Interest-Rate Swaps Cost Harvard More Than $1.47 Billion

A. Rashad Abdel-khalik

Chapter 18 in Brazen:Big Banks, Swap Mania and the Fallout, 2019, pp 253-259 from World Scientific Publishing Co. Pte. Ltd.

Abstract: At Harvard you can find some of the most intelligent and skilled people in the institutions of higher learning. Among these highly regarded people are professors who invented and taught some of the mathematical models used for the valuation of financial derivatives. There are also professors who were actually active in affecting the federal government rules that governed, or more accurately failed to govern, Over-the-Counter (OTC) market for financial derivatives. Also at Harvard you find the largest university endowment. In 2008, the university’s total endowment was valued at $36 billion, but for a variety of reasons, including the slump in the economy, the value of the endowment dropped to about $26.03 billion by the end of 2009. Of that drop, at least $1.176 billion was due to losses on swap contracts: $497 million of it was paid out in cash and $768 million was recorded as a liability representing the fair value of long-term obligations — the amount of money that must be paid at that time to terminate the swaps…

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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