How Harvard Lost $1 Billion

Answer: Betting on interest rates. (I don't know enough about Harvard's finances to judge whether the bet was sensible ex ante. But it sure isn't working out well ex post.)

Update: Someone more knowledgeable than I am about the financial situation at Harvard emails me the following response to the Felix Salmon piece I linked to above:

1) The instrument in question was highly liquid and could be sold fully within a few days; essentially all money was lost in 2008 two years after Larry Summers left.

2) Harvard has a system where the treasurer makes these decisions with approval of the corporation and involvement of a debt management committee on which president does not serve.

3) Given the plan to borrow large amounts of debt in the future, doing something to lock in low rates made sense. Iif Harvard was borrowing big, there would be offsetting saving now. The big error was the failure to adjust hedge when Allston was scaled back and to take account of the risks associated with the change in the university's credit rating.

Thanks to the reader who sent along this feedback.

Update 2: Felix Salmon is not persuaded.