14. Swaps [LO 23.3] In 2009 and 2010, US investment banks were under fire for interest rate swaps sold to municipalities and non-profits. For example, California’s water resource authority paid about US$305 million, North Carolina paid about US$60 million and Harvard University paid about US$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 US investment banks had taken advantage of municipalities and non-profits. Is this argument correct? Why or why not?