Saturday, February 28, 2009

political capital – noun (reprise)

A surplus of goodwill from voters that may serve as collateral for high-risk leveraging of their futures.

I earned capital in the campaign, political capital, and now I intend to spend it. It is my style. — George W. Bush

Friday, February 27, 2009

stress test – noun

An examination of an insolvent bank to determine whether, under worst-case financial conditions, it would turn solvent.

Wednesday, February 25, 2009

crisis – noun

[Origin: from Greek krisis "decision."]

A set of conditions under which Congress is willing to pass legislation.

Sunday, February 22, 2009

fraud – noun

A financial scheme that is understood by regulators.

taxpayer – noun

The investor of last resort.

Legacy loans?

Commentators puzzled over Tim Geithner's choice of language in unveiling TARP 4.0:
Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions.

Why the shift from "troubled assets" to "legacy loans"? And what does the phrase mean?

Atrios offered a definition: "Chunks of big shitpile." See also No fish, no nuts.

But in all seriousness, the Wall Street Journal helpfully tracked the origin of the phrase last July:
There are signs J.P. Morgan is trying to compartmentalize the past, if not forget it altogether. Chief Financial Officer Mike Cavanagh introduced the idea of calling the suffering loans from the credit crunch “legacy” loans. Of the $22.5 billion of total lending commitments J.P. Morgan had at the end of March, J.P. Morgan distanced itself from those of a hoary vintage that might give investors the shudders. . . .

The modifier "legacy" serves to distance the current owners of the assets from responsibility for ownership, much in the way that "troubled" serves to distance them from responsibility for their current value. We can't blame people for things they inherited, can we?

If we agree to this terminology, perhaps we can apply "legacy" to other things: legacy mortgages, legacy debts, legacy credit lines, legacy cars. After all, everything we own is a legacy from a past self. Why should we be held responsible for anything our past selves purchased or borrowed? All our problems are inherited.

At any rate, it's worth noting the origins of the phrase: from the mouth of J.P. Morgan's CFO to Tim Geithner's ear. Now we see why Geithner was such a popular choice for Treasury Secretary in the business world: If one of your own is picked, you save money on lobbying.

Thursday, February 19, 2009

shovel-ready – adjective

Prepared for massive excavation and burial of tax-payer dollars.

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. -- John Maynard Keynes

Tuesday, February 17, 2009

moral hazard – noun

The risk that an insured party will subsequently, and without due warning, act as if he were insured.

The world has at least as much to fear from a moral hazard fundamentalism that precludes actions that would enhance confidence and stability as it does from moral hazard itself.-- Larry Summers

Monday, February 9, 2009

plan – noun

A public announcement that some course of action or other will be taken, the details of which to be determined as it's taken.

Details of the new plan, which were still being worked out during the weekend, are sketchy. And they are likely to remain so even after Treasury Secretary Timothy F. Geithner announces the plan on Tuesday. -- NYT 2/9/09