Shots in the Dark

Al Franken, who’s a good guy, tells Joe Lieberman, who isn’t, to stop gassing on.

Bloomberg’s Michael McDonald, John Lauerman and Gillian Wee weigh in with a massive investigation into Harvard’s interest-rate swaps that warms this journalist’s heart.

(Bloomberg being about the only news organization that can still afford to conduct long-term investigative journalism.)

Bloomberg’s thesis:

“For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances.

The piece begins with a terrific scene as a desperate Harvard asks a Massachusetts state authority for hasty approval to borrow money—a lot of money.

It’s worth quoting at length:

Dec. 18 (Bloomberg) — Anne Phillips Ogilby, a bond attorney at one of Boston’s oldest law firms, on Oct. 31 last year relayed an urgent message from Harvard University, her client and alma mater, to the head of a Massachusetts state agency that sells bonds. The oldest and richest academic institution in America needed help getting a loan right away.

As vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion in Allston, across the Charles River from its main campus in Cambridge, Massachusetts.

The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them.

How many alumni gifts went up in smoke to pay that off?

The Bloomberg reporters obtained a copy of that interest-rate swap agreement with JP Morgan (while rather acidly noting that JP Morgan boss Jamie Dimon, an HBS grad, really stuck it to his graduate alma mater). The agreement was originally a cause for celebration.

Harvard and JPMorgan celebrated the bond issue by hosting a cocktails-and-dinner party at the French restaurant Mistral, in Boston’s South End neighborhood, where appetizers start at $15 and entrees cost about $40, according to e-mails obtained from the state finance agency. JPMorgan invoiced the agency $388.78 for three employees who attended: Caswell, Marietta Joseph and Danielle Manning.

[Note to the Amalie Benjamin generation: That is some hot-s*** reporting.]

The reporters also found that Harvard tried to hide its financial tracks. Again, the relevant section is worth quoting at length [emphasis added]:

Harvard needed cash to pay bills, refinance outstanding debt and break its money-losing swap agreements, according to a series of e-mails beginning on Oct. 31 last year between [Harvard’s Ropes & Gray bond lawyer] Ogilby and staff members of the state authority that were obtained by Bloomberg News. School officials asked whether the agency could omit from a public hearing that some of the bonds would finance swap termination payments.

“There is some sensitivity at Harvard about not specifically flagging the swap interest unwind payments,” Ogilby wrote on Nov. 12 to Deborah Boyce, an analyst at the authority. “They still would like the ability to finance them, but would prefer to delete those references if they can do so.”

Benson Caswell, the bond authority’s executive director responded Nov. 13 that the swap agreements would have to be identified and that the authority needed “timely, accurate and unfiltered information, including a balanced presentation,” from issuers.

Six of the seven Corporation members from the time declined to comment. (Oh, Bob Rubin, where has the mystique gone?) To his credit, Jamie Jim Rothenberg seems to have done his best to describe what happened.

Rothenberg implicitly suggests that the swaps were not primarily the work of Larry Summers, as has previously been reported.

The financing plan using the swaps was developed by the university’s financial team and discussed with the Debt Asset Management Committee, an oversight group, according to James Rothenberg, a member of the President and Fellows of Harvard College, or Harvard Corp., and the school’s treasurer, a board position.

The swaps plan was then approved by Harvard Corp. and implemented and monitored by the financial team, Rothenberg said in an e-mail.

Drew Faust is quoted in a way that makes her sound like a scared little rabbit.

Drew Faust, Harvard’s president since 2007, said she experienced some of her darkest days as she watched the collapse of U.S. markets that deepened the school’s losses.

“Someone would say that this happened, that had happened, they were going to bail out AIG or Lehman is failing,” Faust recalled in an interview, referring to the September 2008 bankruptcy of Lehman Brothers Holdings Inc. in New York and the subsequent government bailout of American International Group Inc. in New York. “We were wondering what was going to happen tomorrow.”

To be fair to Faust, this quote sounds like it might have been taken out of context—it’s not exactly on point, and she’s not quoted anywhere else. I’m going to venture that it came from an interview on a number of subjects and not specifically this interest rate swap, and if that’s true, I’m not sure it’s fair to have used the quote here.

Harry Lewis reinforces his argument that the Corporation needs to change—or be changed.

“They have a structural problem,” Lewis said in a telephone interview. “There’s something systemically wrong with Harvard Corp. It’s too small, too secretive, too closed and not supported by enough eyeballs looking at the risks they are taking.”

There’s much more, but I’d like to hear your comments.

Hmmm. First Harry Lewis and Fred Abernathy write a Globe op-ed decrying the Secret Seven, a.k.a. the Harvard Corporation.

Then Corporation senior fellow Jamie Houghton resigns, and the remaining members wisely decline to make the not-much-liked Bob Rubin the senior fellow, though technically he ought to be, and hand the post to Robert Reischauer instead.

Now Harvard Mag reports that Drew Faust spoke a bit about the Corporation in a meeting with Harvard faculty...

Faust told the faculty members present that at each of its recent meetings during the fall, the Corporation had discussed how it could most effectively carry out its roles and responsibilities—a discussion she said had been led by Houghton. Faust said that he and she felt it was important for the Corporation to take a close look at how it did its work as a board and what practices would be most sensible: the sort of review that any such entity ought to make of its operations from time to time, and that the Corporation ought especially to take at the present time, in light of changes in the University itself and in the larger world. She described this set of activities as a time of reflection for the Corporation. Given that the Corporation rarely, if ever, discloses anything about itself or its work, and rarely is a subject of FAS discussion, Faust’s remarks were unusual.

Unusual indeed. But a sign of meaningful change—or just another bait-and-switch?

My guess would be that the Corporation wants to give the faculty just enough to ease the pressure on it…but without really changing.

The Boston Globe writes about Lieberman’s “flip-flop.”

It’s entirely too easy to portray politicians as self-interested, but Lieberman stands out even among his Senate colleagues for his self-righteousness and egotism.

Let’s not forget his utter lack of principle.

Another explanation for Lieberman’s 180-degree turn on the Medicare buy-in could be that the insurance industry, which has invested more than $1 million in his campaigns since 1998 and is a major employer in Connecticut, saw the buy-in as a threat to its stranglehold on the 55-plus market and called in its chits. Lieberman denies this, but not convincingly. One suspects that Lieberman would find it less palatable to be viewed as a bought-off politician than as a Democratic apostate. But until he can better explain why his reversal on this issue is not a favor to Aetna et al., the former Democrat’s current party designation should be independent with an asterisk - independent of everything except the insurance industry.

Meanwhile, there’s a pretty intense debate happening about Hadassah Lieberman, Joe’s wife, who last year was paid $330,000 by the Susan G. Komen for the Cure foundation, which turns out to be a pretty well-connected political organization… Celebrities and other left-wingers are calling on the foundation to fire Hadassah.

There’s even a Facebook organizing page with the foundation’s phone number: Call 877-465-6636 to tell the foundation that you won’t contribute as long as it’s spending hundreds of thousands of dollars to support the lifestyle of a senator who’s depriving hundreds of thousands of people of health insurance.

Game Six of the Yankees’ World Series victory in 12,000 photos and 3 minutes 24 seconds. It never gets old.

The Guardian writes about Joe Lieberman’s abuse of power.

Obama, desperate to ensure that the reform bid does not fail, has told congressional leaders to rewrite the legislation to keep Lieberman happy by removing any real competition to private insurance companies in an effort to get it passed by Christmas.

…“I have no idea what Senator Lieberman’s agenda is,” said a Connecticut member of Congress, Chris Murphy. “I have stopped trying to be Sherlock Holmes.”

Another member of Congress from Lieberman’s home state, Rosa DeLauro, told Politico website: “No individual should hold healthcare hostage, including Joe Lieberman, and I’ll say it flat out: I think he ought to be recalled.”

That is a fantastic idea. I wonder if there’s any way to do that….(apparently not).

…detractors paint a picture of a vain, bitter man still stung by his rejection by Democratic voters who came close to scuppering his Senate career three years ago and now revelling in the power he wields to block Obama’s first piece on major legislation.

Which is exactly right. Lieberman was always arrogant, self-important, and irritatingly moralistic. (The New Republic reports that Lieberman is also probably a liar.)

Now he has added a new and potent element to this toxic stew: an unshakeable belief in his own righteous martyrdom. As the Washington Post’s Ezra Kline writes of Lieberman’s shifting sands [emphasis added],

…if there’s a policy rationale here, it’s not apparent to me, or to others who’ve interviewed him. At this point, Lieberman seems primarily motivated by torturing liberals. That is to say, he seems willing to cause the deaths of hundreds of thousands of people in order to settle an old electoral score.

Joe Lieberman may well think that he is Jesus Christ in the Senate. More likely, he’s doing the devil’s work.

Because it’s almost Christmas, here’s some juvenile holiday humor. (Sorry about the ad, but what can you do?)

That Alec Baldwin is a national treasure.

A commenter below makes an important point about the burdens a young newspaper person faces in today’s economic environment:

I have met Amalie several times and she is a very nice person. I suspect part of the problem with her writing is that she doesn’t have the time to work with her editor to address the problems that Rich has pointed out. In addition to her daily deadlines, she is also the Globe writer who updates the Red Sox blog and responds to the hundreds of reader questions that come in each day. Maybe it’s because she’s the youngest sports writer on the staff that she gets assigned all the digital duties in addition to her print responsibilities, but I think that might explain some of her troubles.

I think this is an excellent comment because a) I’m feeling bad about picking on Amalie Benjamin so much, and b) it raises the larger issue about the decline of newspapering standards due to the economic pressures faced by the industry.

Here’s the problem, though: The Globe and other papers are lowering standards because of declining revenues (hence fewer reporters and editors, more multi-tasking).

But if newspapers don’t provide clear value-added (better writing, reporting and editing) over blogs, then there’s not much reason for people to buy them….

In an editorial, the Crimson argues that it’s nuts of FAS dean Mike Smith to start giving professors raises while cutting student services and laying off staff. (Find the misplaced modifier in this paragraph, by the way.)

Harvard professors are currently the highest paid in the country, according to a report by the American Association of University Professors. When compounded with the level of prestige attendant to professorship here, most professors are deeply contented to be on the faculty of Harvard University. Similarly, many students are already eager to earn a graduate degree here; providing extra incentives need not be our priority right now. While the goal of preserving the quality of teaching and research at Harvard is an essential one, these raises will have little impact. Instead, Dean Smith should have directed FAS funds toward returning staff and services—spending for which the student benefits are much more certain.

This is Sting’s daughter, Coco Sumner.

I Blame Coco feat. Robyn - Caesar

I BLÅME COCO | MySpace Music Videos