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  #1  
Old 10-17-2009, 12:21 PM
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Mary Pat Campbell
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Default Harvard bet the milk money - Derivatives follies of the past couple years

http://www.boston.com/business/artic...k_investments/

Quote:
Harvard University, one of the world’s richest educational institutions, stumbled into its financial crisis in part by breaking one of the most basic rules of corporate or family finance: Don’t gamble with the money you need to pay the daily bills.

The university disclosed yesterday that it had lost $1.8 billion in cash - money it relies on for the school’s everyday expenses - by investing it with its endowment fund, instead of keeping it in safe, bank-like accounts. The disclosure was made in the school’s annual report for the fiscal year that ended June 30.

Typically, companies and big institutions manage their cash conservatively in order to have it readily available, by keeping the money in such low-risk investments as money-market mutual funds.

But Harvard placed a large portion of its cash with Harvard Management Co., the entity that runs the university’s endowment and invests in stocks, hedge funds, and other risky assets. It has been widely reported that Harvard Management’s endowment investments were battered in the market crash - down 27 percent in its last fiscal year. Not revealed until yesterday was that the school’s basic cash portfolio had also been caught in the undertow.
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Old 10-17-2009, 01:13 PM
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Wow. Lucky they have so much money -- even if not as much as they used to have.

Bruce
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Old 10-19-2009, 12:55 PM
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Related: [kind of]

http://mobile.bloomberg.com/apps/new...d=a6QpSf.s4NaA

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One target of their anger is Larry P. Langford , who was the county commission’s president in 2003 and 2004 and is now mayor of Birmingham. The 61-year-old Democrat goes on trial today, charged in a November 2008 federal indictment with taking cash, Rolex watches and designer clothes in exchange for helping to steer $7.1 million in fees to an Alabama investment banker as the county refinanced its sewer debt.

Jefferson County’s experience is a parable for billions of dollars lost by state and local governments from Florida to California in transactions done behind closed doors. Selling debt without requiring competition made public officials vulnerable to bankers’ sales pitches, leaving taxpayers to foot the bill for borrowing gone awry.

Swaps Blew Up

Under Langford’s stewardship, the county bet on interest- rate swaps, agreements that a representative of New York-based JPMorgan Chase & Co. told commissioners could reduce their interest costs. Instead, the swaps -- covering more than $5 billion in all -- blew up during the credit crisis after ratings for the county’s bond insurers fell.
....

Thousands of public borrowers across the U.S. chose a similar strategy, and many are now paying billions of dollars to escape the contracts, said Peter Shapiro , managing director at Swap Financial Group in South Orange, New Jersey. Even Harvard University, the world’s richest academic institution with an endowment of $26 billion, fell for Wall Street’s financing in the dark: It paid $497.6 million to investment banks during the fiscal year ended June 30 because it chose to cancel $1.1 billion of interest-rate swaps.
Maybe I should change this to "stories for Hull's text" - my fave chapter where Hull recounts derivatives screw-ups.
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Old 10-19-2009, 12:58 PM
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I "get" the cash part, but I'm not sure what one does with designer clothes and Rolex watches. Maybe I'm too much of an actuary!

Bruce
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Old 10-19-2009, 01:01 PM
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Quote:
Originally Posted by bdschobel View Post
I "get" the cash part, but I'm not sure what one does with designer clothes and Rolex watches. Maybe I'm too much of an actuary!

Bruce
Wear them.

That's what you do.

I hope that cleared up that issue for you.
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Old 10-19-2009, 01:05 PM
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Doh!

Bruce
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Old 10-19-2009, 01:06 PM
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Mary Pat Campbell
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Hey, I'm a teacher. I like to spread information around.
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Old 10-19-2009, 01:18 PM
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Quote:
Originally Posted by campbell View Post
Maybe I should change this to "stories for Hull's text" - my fave chapter where Hull recounts derivatives screw-ups.
Not quite the same as Hull, but the PRM4 list is also pretty good.

Bankers Trust
Bankgesellschaft Berlin
Barings
LTCM
Metallgesellschaft
NAB - FX Options
Orange County

http://prmia.org/index.php?page=exam...bBasedResource

Complete with downloadable readings.
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Old 10-19-2009, 01:19 PM
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Ooooh! Thanks!

I love reading about financial/intellectual disasters.
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Old 10-19-2009, 01:28 PM
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Quote:
Originally Posted by Bloomberg
Investigators’ interest in Langford didn’t stop him from running for mayor of Birmingham in 2007. He leveraged a pro- business message with a vow to repave streets and clean up neighborhoods into an October victory over the incumbent and eight other challengers.

Thirteen months into his term, he was named in a 101-count indictment and led into federal district court in leg irons.

After Langford’s departure from the commission , its financial troubles deepened. A state court last January struck down an occupational tax that accounted for 25 percent of the county’s operating revenue, setting the stage for massive service cuts.

The mayor was gathering applause on July 21, the day his former colleagues on the commission gave notice that they might lay off up to one-third of the county’s 3,600-person workforce. The move presaged shutting satellite courthouses, putting a hospital for the poor in jeopardy and slowing to a crawl such services as auto-tag renewals.

That day, Langford stepped into the cab of a bulldozer at a groundbreaking ceremony for a $550 million, 57,000-seat domed stadium, the culmination of weeks of jawboning as he guided the project’s first $8 million in appropriations through the city council.

...


Friends and foes say his political stock remains strong in Birmingham. He would “win in a heartbeat” if an election were called tomorrow, says Patricia Todd, a Democratic state legislator whose district lies partly in the city of 229,000.
This is what I don't get. The man is widely known to be corrupt, yet the people have no will to remove him from office. Also, where does a bankrupt city get money to build a $550,000,000 stadium???
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