.
Yet most notable in the entire report is an interesting story for all those who claim that representing the $200 or so trillion in interest rate swaps on the books of the Big 5 banks is completely irrelevant as the net exposure is just a couple trill here and there. Yeah, that's what Harvard thought too until it had to eat a 45% loss on $1.1 billion in IR swaps. And nearly go tits up in the process.
This is what Daniel Shore, Harvard CFO had to say about this near death experience:
When we went into the fall, we had some serious liquidity management issues we were dealing with and the collateral postings on the swaps was one. In evaluating our liquidity position, we wanted to get some stability and some safety.
Funny how Harvard, one can argue, was in a comparable situation to none other than Lehman itself. Had Harvard's instantaneous liquidity situation gotten even worse, it would probably have spelled doom for the university Larry Summers, in his inimitable wit and wisdom, used to preside over.
(Excerpt) Read more at zerohedge.com ...
What happened to the 10 million dollar fund that they don’t touch?
Can’t help but think of all the liberal alumni who are giving thousands of dollars a year back to the school all scratching their collective head, all realizing that their real contribution is dwarfed (and negated) by the silly money games people play on Wall St.
I just like the term “group think” I think it succinctly nails liberalism among the elites.
“Nearly Went Bankrupt” is so very, very tantalizing.
It would have been sweet indeed if the headquarters of democrat party corrupt elitism went under.
is Pug still wheeling and dealing Harvard?
Harvards Bet on Interest Rate Rise Cost $500 Million to exit
Oct. 17 — Harvard Universitys failed bet that interest rates would rise cost the worlds richest school at least $500 million in payments to escape derivatives that backfired.
Harvard paid $497.6 million to investment banks during the fiscal year ended June 30 to get out of $1.1 billion of interest-rate swaps intended to hedge variable-rate debt for capital projects, the schools annual report said. The university in Cambridge, Massachusetts, said it also agreed to pay $425 million over 30 to 40 years to offset an additional $764 million in swaps.
It’s a good point - but if those contributions end up getting junior into Harvard - then it could be argued that the “benefactor” is still happy with the net result.
Another source of Harvard’s woes is they went on a real estate binge just like many “commoner” type Americans. Harvard was building and buying at breakneck speed. They have left a one quarter complected arts&sciences building. It is a pit... a foundation with a lot of concrete poured
I fear future Harvard students will be shivering, attending their class in a classroom heated by a lone charcoal stove.:-)
Hmmmm....let me just think about this for a minute....
HARVARD GOING BANKRUPT....
I must have been dreaming because I had a grin on my face.
Great point. I guess building the “legacy” is what it’s really about.
Harvard gave us this president. Paybacks are hell
The comments at zero hedge are witty
When you admit people based on skin color and not excellence, this is what happens.
Even with these losses Harvard endowment has done better that others. btw... You sliced that out of the pdf....well done
Yale endowment sank even more...so they say
The blunder was made on the watch of LARRY SUMMERS, who now is advising the Messiah (PBUH) on how to destroy what’s left of our economy.
Gosh, seems like they were underpricing the risk they were taking on. Geniuses.
It is a shame they did not blow up Harvard with this trade. The slimy phony admissions process that admits people who are not qualified, offspring of prior graduates and fellow travellers with the same leftist politics.
LOL! It would ahve been a riot seeing then sell off the Kennedy School of “government” for a condo conversion. Naming a school of govvernment after the Kennedys is like naming a school of ethics and honesty for Al Capone. Actually Al was probably more honest and ethical than the Kennedys.
So they actually lost close to $1 billion? $497.6 million + $425 milion?
So to escape the $1.1 billion swap they paid $497.6 to make it go away and then $425 to unload the $764 million? I guess they could not just sell it it. I guess the swap is a contract that is there and you have to pay someone to take the bag of s**t off your hands.
Thus Harvard spends 925 million to make 1864 million in crap disappear
Hmmmm.... you got it exactly right. My previous post was unnecessary
The question is how much Harvard saved using variable rate financing on its capital projets since the rate they are paying must of dropped significantly. You see this with other companies that have assets whose value is infleunced by short term rates so to hedge they take a swap or similiar derivative to counteract it. Say the value of the asset goes up because of the short term movement they lose money on the hedge so overall its a net zero.
Now that had to hurt. They don't have enough left for lunch.
My favorite comment:
Ivy League safety school going tits up is right. And anyone who knows Harvard can tell you they have some ugly tits at that place.
I suspect that a lot of unis. pension funds and cities and ststes were playing this risky game with public funds to, but we’ll never know for sure.
This is the kind of deal that should have been available to the Feds when they were bailing out every institution. 45 cents a buck or less depending on volume.
I saw that comment and LOLed`
Exactly especially Goldman Sachs should been forced in penury and allowed to work their way up