You know those Libor interest rate swaps – much like those that Metro Sewer District in Louisville did? You know, the ones that are the main culprit in Detroit?
The largest part is $350 million owed for derivatives meant to lower borrowing costs on variable-rate debt.
Municipal borrowers from the Metropolitan Water District of Southern California to Harvard University in Cambridge, Massachusetts, have paid billions to banks to end interest-rate swaps that didn’t protect them. In the bets, a municipal issuer and another party exchange payments tied to interest-rate indexes.
Sounds like a lot of fun for cities like Louisville.
1 response so far ↓
1 E // Mar 18, 2013 at 2:58 pm
Consider also, that the MSD swaps were to hedge against rising ninterest rates. The fed seems to have pretty much guaranteed that won’t happen.
No end in sight for the losses.
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