Monday, February 01, 2010

The Devil's Dictionary Of Financial Terms

With apologies to Ambrose Bierce....

agency, n. A criminally negligent organization that purchased and securitized mortgages; a criminally negligent organization that rated mortgages and mortgage securities. The agencies were late in downgrading the Agencies.

bailout, n. A notorious regressive tax; the public underwriting of stupid bets made by overpaid morons. Can you believe their bonus pool was $16 billion a year after the bailout?

bail out, v. To selflessly save the global economy from depression and mass unemployment. If we hadn’t bailed out AIG, the unemployment rate would be 25% right now!

bubble, n. Part of the dual mandate; the monetary policy goal of the Federal Reserve and the People’s Bank of China.

carry trade, n. A financial proposition that concludes with its adherents supine, carried out on a stretcher.

CDS, n. The simultaneous purchase of kindling, lighter fluid, matches, and fire insurance on your neighbour’s house.

conspiracy, n. The only possible explanation for certain types of irrational price action. There’s a government conspiracy to support the stock market; how else could it have rallied 70% since March? A crackpot theory held by nutjobs who can’t admit when they’re wrong. Have those conspiracy theory whackos never heard of an oversold bounce before?

credit, n. An asset universally reviled by financiers during a crisis and claimed by politicians after it.

crisis, n. A frequently occurring one-in-a-lifetime event, generally deemed impossible by those under the age of 28.

exotic, adj. Strange; unusual; rarely-seen. I didn’t think it was possible to lose $200 million in fifteen minutes, but the exotics book just did.

hedge, n. A line of closely-grouped shrubberies; a clever way of adding correlation and volatility risk to one’s portfolio.

hedge, adj. A type of investment fund generally accepted to be dedicated to the proposition of ignoring hedges of every description.

house, n. An abode; an investment. Formerly an asset, now a liability.

leverage, n. The act of turning your problem into our problem.

mine, adj. Trader-speak for a desire to make a purchase. 50 EUR/USD mine, shagger. The sole source of responsibility (and thus the rewards) for a successful trade.

option, n. A financial instrument that offers multiple ways of losing money. If being long vega doesn’t kill you , the decay will.

quantitative easing, n. An unorthodox monetary policy that targets increases in high-powered money rather than interest rates; the act of throwing sufficient sums at the financial system to ensure that the stock market starts to rally.

restraint, n. An undesirable spending habit rarely observed in public; an offense punishable by a targeted taxation regime.

risk, n. A binary analytical framework for the simpleminded; can be either off or on. A characteristic of investment that was largely forgotten in the mid-Noughties

SAFE, n. An organization dedicated to perpetuating dangerous global imbalances.

sales, n. The art of separating a customer from his money.

seat, n. The world’s most valuable furniture; a place at a market-making franchise desk at a bank. Fred made $15 million quoting prices last year, but the seat is worth $25 million!

subprime, n. An ingenious method of granting credit to the poor, thereby narrowing the wealth gap between the classes. Dick Fuld lost $650 million after Lehman’s subprime bets went sour.

volatile, adj. The temperament of your average trader on a bad day; the likely future state of financial markets after long periods of low interest rates.

Warren Buffett, n. Ebenezer Scrooge with better PR.

yacht, n. A monetary black hole; an aquatic trophy rarely seen in close proximity to banking customers.

yours, adj. Trader-speak for a desire to make a sale. 500 e-minis, yours!! Whose responsibility the average bank, insurance company, or housing agency thinks it is to pay for the financial crisis.


Rita said...

MM since you have a definition for quantitative easing like you do, then conspiracy theorists can't be nutjobs.

cp said...


Nemo Incognito said...

Pretty amazing that Hank's book calls for moving CDS onto exchanges, less leverage, etc etc. Oh wait, I forgot, he sold all his Goldman stock in 2007.

Glenn said...

Excellent, esp. those for CDS, hedges and SAFE.

Nemo Incognito said...

Dear FX people, any thoughts on this paper? It struck me as a bit trite given FEER is basically whatever you think it is.

Macro Man said...

Nemo, the notion that buying cheap currencies with high yields is a better idea than buying expensive currencies with high yields (let alone low yields!), while perhaps new to academics, is one that sensible practitioners have known for a long time.

Nemo Incognito said...

I know, what I am questioning is the absurdity of the actual regression and performance data - FEER is to you guys what DCF valuation is to me, whatever the hell you reckon (within some bounds of reason) unless I am horribly mistaken.

Macro Man said...

Yup. There is wide disagreement on simpler valuation measures like PPP, let alone something like FEER.

But What do I Know? said...

Very nice, MM. Especially like the entries for carry trade and Warren Buffett.

Minty said...

Inspired. Kudos.

Anonymous said...

fantastic ... prerequisite reading for anyone foolish enough to want to join this industry

Anonymous said...

very good!

"Cassandra" said...

Hey MM - it's been a while....hope you;re well! I do think you forgot a few:

Bank - The place you're money visits whereupon heads they win and tails you lose.

Economics - the art of rationalizing one's positions in the present leaving sufficient wiggle-room to justify one's [wrong] positions in hindsight

Goldman Sachs- The market's version of The Sheriff of Nottingham Redux

High-Frequency Trader - A market participant with neither a position nor an inclination to have one until someone else expresses an interest inhaving one after which he (and it is a he) works himself into frenzied algorithmic activity in anticipation.

Insider Trading - "Just good research" according to its more mendacious practitioners.

Statistical Arbitrage - A quantitative justification for entering into a losing position

Day-Trader [See also Mrs Watanabe] - Front and center in the financial Phalanx

Anonymous said...


Certainly brightened up my Monday.


Anonymous said...

should have bought the "dictionaire posthume de la finance" by DA and EL

I-Man said...

Leverage... ha, ha, ha.

Leftback said...

Great stuff, MM.

Plunge Protection Team - a mythical multi-headed beast that cannot possibly exist, according to official Guardians of Free Market Capitalism, yet frequently appears to buy the futures in the pre-market or to save the free world at 3pm Eastern Time. Rumored to possess many tentacles and to keep its headquarters at the New York Fed.

Bob said...

SAFE -- the only people on the planet foolish enough to by US Treasuries with their own money.

Can't believe the dim witted President of the United States still hopes to run trillion dollar plus deficits in perpetuity -- and the Chinese actually think future generations are going to pay this money back! Note to SAFE: check out the mortgage default rate before you buy more Obama-fetti

Anonymous said...

And another you missed:

Lloyd Blankfein: a man of the cloth; a minister.

; )

Skippy said...

Fascinating move by the RBA. Consensus AUD longs must be feeling rather sore right now?

Global factors (read: China policy tightening) have obviously weighed on their mind.

However still an interesting move set against very strong rebound in the domestic labour market and the 5.2% gain in Q4 house prices...

Anonymous said...

Skippy....see "bubble" above. After all mortgage take-up has "slumped" to a 5yr low. Not allowed under the new rules...

Minty said...

Economics-The art of explaining today why what you predicted yesterday was wrong.