Friday, February 20, 2009

Demystifying Financial Vocabulary (with buffets, tissues, and pants with big pockets)

I heard something today about a “financial crisis.”  Sounded pretty serious . . . but it’s probably not that big a deal.  It can’t be nearly as big as deal as when the writer’s strike cut short Lost last year and CANCELLED 24.  We all know that in the last 5 months or so we’ve been treated to a whole new vocabulary of economics.  Here at HTF, I’d like to help the readers understand a bit what all of these fancy terms mean.  So I peeled open the latest BusinessWeek for some ideas and found:

  • 401K:  This is where your retirement savings has been sitting (in quick-sand).  The “tax code” (a government document that is roughly the thickness of my bed) says that you’ll be penalized if you touch the money in there before you’re 59 and a half.  That’s cuz it’s supposed to be for when you’re much older.  However, if you look at your recent statement you’ll discover that there’s not enough money left in there to go to the buffet at 3:30 PM anyway.
  • GDP (Gross Domestic Product):  This is kinda the measure of what we are worth (in dollars) as a country.  It’s a shrinking number though.  Ecuador is actually considering buying our country and selling the good pieces on e-Bay.
  • Subprime:  This term refers to people with negative credit scores who were given loans that absolutely no one ever thought they would pay back.  This is quite similar to “borrowing” a Kleenex from somebody.  You’re never gonna return the thing – it’s a gift.  On the topic of borrowing money with no plans to pay it back until well after the next ice age – see US government.
  • Collateralized Debt Obligations (CDOs):  This was an excellent idea, since, of course, it originated from fast-walking guys in pinstriped suits in New York.  The idea was basically that if a bank had a loan that it knew would never get paid back, if you put it together with thousands of other similar worthless loans the total would be worth a ton!  And people bought these things because they were tied to houses (the loans, not the people, but that would’ve been better for the economy…), and obviously, housing values would double every couple years.
  • “Get credit flowing again”:  This is a term used so frequently by politicians and people without visible legs on TV that it deserves some explanation.  (which you should probably get from an even better source somewhere)  The idea is that banks need to open up and start lending lots of money again, because that worked so well last time.
  • Bailout:  This term used to refer to jumping out of a plane that was going to crash violently and explode so that you would crash slightly-less-violently to the ground in a different parking lot.  That’s roughly the same thing it means today except this time you get to crash with billions of your friend’s dollars in your pocket.  (hint: have big pockets)

I could go on, so let me know if you want more.  Hopefully you have a much greater understanding of macroeconomics now – perhaps enough to work in the US Congress.  So until next time – Happy Landings!


Anonymous said...

I feel so much smarter this morning. Your definitions really helped a lot. Is there going to be a quiz later? :)

Heidi said...

Ok, I think I get it now. Thanks for sharing the low down. Any chance members of Congress read your blog??

ThreeofSeven said...

That was great, Scott. Next would you define the "change" that we're all so greatly anticipating?

JJ said...

I wish you had been my Economics teacher in college. I had to take that darn class twice and the only thing I learned either time is that "time is money."

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