Friday, October 16, 2009


BANZAI7 NEWS--Harvard University, the world’s richest school, paid almost $500 million to investment banks to escape interest-rate swaps that backfired, according to the school’s annual report released today.

Harvard paid $497.6 million 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 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.

Q:What does this have to do with us lowly non-harvard graduates?

A: President Obama's chief economic advisor Larry Summers

During Summers' presidency at Harvard, the University entered into a series totaling US$3.52 billion of interest rate swaps, financial derivatives that can be used for either hedging or speculation. By late 2008, those positions had lost approximately $1 billion in value. This forced Harvard to borrow significant sums in distressed market conditions to meet margin calls on the swaps. The decision to enter into the swap positions has been attributed to Summers and has been termed a "massive interest-rate gamble" that ended badly. (Source Wikipedia)

As Treasury Secretary to Bill Clinton, Larry Summers hailed the Gramm-Leach-Bliley Act in 1999, which lifted more than six decades of restrictions against banks offering commercial banking, insurance, and investment services (by repealing key provisions in the 1933 Glass-Steagall Act): "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," Summers said. "This historic legislation will better enable American companies to compete in the new economy."

Many critics, including President Barack Obama, have suggested the 2007 subprime mortgage financial crisis was caused by the partial repeal of the 1933 Glass-Steagall Act.

Larry Summers:

I am saddened to have to ask is this question. Is there anyone on President Obama's crack economic team who is not tarnished with Wall Street poop?

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