

The Danger of Financial Jargon - applecore
http://www.newyorker.com/magazine/2014/08/04/money-talks-6

======
dredmorbius
Look at the history of the terms discussed (plus a bonus, "femur") and their
history in print.

I'm a huge fan of Google's ngram viewer, which allows tracing the frequency of
occurrence of words and phrases.

E.g., "femur", which scoofy mentions, grew in usage during the first half of
the 19th century:
[https://books.google.com/ngrams/graph?content=femur&year_sta...](https://books.google.com/ngrams/graph?content=femur&year_start=1700&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Cfemur%3B%2Cc0)

"quantitative easing" has a rather newer pedigree, emerging briefly in the
early 1980s, and again following 2000.:
[https://books.google.com/ngrams/graph?content=quantitative+e...](https://books.google.com/ngrams/graph?content=quantitative+easing&year_start=1950&year_end=2008&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Cquantitative%20easing%3B%2Cc0)

Google Trends shows the more recent interest as a search term:
[http://www.google.com/trends/explore#q=quantitative%20easing](http://www.google.com/trends/explore#q=quantitative%20easing)

CDOs emerged in the late 1980s:
[https://books.google.com/ngrams/graph?content=collateralized...](https://books.google.com/ngrams/graph?content=collateralized+debt+obligation&year_start=1950&year_end=2008&corpus=15&smoothing=1&share=&direct_url=t1%3B%2Ccollateralized%20debt%20obligation%3B%2Cc0)

Euro zone is a post-1995 phenomenon:
[https://books.google.com/ngrams/graph?content=Euro+zone&year...](https://books.google.com/ngrams/graph?content=Euro+zone&year_start=1950&year_end=2008&corpus=15&smoothing=1&share=&direct_url=t1%3B%2CEuro%20zone%3B%2Cc0)

REITs date to the 1970s, but boomed in the 1990s:
[https://books.google.com/ngrams/graph?content=REIT&year_star...](https://books.google.com/ngrams/graph?content=REIT&year_start=1950&year_end=2008&corpus=15&smoothing=1&share=&direct_url=t1%3B%2CREIT%3B%2Cc0)

Hedge funds may date to 1949, but print, they're another concept which emerged
only in the later half of the 1990s:
[https://books.google.com/ngrams/graph?content=hedge+fund&yea...](https://books.google.com/ngrams/graph?content=hedge+fund&year_start=1950&year_end=2008&corpus=15&smoothing=1&share=&direct_url=t1%3B%2Chedge%20fund%3B%2Cc0)

Securitization: the latter half of the 1980s:
[https://books.google.com/ngrams/graph?content=securitization...](https://books.google.com/ngrams/graph?content=securitization&year_start=1950&year_end=2008&corpus=15&smoothing=1&share=&direct_url=t1%3B%2Csecuritization%3B%2Cc0)

------
jzwinck
The article uses a simple sports betting example and gets it wrong:

> At the start of the season you’ve made a bet that the Green Bay Packers will
> get to the Super Bowl, at odds of twenty to one. You put down ten bucks. The
> team advances to the conference championship, where it’s playing the San
> Francisco 49ers. At this point, you decide to hedge your bet by putting ten
> dollars on the 49ers, who are three-to-one favorites to win the game. You’re
> guaranteed a profit, whatever the outcome.

So you made two bets:

* $10 at 20:1 for Packers, pays $10 + $10 * 20/1 = $210

* $10 at 1:3 for 49ers, pays $10 + $10 * 1/3 = $13.33

You spent a total of $20. Assuming the house takes no fee, you might win $190
or lose $6.67.

If you didn't spot the error, perhaps the author tricked you in a way quite
analogous to what the article complains about: by skimming over the actual
math and using a lot of words, the banker (or author) might make you believe
"You're guaranteed a profit, whatever the outcome."

If you want to guarantee a profit, put e.g. $150 on the 49ers. Then you'll
have a net profit of $50 ($210 - $10 - $150) if the Packers win, and $40 ($200
- $10 - $150) if the 49ers win. That's a better hedge; the perfect hedge is
left as an exercise.

~~~
adwf
You've made a mistake there. He says the 49ers are 3:1 favourites to win.
Those a strange odds for are favourite team, but maybe they think a draw is
most likely...

Or more likely he just pulled some dodgy odds out of thin air and forgot that
if you have a team at 3:1 odds, they probably aren't the favourites. Either
way, his maths is fine. Just not his odds.

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endlessvoid94
This isn't just limited to finance. Language creates barriers in all fields,
finance and science are the ones most familiar to me.

Programming as well -- someone recently looked alarmed when I told them to
"kill" an app on their phone.

~~~
snoldak924
This is incredibly true. In programming, just as in construction, "jargon" is
required to keep things concise and to the point. Many times this
"obfuscation" is really just necessity.

~~~
anigbrowl
'halt' would work just as well as 'kill' but the latter sounds cooler. It's OK
to use jargon within a professional context, but using it without regard to
one's audience is generally obfuscatory.

~~~
Terr_
"Halt" isn't strong enough. You aren't just making it pause wherever it
happens to be, you are getting rid of it.

~~~
anigbrowl
Halt _used_ to mean absolute termination rather than a pause, as in The
Halting Problem. This was still used as the canonical term in UK computer
terminology when I was growing up, but it may be different elsewhere.

~~~
arethuza
Isn't "absolute termination" the Unix meaning of "halt" as well?

~~~
anigbrowl
I thought so but others seem to disagree.

~~~
Terr_
I don't disagree about its _technical_ meaning, but this entire debate is
about what it OUGHT to be so that NON-technical people have an easier time.

In that respect, "kill" is probably better, since it accurately conveys common
ideas like "irreversible" and "messy".

------
lmg643
it's comforting to think that understanding the "language" of finance would
have protected us. I also think it's comforting to think that this was the
work of simply some greedy guys on wall street using strange words.

underlying all these instruments was the assumption that americans have
_never_ defaulted on home loans over historical norms, and even in the worst
case assumption, still wouldn't be that bad.

this assumption was the bet implicit in every mortgage backed issuance. the
names and the details are actually _not_ as relevant - this basic concept was.
perhaps that is why the author still struggles to understand - he's looking in
the wrong direction.

this author writes of the greed of bankers who want to one-up the next guy,
but when it comes to homeowners, are they not equally guilty of wanting to
one-up the next guy with a bigger house, a quick flip, a granite countertop,
or a cash-out refi?

~~~
retr0grad3
> I also think it's comforting to think that this was the work of simply some
> greedy guys on wall street using strange words.

Yes, actually, it was in a lot of cases. From the aggressive use of NINA loans
(in some cases targeted at minorities) to selling mortgage-backed securities
while betting AGAINST them, the financial industry had a much larger hand in
this. Read the Levin-Coburn Report if you'd like to get better informed about
what happened:
[http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd...](http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCsQFjAB&url=http%3A%2F%2Fwww.hsgac.senate.gov%2Fpublic%2F_files%2FFinancial_Crisis%2FFinancialCrisisReport.pdf&ei=J_DWU4zLCJKcyATolYHIDQ&usg=AFQjCNFKI_Y4XnT-
nMzssGgqRCbZ36afbw&sig2=Qt1zdwZ_btqv8VkIavEBWw&bvm=bv.71778758,d.aWw)

> are they not equally guilty of wanting to one-up the next guy with a bigger
> house, a quick flip, a granite countertop, or a cash-out refi

1) The assumption you're making the insinuation that all homeowners engaged in
this kind of activity which is an existential fallacy. 2) In situations like
this, where one party (the financial industry) has more training, connections,
influence, and knowledge and the other (homeowners) have CNBC, it's a stretch
to say that the homeowners are the ones to blame.

~~~
lmm
> From the aggressive use of NINA loans (in some cases targeted at minorities)

Which was being done by the local banks, not the wall street guys. If anything
the banks were ripping off the institutional investors they sold these bonds
to, by selling mortgages that they wouldn't've taken themselves.

> selling mortgage-backed securities while betting AGAINST them

Any trade has two sides; anyone you buy a stock from is essentially betting
against that stock.

> The assumption you're making the insinuation that all homeowners engaged in
> this kind of activity

No more than you're assuming everyone in the finance industry engaged in such
activities.

> one party (the financial industry) has more training, connections,
> influence, and knowledge and the other (homeowners) have CNBC, it's a
> stretch to say that the homeowners are the ones to blame

Some of the losses were from complex products that were missold, reverse-
amortization mortgages and the like, and yeah, the guys who sold those are
responsible for most of the damage they caused. But a lot of the crash was
simply people taking out a loan for $x/month when they couldn't afford to pay
$x/month (or could until they lost their job), and that's not a complex
question where training and experience make a difference.

------
sn41
The article seems wrong on the sporting example - if 49ers win, then you have
invested $20 and obtained only $10*4/3 in return.

I think the article does have a point. To my limited understanding, the false
distinction between "insurance" and "credit default options" and the illusion
that "they could get away with it" was crucial in the financial meltdown of
2007-09.

Things have reached a point where even people who have Ph. D in mathematics or
science hardly know how to invest their money. I think financial literacy
should be considered one of the basic necessities of existence in a capitalist
society, and activists should launch public information campaigns to educate
the vulnerable public.

But some of the remarks are overboard - the fact that credit means debt, I
think, goes all the way back to double-entry book keeping. I think this hardly
counts as jargon, any more than the word debt itself.

------
vanderZwan
What I'm really wondering about is how much financial jargon is intended or
abused to obfuscate what is going on _to other people in finance_. I suspect
that there is a relatively bigger risk of people having that intent in the
financial industry than elsewhere, since scamming people without being
detected is a lot easier (and probably more tempting) when money itself is the
product.

------
carsongross
Let them get as obscure and ridiculous as they want as they attempt to shave
institutional investors for another point or two.

Just _don 't bail them or their marks out_.

That's the core problem.

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scoofy
This is the case in any technical occupation. The femur is called "femur"
instead of "leg bone #1." The one benefit of this is that it makes it
extremely difficult to fake being an expert.

I often think that the ability to easily identify experts would help in
republics, but i am not so sure. On the other hand, you have Lessig's approach
in republic lost. That the problem is the money, and not the non-technical
politician.

~~~
ObviousScience
> The one benefit of this is that it makes it extremely difficult to fake
> being an expert.

The problem with this is that it only makes it easy for experts to identify
non-experts. I'd argue that it makes it harder for laypeople to spot experts,
because in both cases, they're just hearing the same set of words which they
don't understand. This just leaves laypeople identifying experts based on
using certain words rather than the content of what's being said.

In this way, misused technical words make it easier for non-experts to pose as
experts to laypeople.

~~~
thaumasiotes
I remember reading an essay about an internet dispute (as I recall, over the
term "rule of thumb") where the essay's author wrote (in my paraphrase) "I
know nothing about the history or scholarship involved, but I can see that the
person on one side, who coincidentally shares my politics, is adhering to
scholarly forms, citing sources, etc., and the person on the other side is
doing nothing but dismissing it and basically saying 'come on'. I know who to
trust here."

That person displaying the ideal scholarly comportment was citing to a crank
who claimed to have a piece of the legal code set down by Romulus. You know,
the mythical founder of Rome. The scoffing counterparty was pointing out
(again, in my exaggerated paraphrase) "a classicist who could show plausible
evidence that a historical Romulus existed, much less find part of his code,
would be the greatest classicist in the history of the world. If there were a
Nobel prize in history, he'd win." And that second person was entirely
correct.

There's always a citation available for anything you might want to argue. And
if you don't have any knowledge of the field, seeing someone cite a paper you
can't understand isn't an improvement over seeing them speak as if they
themselves were the highest authority. I'd used that same "the side I like
behaves more like _real scientists_ than the side I don't like" argument
myself in the past; seeing this came as a bit of a blow.

