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...tightly linked to the price of electricity: When electricity prices are high, SWIFTs enjoy higher revenues. SWIFTs have become expert at using customized derivatives to offset the risks associated with these revenue fluctuations, yielding net earnings that, until recently, had appeared to be virtually risk-free. They then issue short-term debt backed by these stable earnings. A typical SWIFT finances 90 percent of its assets using overnight notes that yield only slightly more than Treasury bills...
...fraction of its assets invested in a single Georgia wind farm, which was forced to shut down for two weeks over protests that its turbines were killing large numbers of local waterfowl. The resulting revenue loss forced Pro-SWIFT to sell assets in an effort to service its maturing short-term debt. Although only $10 billion of assets were liquidated, they fetched just 60 cents per dollar of book value. J.P. Morgan, in purchasing the assets, noted that, “Our more conservative financial policy puts us at a disadvantage in buying wind-farm assets—hence...
These losses were the first in the history of the SWIFTS, and they had a powerful effect. Creditors of other SWIFTs, awakened to the risks involved, began to refuse to roll over short-term loans. This has led to further liquidations, bigger fire-sale discounts, and a cascading effect. To date, over 50 SWIFTs, representing over $700 billion in assets, have failed. Yesterday, it was reported that Berkshire-Hathaway was in discussions to acquire Magna-SWIFT’s wind-farm assets for 30 cents on the dollar...
...related development, a spokesman for Goldman Sachs denied allegations that the firm had taken a large short position in a synthetic SWIFT in April of last year...
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