Financial Jargon Boiled Down: No One Is Lending
STEVE INSKEEP, host:
Now that we are near the end of this year, we have a moment to consider what the news of 2009 really means. We don't necessarily mean the great cosmic meaning of new stories. With some stories we'd be happy just to know what on earth they meant at all, and that is especially true when it comes to news full of business terms.
So, Alex Blumberg and Adam Davidson of NPR's Planet Money team offer an interpretation.
ADAM DAVIDSON: 2009 will surely go down in history as the year of financial jargon.
ALEX BLUMBERG: Yeah. You could not turn on the radio or crack open a paper without obscure financial phrases bombarding you.
DAVIDSON: But don't despair: a lot of the most confusing phrases are actually easy to understand because they're all just different ways of saying the exact same thing.
BLUMBERG: A very simple thing: I need to borrow money and I can't get anyone to lend it to me.
DAVIDSON: That's right. At the heart of our current economic crisis is an experience familiar to most Americans. It's harder these days to get a mortgage or buy a car or just take out a new credit card. It's hard to borrow money.
BLUMBERG: But financial types - bankers, Federal Reserve chairmen, finance committee members - they don't talk like the rest of us. They don't say, hey, I can't get a loan. They say there's been�
Mr. BEN BERNANKE (Chairman, Federal Reserve): The seizing up of credit markets.
DAVIDSON: Ah, I remember that one. That's Federal Reserve Chairman Ben Bernanke, talking in the spring of this year.
BLUMBERG: And, Adam, here's one that'll make you even more nostalgic.
Mr. DONALD KOHN (Vice Chairman, Federal Reserve): Reduced access of banks to term funding.
DAVIDSON: Oh, that is a good one. That's Federal Reserve Vice Chair Donald Kohn, if I'm not mistaken.
BLUMBERG: You are correct, sir. And here is my personal favorite.
Assistant Secretary PHILLIP SWAGEL (Department of Treasury): We can't roll our commercial paper.
BLUMBERG: Rolling our commercial paper - such an obscure term, such a simple idea. That was Phillip Swagel, former Treasury Department assistant secretary.
DAVIDSON: Oh, Alex, I got some great Swagel myself. This is the granddaddy of them all, the most ubiquitous piece of financial jargon from the entire crisis.
Mr. SWAGEL: Poof, the liquidator disappears.
BLUMBERG: So, Adam, let's explain. Financial firms do two basic things: they borrow money and they lend money out.
DAVIDSON: Goldman Sachs, JPMorgan Chase, hedge funds - they're all borrowing money. But when you borrow millions or even billions of dollars at a time, you don't call it, well, borrowing money.
BLUMBERG: They call it accessing the credit market, or issuing commercial paper, or opening a liquidity facility, or financing their ongoing operations.
DAVIDSON: All these phrases describe the exact same activity - borrowing money. And then, of course, financial firms invest the money they've borrowed.
BLUMBERG: Now, over the last couple of years, the world has learned, to its dismay, just where these firms were investing a lot of this money they had borrowed - into subprime mortgages and manmade islands in Dubai and other risky investments.
DAVIDSON: And so the world said, wait a minute, I'm going to stop lending you my money if that's what you're going to do with it.
BLUMBERG: And that is when finance industry professionals started showing up on TV and radio saying things like this.
Unidentified Man #1: Credit markets are frozen.
DAVIDSON: Translation: No one will lend us money. How about this?
Unidentified Man #2: Corporations will be unable to roll their commercial paper.
BLUMBERG: Translation: No one will lend us money. Or this:
Unidentified Man #3: Reduce the access to short-term funding and liquidity issues have created turmoil in our capital markets.
DAVIDSON: I know what that means, Alex.
BLUMBERG: I bet you do.
DAVIDSON: No one will lend us money.
Now, understanding all this jargon can come in handy, like when your friends and family hit you up for money. Here, watch this.
BLUMBERG: Hey, Adam, could I borrow five bucks?
DAVIDSON: Oh, I'm afraid the credit market is no longer functional, Alex. Financing costs have risen dramatically. You're going to have to roll your own commercial paper in an environment of decreased liquidity.
BLUMBERG: What? Eh, never mind.
DAVIDSON: I'm Adam Davidson.
BLUMBERG: And I'm Alex Blumberg. NPR News.
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