The UK Just Broke

via www.youtube.com

What these UK pension funds were doing, funding their liabilities with leveraged derivatives, seems really stupid — just assuming interest rates would stay low forever. I wonder what CALPERS is doing. I wouldn’t be surprised if they were doing much the same. I’m reminded of the head of my Oxford college explaining to me the great deal he made financing some building project a few years back. He was borrowing at a low rate and figured he would get a much greater long rate in the stock market. I don’t recall the details. I remember wondering if the borrowing rate was adjustable, but I decided not to ask. He was an English scholar, after all. I hope the debt is paid off by now but it probably is not.

BTW I like Joe Brown because he keeps things simple, which things are not always, but sometimes they are.