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re: What is the purpose of swaps?
Posted on 1/18/13 at 9:28 am to LSURussian
Posted on 1/18/13 at 9:28 am to LSURussian
I'm not disagreeing with what you wrote as you are right. However, I know the State Auditor pretty well. He had some professionals look at them. They said they were so screwed up, they didn't see how the county could make money on them. As for losing money, the county annual audit states the market value of them. You are correct, the amount of the loss fluctuated with the interest rates and as the rates dropped, so did the loss. However, the loss (on paper) is still substantial. Most of these local governments in Mississippi, when they do these deals, it is not to protect the finances of the government it is
1. to make money in professional service fees for the bond counsels and advisors as they don't have to bid them out and
2. To generate up front cash to make the budgets look better while jacking up the P&I and kicking the can down the road.
And in that order. As I said, I'm not disagreeing with one thing you wrote.
1. to make money in professional service fees for the bond counsels and advisors as they don't have to bid them out and
2. To generate up front cash to make the budgets look better while jacking up the P&I and kicking the can down the road.
And in that order. As I said, I'm not disagreeing with one thing you wrote.
2
Posted on 1/18/13 at 9:38 am to prplhze2000
If the county bought the SWAPs for the sole purpose of speculating on future interest rates, whoever did it should be fired.
When Bill Clinton was first elected President, Bank of America anticipated that interest rates would skyrocket like rates did the last time a Dem President (Carter) was in office.
So BoA bought tens of billions of dollars of variable rate SWAPS based on pure speculation that rates would increase and not for the purpose of protecting the bank's balance sheet position.
Of course, we know that rates declined over Clinton's two terms and BoA had to take a huge loss (several billion dollars' worth) and several heads at BoA rolled when they made the announcement of the loss resulting from selling their speculative SWAP position.
When Bill Clinton was first elected President, Bank of America anticipated that interest rates would skyrocket like rates did the last time a Dem President (Carter) was in office.
So BoA bought tens of billions of dollars of variable rate SWAPS based on pure speculation that rates would increase and not for the purpose of protecting the bank's balance sheet position.
Of course, we know that rates declined over Clinton's two terms and BoA had to take a huge loss (several billion dollars' worth) and several heads at BoA rolled when they made the announcement of the loss resulting from selling their speculative SWAP position.
Posted on 1/18/13 at 1:16 pm to prplhze2000
Swaps are bullshyte in most cases. Unless you are using a CDS to control potential risk as far as insolvency in a company you have an interest in or missed payments... see AIG 2008 also see Greek CDS which were technically in default for non-payment and most got NADA, nothing. SWAPs - complicated BS instrument created for decent purposes but built into confusing pieces of financial jargon usually serving the seller only
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