Dean Wright on Ethics, Innovation and Values
Watching our language: Writing about the financial crisis
The global financial crisis may have drained the coffers of investors, businesses and nations, but it’s making our language a bit richer as we discover, revive, coin and develop words and phrases to help make sense of it all.
Some take hold quickly and spread far and wide. “Bailout,” naturally, was voted Word of the Year for 2008 by the American Dialect Society and by Merriam-Webster and was No. 2 on Time’s “Top 10 Buzzwords” (a list that also included “staycation,” a frugal vacation spent close to home). Interestingly—and predictively, as it turned out—the dialect society’s 2007 Word of the Year was “subprime.”
There is a blizzard of language that strives to describe—but sometimes obscures—the strange new financial world we’re in. Television shows, websites and talk radio have exhorted us to buy or sell, have faith or run for our lives, be calm and just trust CEOs or don’t believe a word they say. It’s enough to make you wonder if screenwriter William Goldman’s famous assessment of Hollywood—”Nobody knows anything”—applies here.
We who make our livings in financial journalism have a responsibility to help show the way through the blizzard—to translate and explain, or at least not to make it any more confusing. To that end, here at Reuters News, we’re updating our financial glossary. We want it to be a living document that changes as the world it describes changes. When we’re finished with updates, we plan to open it up to our users as a wiki. In the meantime, take a look and feel free to comment on this blog.
I also want to invite all of you to post on this blog your own words and phrases that capture the essence of the financial situation or help you make sense of it. Or you might want to share words and phrases that you’d like to see disappear from the language because they confuse and obfuscate, rather than illuminate.
Some words describing phenomena and financial tools that are causes or effects of the global financial crisis have quickly come into common usage. For many people, definitions for these important terms are still less than clear. Among them:
- Agflation: “Inflation driven predominantly by rising prices for agricultural products,” according to Word Spy. Reuters was quick to cover this phenomenon and we created a special coverage page, though the earliest use, according to Word Spy, was by the National Post in May 2007.
- Collateralized Debt Obligation: “An asset-backed security which uses a portfolio of bonds or loans as collateral, or security. A sponsor uses the portfolio to set up a special purpose investment vehicle which issues securities or CDOs, sometimes with a higher credit rating than any of the individual underlying assets. There may be reduced transparency in assessing the underlying risks,” according to our financial glossary. That’s not exactly a “Finance for Dummies” explanation, but it’s a complex term. Given what’s happened in the last year, maybe no one really understood CDOs.
- Leverage: Also known as “gearing,” according to our glossary, leverage is the ratio of debt to equity. As we’ve learned painfully in the current crisis, companies with extremely leveraged positions—that is, those who have borrowed much, much more than they own—are left vulnerable to major market fluctuations.
- Securitization: “The creation of asset backed securities. The assets to be securitised are sold to a special purpose vehicle (SPV), thus isolating the borrower from any claims for repayment. The SPV then issues bonds or other debt instruments which can be traded. The money raised by the issuance of the debt is used to pay the borrower for the assets. Mortgages can be securitised as can future royalties from a pop star’s song portfolio,” according to our glossary. Again, that’s not exactly an elementary explanation of this important term. More simply, securitization is a process of pooling assets that produce revenue—like mortgages—slicing them up, and repackaging them as securities that are sold to investors. In the U.S., securitization of mortgages—some of them “subprime” loans taken out by home buyers who couldn’t afford them and later defaulted—was a major contributor to the financial crisis.
- Stagflation: This one pretty much means what it sounds like: “A state in which an economy experiences high inflation accompanied by stagnant economic activity, i.e. low growth and high unemployment,” according to our glossary. Still, for the uninitiated, it might not be quite so obvious without the definition. And we’ve used the word more than once in stories without defining it.
Other words or phrases that are decades or even centuries old that have risen to prominence during this crisis:
- Clawback: “To get back (as money) by strenuous or forceful means (as taxation),” according to Merriam-Webster. This word, which the online dictionary dates to 1953, has been used a lot lately, typically in the context of recouping big bonuses from Wall Street high-fliers whose employers now need taxpayer-funded bailouts just to survive. New York Senator Chuck Schumer, a Democrat who’s received plenty of financial support from Wall Street, said on NBC’s Meet the Press earlier this month that the U.S. needs “really tough oversight” on limits to executive compensation. “I like clawbacks, for instance,” the senator said.
- Decremental: A gradual decrease in quality or quantity, according to Merriam-Webster. The online dictionary says this one has been around since 1610, but it’s certainly appropriate for a 21st century crisis (although “gradual” might not be entirely appropriate).
- Ponzi Scheme: Sadly, with the arrest and guilty plea of Wall Street swindler Bernard Madoff, this one is firmly back in common usage. “A fraudulent investment scheme that promises high returns which are derived from an inflow of new investors’ funds rather than from sound investments. The scheme collapses when there are not enough new investors to pay the old investors. Also known as a Pyramid scheme,” according to our glossary. Generally, we’ve done a good job of clearly explaining what Ponzi schemes are. For instance, this piece about the increase in Ponzi schemes devotes its entire fourth paragraph to this clear definition: “Such schemes use money from new investors to pay distributions and redemptions to existing investors. They typically collapse when new funds dry up.”
There are also a number of tongue-in-cheek phrases that poke fun at the gloomy fiscal landscape.
- Brickor Mortis: “A real estate market in which very few houses are being sold,” according to Word Spy. This one saw a lot of use in the United Kingdom.
- Flat is the new growth (or up): Let’s hope not for long.
- Jingle mail: “The practice of abandoning one’s house and mailing the keys back to the creditor because the mortgage is worth more than the house itself,” according to Word Spy.
- Utility vs. casino: Expresses the divide between conventional and unconventional banking.
Other new words are pure invention. For instance, the Dialogic blog listed the winners of the Washington Post’s Mensa Invitational contest, which “asked readers to take any word from the dictionary, alter it by adding, subtracting or changing only one letter, and supply a new definition.” I highly recommend the full list, and two or three of them seem appropriate for a new financial crisis vocabulary:
- Cashtration: The act of buying a house, which renders the subject financially impotent for an indefinite period.
- Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to begin with.
- Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.
And at the Double-Tongued Dictionary, we find a number of words and phrases that have made it into the language, if not the mainstream dictionaries. The Double-Tongued Dictionary is edited by Grant Barrett, who is a co-host of the U.S. public radio program “A Way With Words.”
- Bad bank: Though it might sound like a scolding tut-tut given to irresponsible financial institutions, this term typically refers to the proposal for a giant, government-run bank that would buy toxic (or “bad”) assets from existing banks, hopefully allowing them to return to financial health.
- Econolypse: The situation we may or may not be in.
- I kill you later: This catch phrase was described this way on Bloomberg.com: “Using derivatives contracts known as accumulators, the company wanted to minimize its currency exposure resulting from a A$1.6 billion (US$1.07 billion) investment in an iron ore mine in Australia. Three months later, the Aussie had lost almost 40 percent of its value against the greenback, and Citic Pacific’s losses from the accumulators—so notorious in Hong Kong that investors refer to them as “I kill you laters”—had soared.”
- Jet-pooling: The mode of shared travel that’s been popularly, and sometimes sarcastically, suggested to corporate CEOs who fly on expensive private jets to Washington D.C., where they then asked the U.S. Congress for emergency bailout funds.
- Mini-Madoff: The nickname given to alleged Ponzi schemers whose suspected swindles—while not nearly as massive as Madoff’s US$65 billion fraud—have also been exposed by the economic downturn. As Warren Buffett famously said, “You only find out who is swimming naked when the tide goes out.”
- Zombie company: Firms kept alive by banks even though they were insolvent.
We’ve only scratched the surface. I know readers of this website are more plugged into the financial world than many. So let us know the words and phrases that you’ve heard that have enriched the language, if not your brokerage accounts.