1 a: darken b: to make obscure
2: confuse
I'm pretty uneducated when it comes to the world of finance. I can't explain the terminology. Once the terminology is defined for me, I still can't understand it. The words used in the finance world are like a layer cake of confusing.
I think it's intentional. And I think it's how the muckety-mucks on Wall Street have been able to pull this snow-job on all of us.
Take these paragraphs, which are designed to CLEAR UP the issue. I'm not stupid, really. But attempt to wrap your brain around this:
"We all know about the subprime crisis. That's part of the problem, as banks and institutions are now having to write off a lot of bad loans. The second part of the problem is a little more complex. Because we were running a huge trade deficit, countries all over the world were selling us goods and taking our dollars. They in turn invested those excess dollars in US bonds, helping to drive down interest rates. It became easy to borrow money at low rates. Banks, and what Paul McCulley properly called the Shadow Banking System, used that ability to borrow and dramatically leverage up those bad loans (when everyone thought they were good), as it seemed like easy money. They created off-balance-sheet vehicles called Structured Investment Vehicles (SIVs) and put loans and other debt into them. They then borrowed money on the short-term commercial paper market to fund the SIVs and made as profit the difference between the low short-term rates of commercial paper and the higher long-term rates on the loans in the SIV. And if a little leverage was good, why not use a lot of leverage and make even more money? Everyone knew these were AAA-rated securities.
And then the music stopped. It became evident that some of these SIVs contained subprime debt and other risky loans. Investors stopped buying the commercial paper of these SIVs. Large banks were basically forced to take the loans and other debt in the SIVs back onto their balance sheets last summer as the credit crisis started. Because of a new accounting rule (called FASB 157), banks had to mark their illiquid investments to the most recent market price of a similar security that actually had a trade. Over $500 billion has been written off so far, with credible estimates that there might be another $500 billion to go. That means these large banks have to get more capital, and it also means they have less to lend. "
-- Who's Afraid of a Big, Bad Bailout? by John Mauldin, September 26, 2008, Frontline Weekly Newsletter
I kind of get it. That's the best I can do. I understand that every industry has their language, but this is language that affects us, that we need to know. I'm not even sure what "illiquid investments" means...OK, update, it was just explained to me (something you can't sell off quickly).
Language is power. There's the language that unites and divides and conquers. There's language that says love and hate, peace and war, life and death. And there's the language of obfuscation, the terms and words that are meant to hide their true meaning. It seems counterintuitive...to develop words that don't serve the function of passing knowledge. But again...language is power. And owning the language that defines what you do -- it enables you to sweep ugliness under a linguistic rug.
That's what Wall Street has done. They've essentially developed a hundred ways to say "stinking-pile-of-crap investments" and to hide that sanitized terminology under other, even friendlier labels.
Even now, the public resistance to a bail-out is largely due to the muddled language. If you could explain to me, the common person, in a clear way, that "Investment bank failure -> commercial bank failure -> economic failure -> your own economic failure" -- well, we wouldn't have much public resistance, methinks.
But they've built up such semantic walls so the common person CAN'T understand the mechinations that, at a time when we DO need to be aware of how these lofty problems affect us plebes, we are hesitant. Hesitant to help those who have profited from our ignorance, and parlayed our desires into the trough from which their greed feeds.
Their ruin will mean our ruin, but we aren't hurting enough yet for that lesson to hit. It's like having excessive problems with your gall bladder, and being told you need a laparoscopic cholecystectomy. You react. "What? What does that mean? Why would I need that? It sounds expensive!" and you balk and hesitate until someone says "It's a procedure to remove your gallbladder."
But no one is explaining in these real terms. And that's why we're teetering on the brink of total collapse.
I'm someone who loves words and turns of phrase, and I get frustrated when these supposed vehicles of understanding are turned against me. There's a lot of reform that's needed, but perhaps, in the wave of new rules that will surely result from this mess, we should add a clause in there to make the language clear and honest.
