The Massachusetts Bay Transportation Authority Joined the Eastern Swap Sinkhole

A. Rashad Abdel-khalik

Chapter 30 in Brazen:Big Banks, Swap Mania and the Fallout, 2019, pp 347-352 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Did financial managers at nonprofits have second thoughts about the risk of committing to a 30- or 40-years noncancelable swap contract? Unlike the case with BATA, there is some evidence that such reflection was the case of Massachusetts Bay Transportation Authority (MBTA), but only 15 years after they got entangled in the net of the Swap Mania. In general many entities rushed to find an exit by terminating or changing the terms of the swap agreements after they suffered huge losses. The publicly available evidence so far suggests that some nonprofits took notice of the difference after bleeding large sums of cash every year to pay big banks… for nothing tangible. A case in point is the effort of the officials at the Massachusetts Bay Transportation Authority (MBTA) in January 2017 to convince JPMorgan Chase to renegotiate the swap contracts they had signed in 2002. It took 15 years after joining the Swap Mania before MBTA discovered the long-term high cost of falling into swap traps. After paying $70 million to terminate five swap agreements, in January 2017, the authority began considering ways to reduce its losses on the remaining three swap contracts. The three remaining contracts are displayed in a special document that MBTA issued and is partially reproduced here as “Massachusetts Bay Transportation Authority Exhibit 1”…

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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