"Sophisticated" investors? http://www.bloomberg.com/apps/news?pid=20601087&sid=aufmSRtDn0gg âThis vividly shows the risk of entering into interest- rate swap agreements,â said Christopher Taylor, former executive director of the Municipal Securities Rulemaking Board in Alexandria, Virginia. âThe worldâs got to see what stupidity even the sophisticated investors like the transportation fund can get into.â While New Jersey replaced the debt with fixed-rate securities in 2008 after the $330 billion auction-rate bond market froze, the swap, in which two parties typically exchange fixed payments for ones based on floating interest rates, isnât scheduled to expire until 2019. ******************************* New Jersey saved $9.9 million from 2003 to 2008 by issuing the auction-rate bonds instead of fixed-cost debt, the Office of Public Finance said in a report last year. The trust fund paid $4.5 million in penalty interest payments when the auction-rate market collapsed and some borrowersâ costs soared. After it failed to put together a sale of a different type of variable-rate bonds, New Jersey then reissued 11-year notes yielding 4.18 percent in August 2008, according to the Office of Public Finance. Refinancing the bonds cost $2.1 million, reducing the authorityâs savings on the transaction to $3.3 million, state records show. Since then, the fund has paid almost four times that amount on a contract that hedges nothing. For New Jersey, the swap became âa tool for no purpose,â former regulator Taylor said.