Originally posted by eri
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They wanted to fix their interest rate so that it did not increase. It was an explicit bet on interest rates by the farmers.
If interest rates had remained above the level which the farmers had fixed their interest rate, then the farmers would have benefited.
Imagine agreeing to fixing your interest rate for the next 20 years in 2007 at say 9%. If interest rates stayed above 9% over that 20 year time period, the farmer would have benefited.
Instead the interest rates fell below the rate that they fixed at - so the farmers were caught paying a higher interest rate than the market interest rate.
Now that agreement to pay 9% for the next 20 years doesn't look so good when interest rates have fallen to say 5%.
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