Swaps 'So Toxic Even Summers Won't Explain'

Bloomberg News has a lengthy and detailed examination of Harvard University's losing bets on interest rates. Among the priceless quotes are from minutes of Harvard President Lawrence Summers's comments at a 2004 meeting of the Faculty of Arts and Science, in which he told the faculty he hoped they wouldn't be "preoccupied with the constraints imposed by resources, for Harvard was fortunate to have many deeply loyal friends." He told the professors that "Harvard would be able to generate adequate resources," and that "The only real limitation faced by the Faculty was the limit of its imagination." And, even better, a lawyer for Harvard at the Boston firm of Ropes & Gray asked Massachusetts Health & Educational Facilities Authority officials "whether the agency could omit from a public hearing that some of the bonds would finance swap termination payments." "There is some sensitivity at Harvard about not specifically flagging the swap interest unwind payments," the lawyer wrote on Nov. 12 to Deborah Boyce, an analyst at the authority, according to the Bloomberg account. "They still would like the ability to finance them, but would prefer to delete those references if they can do so." And, even better, "Harvard and JPMorgan celebrated the bond issue by hosting a cocktails-and-dinner party at the French restaurant Mistral, in Boston's South End neighborhood, where appetizers start at $15 and entrees cost about $40, according to e-mails obtained from the state finance agency. JPMorgan invoiced the agency $388.78 for three employees who attended: Caswell, Marietta Joseph and Danielle Manning." This was a dinner to celebrate the fact that Harvard, backed by the state of Massachusetts, had sold $2.5 billion in bonds "using $497.6 million of the proceeds to pay investment banks to extract itself from $1.1 billion of interest-rate swaps." At least $34.5 million went to JPMorgan. The Bloomberg article doesn't disclose whether JPMorgan invoiced Harvard for the cost of entertaining the Harvard employees at the dinner at Mistral, or if it just considered it part of the expense associated with getting the $34.5 million. Not to put too fine a point on it -- Harvard does some wonderful things, including employing Greg Mankiw, Ed Glaeser, and Ruth Wisse -- but after reading this article even a loyal alumnus would have to think really hard before giving the school another dime.