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.
/snip
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.
/snip
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 ...
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.
Stinking liberals.
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.
good point.
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.
yitbos
LOL
I saw that comment and LOLed`
Exactly especially Goldman Sachs should been forced in penury and allowed to work their way up
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