2011-11-30 / Business News

MONEY & INVESTING

OMG, financial shorthand for U and your BFFs
jeannetteSHOWALTER, CFA

Each year brings new financial innovations, phenomena, disasters, etc. Along with these changes come new words, acronyms and phrases to describe them. This new vocabulary is often the brainchild of bankers — innovative underwriters, analysts and traders — whose agile minds create all sorts of financially engineered products (some quite infamous). In their spare moments, they devise new financial expressions.

LDL (no, not LOL) became an acronym widely used by banks when a subject of an e-mail required full disclosure that bankers did not want to have recorded in an e-mail/paper trail, a sender might write, “LDL,” meaning “Let’s discuss live.” The New York Times, May 29, 2001 column, “The Trouble with E-Mail,” described how LDLs, “surfaced during the SEC’s investigation of Goldman Sachs… a trader named Fabrice Tourre described a mortgage investment in e-mail as “a way to distribute junk that nobody was dumb enough to take first time around.” The Goldman recipient of the e-mail, Jonathan Egol, e-mailed back: “LDL.” How much more interesting the Goldman investigation might have been had no LDLs been employed.

OPM Banks, or Other People’s Money Banks, became a more common expression in 2011. It refers to the many business practices of the too-big–to-failbanks including their proprietary trading: leveraging to the hilt and, if profitable, the spoils going to the bankers and, if unprofitable, the losses going to the shareholders, FDIC and tax payers via bailouts. While this acronym fits today’s banks, the expression probably finds its history with a book published in the very early 1900s but which has been recently re-released as it quite eerily describes financial machinations of the early 1900s that still afflict our banks today. “Other People’s Money and How the Bankers Use It” was written by Louis Brandeis before he became a Supreme Court Justice in 1916. Suffice to say, OPM might get morphed to OCM as the countries and governments loaded with debt (i.e. those in Europe) will be looking to Other Countries’ Money for a bailout.

In 2011, CDOs (Collateralized Debt obligations) which played a leading role in the 2008 crisis were tweaked and CDOs squared were created, i.e. a CDO further collateralized by another CDO.

Ben Bernanke, the chairman of the U.S. Federal Reserve Bank, became officially known as “The Bernank.” Some use the expression to refer to the policy of quantitative easing which “The Bernank” popularized. “Do another Bernank” means to do more quantitative easing.

“Rogue trader” is a feared label on Wall Street as the actions of such an individual trader can and have brought the end to several large investment firms. It simply means an authorized trader undertaking unauthorized trades, usually of great size and failed in their outcome. Rouge traders often go to jail. (As opposed to the rogue traders whose bets pay handsomely, get crowned brilliant and get promoted.) The name resurfaced this year when UBS announced that 31-year-old Kweku Adoboli had caused a $2 billion loss at UBS.

Not at all related to rogue trading but very much related to rogue sovereign lending is the phrase “too big not to fail,” a revision of the expression given to U.S. banks in 2008-2009 when they were deemed “too big to fail.” But, in Europe, the size of the banking problem is considered horrifically larger (trillions larger than the U.S. debacle.) The toobig to-not-fail institutions include a lot of French banks, which hold very large amounts of sovereign debt of several countries that are or were teetering on failure. The first four known to have insolvable debt issues were called the PIGS (Portugal, Italy, Greece and Spain). The acronym was changed to “PIIGS” to include Ireland. Around the corner from those countries are Belgium and France; there is uncertainty whether the swine acronym can be morphed yet again to accommodate the additional names.

Not all acronyms are found to be socially acceptable. “PIGS No Longer Fly” was the title of a column by Bloomberg in 2011 telling the story of how Barclays Bank (an international bank headquartered in London) had issued a memo that banned further use of the “swine acronym.”

BRIC, an oft-used reference to the upcoming developing countries of Brazil, Russia, India and China, denotes nothing derogatory and has not been banned.

So useful were these acronyms to describe groups of countries that a third was created: MIST, signifying Mexico, Indonesia, South Korea and Turkey, countries of significance but in a category behind BRIC.

The expression which came from nowhere but is now constantly used in the newspapers and on the cable news is: “risk on” and “ risk off,” referring to major moves in the financial markets into risk assets and moves out of risk assets. For instance, if there is good news out of Europe, then… risk is on; but risk is off when there is bad news out of Europe,… or the U.S., the Middle East, China, etc.

Given that “season” is here in Florida, understanding these expressions might be useful for hobnobbing in cocktail chatter. ¦

— Jeannette Showalter, CFA is a commodities broker with Worldwide Futures Sytems, 571- 8896. For mid- week commentaries, write to showalter@wwfsystems.com. — An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you. Past performance is not necessarily indicative of future results.

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