A couple of days ago, Larry Summers spoke some soothing words about the economy. Learning about his ability to predict the economic future makes me wish he were pessimistic.Nathan Vardi reports for Forbes:A few years ago, as Harvard was preparing to issue billions of dollars of debt to finance an ambitious building expansion, the university entered into interest rate swaps to lock in seemingly low interest rates. The swaps were huge, with a notional value of $3.7 billion on June 30, 2005.Such swaps had the university paying a fixed rate to, and simultaneously receiving a variable rate from, a counterparty. The variable rate is keyed to the London Interbank Offered Rate (Libor). The swaps made sense at the time. Harvard had some variable-rate borrowings, and the derivatives effectively converted those debts into fixed-rate ones. With hindsight, Harvard would have been better off just borrowing in the overnight market and taking its chances.The university could have easily gotten...(Read Full Post)