A fairly amazing story is on Swaps Backfire on Hospitals Firing Workers to Pay Wall Street:
at least 500 nonprofits that entered into the derivatives with Wall Street in an effort to cut costs, according to Moody’s Investors Service. Instead of being able to take advantage of the lowest interest rates since Dwight D. Eisenhower was president, tax-exempt groups are getting hit with a double whammy of rising borrowing costs and demands for collateral from financing tools they didn’t understand.
I don't understand this either but it appears financial managers of non-profits bought swaps to hedge on interest rates.
From wikipedia:
An interest rate swap is a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. They can also be used by speculators to replicate unfunded bond exposures to profit from changes in interest rates.
Municipalities did the same thing. I wonder
what their exposure is.
RebelCapitalist.com - Financial Information for the Rest of Us.
research it out
This is the first I heard about this and it probably would be useful to research it out...
but these friggin' derivative products are popping up over and over again causing massive losses.
I feel like we have traveling salesmen under the guise of financial advisers pushing their snake oil called derivatives, i.e. swaps.
What ever you do to research this out, screen for the stupid.
I just cruised the Internet reading various sites and so on and the commentary on AIG is pretty stupid. They are all going off on bonuses when the real issue is that London gambling hall and getting rid of this shadow banking system, toxic assets in addition to the AIG payouts and what they are doing specifically with these various derivatives. The bonuses are just a symptom.
Here is the thing: when municipalities issued
variable-rate debt they often used interest rate swap to change over to fixed rate. It may difficult to track the amount but I know that investment banks loved this because it generated a lot of fees.
RebelCapitalist.com - Financial Information for the Rest of Us.
Here is an explanation of municipal
derivatives:
Link
RebelCapitalist.com - Financial Information for the Rest of Us.
Hate to Say...
Years ago when Tenant, Columbia and others were building out their networks, they purchased thousands of local community hospitals. They were viewed as undervalued assets. These large health conglomerates issued bonds to finance their acquisitions, and the first thing they'd do upon purchasing a small community hospital would be to sell the land it was on to one of their REITs. The community hospital then would begin paying rent to the REIT, and that in turn ultimately financed the acquisition. Community hospitals were effectively refinanced and mortgaged, instead of being free and clear of debt burden. No longer did the community hospital operate as an entity standing on fully paid for land. Historically, before the massive reconsolidation by Wall Street, Community Hospitals paid no rent.