Harvard’s Interest rate swaps Bloomberg story. I for a while have suspected that the Harvard Endowment has a strong connection with the events of last year. Most of the country’s private equity firms are filled with graduates of the Harvard Business School. It turns out that the Harvard Endowment was betting to profit if interest rates went up, but the actions of the Federal Reserve and other central banks to hold interest rates near zero has cost the Harvard endowment billions of dollars. Moral hazard?
Somewhere during this past year (perhaps on John Batchelor), someone proposed that a law be passed that Credit Default Swaps and Intererst Rate Swaps were “not in the public interest” and should be deemed as unenforceable contracts in a U.S. Court. That notion is starting to look very appealing. Since the contracts could just move to a different venue (A lot of them are already traded in London,), this theoretical law would need more teeth – like that any losses from swap contracts would not be deductible for tax purposes and severe treatment for accounting purposes – like prohibiting them from being assigned any value as an asset, and maximum possible damage as a liability using a worst case scenario…
