Sewers, Swaps and Bachus

[elleng]

Once upon a time — back when too many people viewed derivatives as glittering innovations with magical powers to hedge against risk — Jefferson County was ordered by the Environmental Protection Agency to upgrade its sewer system. To finance the new sewers, it issued bonds totaling nearly $3.2 billion.

After the sewer system was completed, the county moved all that debt from fixed rates to variable rates. It did so because some investment bankers at JPMorgan persuaded the county to purchase derivative contracts, in the form of interest rate swaps, that would supposedly allow it to avoid paying higher interest if rates went up. Magic indeed.

But the financial crisis caused those clever hedges to go blooey. . .

Corrected link:

http://www.nytimes.com/2011/04/23/opinion/23nocera.html?_r=1&partner=rssnyt&emc=rss

[tularetom]

1. Something's hinky with your linky

When I click on it it directs me to the post a poll page.

[elleng]

2. SORRY! My mistakey!!!

http://www.nytimes.com/2011/04/23/opinion/23nocera.html?_r=1&partner=rssnyt&emc=rss