Swaps Backfire on Hospitals Firing Workers to Pay Wall Street

[Joanne98]

Source: Bloomberg


March 18 (Bloomberg) -- South County Hospital Chief Financial Officer Thomas Breen thought he’d seen the worst of the credit market’s seizure when the interest rate on $52 million of its debt doubled to 12 percent a year ago.

That was just the start. The Wakefield, Rhode Island, hospital has also been forced to give Merrill Lynch & Co. $12.7 million of collateral for an interest-rate swap that backfired. South County could have used those funds to counter a drop in state aid for treating uninsured patients, compensate for declining admissions or buy four years’ of orthopedic supplies. Instead, the facility is firing workers and cutting pay.

“We’ve been working extraordinarily hard to try to find a way out of this,” said Breen, who joined the hospital in 2007, a year after it bought the swap. “It’s threatening to the institution.”

South County is one of 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.



Read more: http://www.bloomberg.com/apps/news?pid=20601109&sid=ab21IaySjXmY&refer=home

[Uben]

1. Live by the gun.....

...die by the gun. Should have been more interested in doing things the conventional way instead of trying to game the system.

You play, you lose.

[rox63]

2. Yeah, but it sucks for the sick people the hospital is supposed to serve n/t

[marketcrazy1]

3. if they did not understand the risk

of the investment they should not have invested,, FIRE the investment department heads!!!

[KansDem]

4. "FIRE the investment department heads!!!"

Yes, but first give them a bonus...isn't that the way it works nowadays? :shrug:

[GentryDixon]

5. They will probably get bonuses.

[The Stranger]

10. The Cult of the Free Market made what were once illegal investments suddenly legal.

This type of investment should not even be legal.

[notesdev]

6. Nonprofits

have no business getting involved in highly risky, for-profit adventures like derivatives gambling.

[BeliQueen]

7. So it's not the system that is broken. . .

. . . It's the people/institutions investing in the system.

Gotcha.

[notesdev]

9. The system's brokenness

is composed of an innumerable number of bad actors making poor decisions, like the folks who decided a nonprofit's endowment should be exposed to the risks inherent in derivatives.

You can't separate the two. The system can't be broken and the actors angelic.

[truedelphi]

12. Boy am I glad that was made clear to us.

So it was the investers, stupid, and the financial managers and the portfolios that included people's retirement and pension monies.

It is all their fault. For after all, were they not among the mob screaming for the Bank Reform Act of 1999 to pass? And then they wanted derregualtion and the abolishment of the Glass Stengall Act.

Oops, wait it was the fatcat lobbyists that wanted those things on behalf of Wall Street.

But let's not blame Wall Street - if we do, how can we then allow ourselves to bail Wall Street out!! Let's blame the investers themselves instead!!

[acmavm]

8. It seems that everyone who had two cents rattling around in their pockets

or two dollars left in the savings account jumped on this financial time bomb. Did no one understand what they were investing in? Were they not told what exactly was going on? What the fuck was the matter with people? Don't answer, I know. GREED.

PICTURE THIS: An economy that was being held hostage by a bunch of corrupt gambling fools who were pushing bad paper (bets). Then it was taken down by these same guys who took off with the pot (who knows what they did with it)? NOW they're crying that they are owed still more because they started the rigged game in the first place and they deserved to have THEIR loses paid for by the fools that they took and the rest of the public who didn't even have a bet down in the game. And they claim they deserve to be rewarded (bonus time) for all this shit no less.

And they bust people for gambling on sports. :sarcasm:

How the hell did anyone ever think that this shit would support a nation's economy? All these years of hearing that America was no longer a 'manufacturing' economy but was now a 'service' economy. Well, what the fuck would you call this 'service'?

[gmpierce]

11. Do the letters AAA mean anything

Most non-profits and quasi-public agencies were limited by law to investments rated AAA. In many cases, the "financial managers" really knew very little about investments - beyond the AAA rating.

They had the AAA and the advice of "consultants". By the way, most of the consultants were being paid by the Wall St. companies that created the financial products they were recommending.

So who was most to blame: the idiots who were supposed to be managing the investments, Standard and Poors, the consultants who were recommending whatever paid the best commissions?

[Fumesucker]

13. The idiots who listened to "consultants" who had a vested interest..