In 2009 and 2010, investment banks were under fire for interest rate swaps sold to municipalities and
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In 2009 and 2010, investment banks were under fire for interest rate swaps sold to municipalities and nonprofits. For example, California's water resource authority paid about $305 million, North Carolina paid about $60 million, and Harvard University paid about $923 million to unwind swaps agreements. To unwind a swaps position, you make a reverse trade. For example, if you had agreed to a fixed-for-variable swap, you would enter a variable-for-fixed swap. The controversy was caused because many people felt that investment banks had taken advantage of municipalities and nonprofits. Is this argument correct? Why or why not?
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