The University of California Health System: A Case of Derivatives Abuse from the West

A. Rashad Abdel-khalik

Chapter 21 in Brazen:Big Banks, Swap Mania and the Fallout, 2019, pp 281-290 from World Scientific Publishing Co. Pte. Ltd.

Abstract: On November 15, 2012, the board of regents of the University of California convened as a “Committee of the Whole” in order to permit members of the public an opportunity to address university-related matters (see Exhibit 1). At that meeting, Charley Eaton (a graduate student at the University of California–Berkeley back then) referred to a report he had coauthored with five other graduate students in relationship to the amounts of money the University of California System (UC System) was paying to big banks for interest-rate swaps. The report is titled Swapping Our Future: How Students and Taxpayers Are Funding Risky UC Borrowing and Wall Street Profits. The minutes of the meeting report the concern raised by Eaton:Mr. Charlie Eaton, UC Berkeley graduate student, expressed concern that, despite the passage of Proposition 30, the UC budget presumed a 24 percent tuition increase over the upcoming four years. He stated that a report he authored with other colleagues, “Swapping Our Future: How Students and Taxpayers Are Funding Risky UC Borrowing and Wall Street Profits,” had recommended that the University renegotiate interest rate swaps or litigate against the banks holding the interest rate swaps. He expressed concern that the Board had not taken action. Mr. Eaton stated that the San Francisco Asian Art Museum saved $40 million by renegotiating its interest rate swaps [with JPMorgan Chase]. Mr. Eaton stated that several large banks were under investigation for illegally manipulating interest rates; he urged the Board to consider litigation against these institutions…

Keywords: Swaps; Interest Rate Swap; Unconscionable Contracting; Termination Penalties; Embedded Costs; Paying for Nothing; Gambling; ISDA; Master Agreement; Deceit; Inadequate Disclosure; Hidden Costs; Zero Sum Game; Wealth Transfer; Paper Chasing Paper; Floating Rate; Synthetic Rate; Credit Risk; Demonstrations; Water Shut Off; Union Class Action Suit; The LIBOR Scandal; Non-Profit (search for similar items in EconPapers)
JEL-codes: E43 E44 (search for similar items in EconPapers)
Date: 2019
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