Harvard Gets Hosed on Swaps

In a move worthy of any Harvard Extension School graduate, the esteemed Ivy League college bet the wrong way on interest rates and took a $500 million hit to exit the position. In addition to the half a billion in losses, the school has to pay another $425 million over the next 30-40 years to close out an additional $764 million in swaps gone bad.

The boys from Boston aren't alone among Ivy League losers. Yale, Georgetown, and Rockefeller University have also reported losses on interest rate swaps.


Harvard’s loss “says that people don’t understand the complexity of the products they are buying and selling and that doesn’t begin and end with mortgage securities,” said Robert Doty, a municipal finance adviser at American Governmental Services in Sacramento, California.

“It shows that with these products that are so highly complex, people are a long way from knowing as much about these products as they think they do,” he said.

Guess maybe they should have hired someone from a target school to manage the money...

 
Best Response

Let me do one of my wacky theoretical, hypothetical experiments and create an obviously ludicrous situation to see the results.

  1. I take a number of snobby rich kids who have never touched real money and were raised on the concept that daddy would solve all their financial problems.
  2. I make them study art history, pottery, bird watching or any other number of completely asinine unrelated majors that these schools provide.
  3. At the same time, I make sure that these schools of obviously inferior financial acumen impart their inferior investment knowledge on their students.
  4. Then, I do something crazy! I take all these incorrectly educated liberal arts students with horrendously terrible financial understanding and THROW THEM INTO THE MIDDLE OF THE LARGEST FINANCIAL MARKET IN THE WORLD.....

I wonder what would happen?

Oh wait.

 

The preceding comment is idiotic and clearly spiteful. For one, over the past decade, Harvard's endowment has still outperformed the market and remains the largest in higher education. Second, the management of the endowment is obviously divorced from the school's educational activities. Finally, to say that students from Harvard lack financial understanding (or understand finance less than people from other schools) is laughable. Last time I checked, Wall Street's best banks are run by Harvard University alumni -- GS (Blankfein went to HC and HLS) and JPM (Dimon went to HBS).

http://abnormally-distributed.blogspot.com/

 
  1. You have no sense of humor.

  2. You have to be a moron to actually think I wasn't being sarcastic and just having a laugh. Who in their right mind would think Harvard had the financial acuity to understand how to run its own endowment?! Do you seriously think I had a straight face making that post (or this one for that matter)? Are you that dense? Dear tap-dancing Christ on a pogo-stick I hope you aren't working a desk on the street or managing anyone's money. You must of went to Princeton or somethin'!

  3. I now see that you were indeed just joking as well. At least, that is what I gather after reading that hilarious comment you just made at the end of your reply. The "best banks" on wall street? Really? Think really hard on that one. It's okay, I'll wait. Tell you what, while you ponder that incredible doosie of an oxymoron....I will act in the same manner and judge a "tallest midget" contest amongst these random carny folks I just met on the side of the road. Catch my point yet, tiger?

  4. I don't blame the majority of Ivy undergrads for not understanding anything about finance. Last time I checked, art history majors aren't exactly being stressed on bond pricing or company valuation models, are they? (For the record: I don't think Monet was a master of discounted cash flows either....but he never worked at an investment bank.)

Please try and find an example that doesn't completely ruin your point next time.....

Much love.

P.S. Come on, even you should see the hilarity of the situation. The world's "best and brightest" create one of the largest financial blunders in world history, erase years of wealth and progress and have probably led to the downfall of one of the greatest countries in the modern world. How does that exemplify the "best and brightest" then? And the icing on the cake is that one of the most highly regarded institutions, a bastion of "the best" education money can buy and progenitor of many of the masterminds behind this meltdown...also ends up having financial difficulties on the side! Oh how rich!!

 

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