Harvard Swaps Are So Toxic Even Summers Won’t ExplainBy Michael McDonald, John Lauerman and Gillian Wee
Dec. 18 (Bloomberg) -- Anne Phillips Ogilby, a bond attorney at one of Boston’s oldest law firms, on Oct. 31 last year relayed an urgent message from Harvard University, her client and alma mater, to the head of a Massachusetts state agency that sells bonds. The oldest and richest academic institution in America needed help getting a loan right away.
As vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion in Allston, across the Charles River from its main campus in Cambridge, Massachusetts.
The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school said last week they will suspend work on the building early next year.
Sunday, December 20, 2009
The very idea that a bonehead like Larry Summers has become the top economic advisor to Obama should frighten us all. Apparently there is no bonehead like a Harvard-educated bonehead. Fortunately, thanks to Summers screwed-up view of economics, Harvard will no longer be quite the force to be reckoned with.