Comments on: Annals of rank hubris, Larry Summers edition http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Jeanelle Bohannon http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/comment-page-1/#comment-55642 Sun, 19 Oct 2014 16:41:10 +0000 http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/#comment-55642 great points altogether, you simply gained a new reader. What would you recommend in regards to your post that you just made some days in the past? Any positive?

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By: ArtFart http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/comment-page-1/#comment-4567 Thu, 23 Jul 2009 17:00:06 +0000 http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/#comment-4567 Summers may look like an idiot at the moment, but this ploy might yet become a stroke of genius if Bernanke ever stops printing money and giving it away.

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By: Rick Kane http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/comment-page-1/#comment-4563 Thu, 23 Jul 2009 16:39:03 +0000 http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/#comment-4563 I kind of disagree with “it seemed a good idea at the time defense.” Extrapolations twenty years out to the future are guesses in the extreme. To many Black Swans can happen. I don’t think a prudent fiduciary, who really feared being held accountable for his or her breaching a fiduciary duty would make such a gamble.

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By: csissoko http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/comment-page-1/#comment-4562 Thu, 23 Jul 2009 16:34:21 +0000 http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/#comment-4562 If Summers entered into the swaps when short term rates were at 1% i.e. 2003 to 2004, it’s not unreasonable to believe that he was just trying to lock in low interest rates on the debt. (He probably figured that the likelihood that the Federal Funds Rate would fall below 1% was tiny.)

In fact, given the likelihood of inflation in the middle run, unwinding these contracts may turn out to be an incredibly stupid decision.

The problem really is that collateralized interest rate swaps aren’t really hedges (unless you’ve got a direct line to the Federal Reserve for liquidity). When the contract moves against you the cash call can be so large that retail derivatives customers can’t carry them to the point in time where they would be valuable. Calling a product with these characteristics a hedge is misleading.

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By: AD_NYC http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/comment-page-1/#comment-4558 Thu, 23 Jul 2009 15:37:45 +0000 http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/#comment-4558 While I do not agree with Larry Summers on many things, I think comparing his actions (or anyone else’s who were involved) related to these interest rate swaps to Robert Citron’s actions is one hell of a stretch. For those interested, the book “Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County” does a nice job of describing what happened with Citron’s investment strategy.

Regarding the article that is linked, we see this type of reporting from Bloomberg frequently. They are very good at pointing out trades that don’t look good on an ex post basis.
While their reporting in this manner might be an interesting story, it does nothing to assist decision makers with future decisions related to these matters. In fact it may be detrimental to the decision making process. Decision makers may remove viable options, regardless of how logical they may be on an ex ante basis, from the spectrum of possible options out of fear from articles similar to this one that could be written in the future.

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By: HB http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/comment-page-1/#comment-4556 Thu, 23 Jul 2009 15:32:59 +0000 http://blogs.reuters.com/felix-salmon/2009/07/23/annals-of-rank-hubris-larry-summers-edition/#comment-4556 Larry is mentioned in this article as being the one who suggested entering into the swap deals. It also details the other screw-ups that caused Harvard’s endowment to tank.

http://nytimes.com/2009/02/21/business/e conomy/21harvard.html

So shame on Larry. He belongs in the same doghouse as Ben Stein.

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