abu yahya's definitions
(ECONOMICS) when a government has to restructure spending by massively cutting social programs, development programs, and subsidies on basic necessities. Often accompanied by taxes increases, especially on lower incomes (since the poor cannot escape tax hikes).
Usually we use the term "austerity program" when the government in question has to backtrack on its ideological commitments. An example of this is France, after June 1982. The Socialist government of Mitterrand had just implemented a raft of major new social welfare programs, and was promptly forced to cut everything back when the deficit ballooned.
by Abu Yahya May 5, 2010
Get the austerity program mug.*noun*; a method of representing the economy as the sum of many identical individuals and firms, each represented by a system of mathematical equations. The Rational Expectations Hypothesis (REH) takes its name from the premise that economic actors, i.e., everyone, do not make consistent errors about the present or future behavior of markets.
REH was devised mainly as a rebuke to Keynesian economics, and in particular, the strategy of fiscal policy or monetary policy.
According to the REH, fiscal policy does not alter aggregate demand because the "average" person recognizes that her lifetime income is not increasing--so she needs to save rather than spend the stimulus money, in anticipation of higher taxes in the future.
At the same time, monetary policy does not work because it relies on lowering interest rates to make more money available; more money means inflation, but people have to be deceived into thinking prices for their product are going up, so they will expand production. According to REH, people or firms will figure this out, and see increased demand as mere inflation. Instead of increasing output and employment, they'll want to raise prices so they can meet their future bills.
According to REH, both monetary and fiscal policy rely on illusions to work; and since people (on average) will make rational estimates o the future, they will defeat these illusions.
REH was devised mainly as a rebuke to Keynesian economics, and in particular, the strategy of fiscal policy or monetary policy.
According to the REH, fiscal policy does not alter aggregate demand because the "average" person recognizes that her lifetime income is not increasing--so she needs to save rather than spend the stimulus money, in anticipation of higher taxes in the future.
At the same time, monetary policy does not work because it relies on lowering interest rates to make more money available; more money means inflation, but people have to be deceived into thinking prices for their product are going up, so they will expand production. According to REH, people or firms will figure this out, and see increased demand as mere inflation. Instead of increasing output and employment, they'll want to raise prices so they can meet their future bills.
According to REH, both monetary and fiscal policy rely on illusions to work; and since people (on average) will make rational estimates o the future, they will defeat these illusions.
The rational expectations hypothesis states that we can break the realization of a return into an expected return that depends on the current information set and an unexpected component that depends only on new information.
by Abu Yahya March 3, 2009
Get the rational expectations hypothesis mug.(FINANCE) hilarious term used for over a century in the trading of stocks, commodities, etc. A way in which someone who controls much of the outstanding shares of stock can make a lot of money while ruining those who are betting against the stock.
A "short" is traditionally someone with expertise in shorting a stock, i.e., managing to borrow shares and sell them in anticipation of a decline in value. Obviously, if there are many people shorting a particular stock at any given time, and if they are wrong about the future, then a steep rise in value if the share price will not only cause them to lose money, it will force panic purchases of stock as the traders attempt to cover their shorts. If the instigator of the squeeze is successful, he will have a corner, and drive the price of the stock up to absurd levels.
An unsuccessful squeeze of shorts in a copper trust triggered the Crisis of 1907. That, in turn, triggered the Aldrich–Vreeland Act (May 1908).
A "short" is traditionally someone with expertise in shorting a stock, i.e., managing to borrow shares and sell them in anticipation of a decline in value. Obviously, if there are many people shorting a particular stock at any given time, and if they are wrong about the future, then a steep rise in value if the share price will not only cause them to lose money, it will force panic purchases of stock as the traders attempt to cover their shorts. If the instigator of the squeeze is successful, he will have a corner, and drive the price of the stock up to absurd levels.
An unsuccessful squeeze of shorts in a copper trust triggered the Crisis of 1907. That, in turn, triggered the Aldrich–Vreeland Act (May 1908).
The brokers, after awhile, commenced to borrow large amounts of the stock. This convinced the insiders that there was a big short interest somewhere, and they got together in order to squeeze the shorts... They never awakened to the fact that the {president of the company} had sold out on them... {and were totally ruined}
Henry Clews, Victor Niederhoffer, *Fifty Years in Wall Street*, p.149
Henry Clews, Victor Niederhoffer, *Fifty Years in Wall Street*, p.149
by Abu Yahya April 5, 2010
Get the squeeze the shorts mug.In economics, (1) Materials or equipment used to produce goods (e.g., tools, parts, inventory, buildings, fixtures, hours of training); or (2) money that is used in a business venture. Capital is created by saving, rather than consuming, economic output. Over time, saving accumulates into capital; it also depreciates.
by abu yahya September 29, 2008
Get the capital mug.(FINANCE) financial instrument in which buyer is someone who needs insurance against the possibility that a borrower will default on a loan. In that case, the counterparty is whoever receives the CDS premiums, and pays out in the event of default.
WHY IT'S BAD
Loans are usually made by either commercial banks (in which a loan officer is supposed to make a professional assessment of risk of default before handing over the money), or by investment banks (which underwrite securities like bonds). If the borrower has a high risk of default, then the loan should not be made--period.
Credit default swaps were a stupid method of supposedly turning a bad loan into a "risky" (and potentially high-yield) "investment"; they were in reality a strategy for fraud. Since portfolio managers knew they were bundling securitized loans that contained mostly crap, they would arrange credit default swaps and cash in when the borrowers defaulted.
WHY IT'S BAD
Loans are usually made by either commercial banks (in which a loan officer is supposed to make a professional assessment of risk of default before handing over the money), or by investment banks (which underwrite securities like bonds). If the borrower has a high risk of default, then the loan should not be made--period.
Credit default swaps were a stupid method of supposedly turning a bad loan into a "risky" (and potentially high-yield) "investment"; they were in reality a strategy for fraud. Since portfolio managers knew they were bundling securitized loans that contained mostly crap, they would arrange credit default swaps and cash in when the borrowers defaulted.
What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a "credit default swap," and it was a twist on something bankers had been doing for a while to hedge against fluctuations in interest rates and commodity prices.
{Newsweek, "The Monster That Ate Wall Street," 27 Sep 2008}
{Newsweek, "The Monster That Ate Wall Street," 27 Sep 2008}
by Abu Yahya July 17, 2010
Get the credit default swap mug.(US BUSINESS LAW) a type of business organization which is a cross between a partnership and a corporation. In a private partnership, all of the partners own all the assets in common and have unlimited liability; in a corporation, the firm assets are owned by a legal "person," and shareholders are liable only for the value of their stake (equity) in the firm.
Partnerships have higher risk for members, but their management can disclose a lot less and the taxes are lower. Limited/limited liability partnerships represent a compromise.
In a limited partnership, one or more of the partners has unlimited liability ("general partners") and the others have liability limited to their equity stake in the firm ("limited partners"). A limited partnership is indicated by the initials "LP" after the name, e.g. Apollo Management, LP.
In a limited liability partnership, all members have limited liability; specifically, the other partners of the LLP are shielded from torts for malpractice against the other partners, BUT they are legally responsible for financial claims against the whole organization. LLP liability varies somewhat by state law (several US states do not permit LLP's at all), and somewhat by the terms of the LLP agreement for that particular partnership.
Apologies to Urban Dictionary for an error in the definition of private equity fund and hedge fund: both types of fund are almost never LLP's; they are often limited partnerships (LP's).
Partnerships have higher risk for members, but their management can disclose a lot less and the taxes are lower. Limited/limited liability partnerships represent a compromise.
In a limited partnership, one or more of the partners has unlimited liability ("general partners") and the others have liability limited to their equity stake in the firm ("limited partners"). A limited partnership is indicated by the initials "LP" after the name, e.g. Apollo Management, LP.
In a limited liability partnership, all members have limited liability; specifically, the other partners of the LLP are shielded from torts for malpractice against the other partners, BUT they are legally responsible for financial claims against the whole organization. LLP liability varies somewhat by state law (several US states do not permit LLP's at all), and somewhat by the terms of the LLP agreement for that particular partnership.
Apologies to Urban Dictionary for an error in the definition of private equity fund and hedge fund: both types of fund are almost never LLP's; they are often limited partnerships (LP's).
The limited liability partnership is a popular form of business organization for lawyers and other professionals.
by Abu Yahya September 2, 2010
Get the limited liability partnership mug.(FINANCE) a situation in which an investor stands to gain if a particular investment instrument (stocks, bonds, gold, real estate) goes up in value. One "takes a long position" with respect to a particular item.
There are several ways of taking a long position; an obvious way to go long is to actually own the thing itself. Supposing you are taking a long position on Intel common stock (NASDAQ:INTC), here are some other ways:
* Buy a call option for INTC, especially with a strike price higher than the current spot price.
* Write a put option for INTC, committing yourself to buy more INTC stock if the price goes down over the near term
* Buy a futures contract for INTC at spot (or more).
CAVEAT LECTOR: there are many _potential_ definitions of long position; I have given the broadest one available.
There are several ways of taking a long position; an obvious way to go long is to actually own the thing itself. Supposing you are taking a long position on Intel common stock (NASDAQ:INTC), here are some other ways:
* Buy a call option for INTC, especially with a strike price higher than the current spot price.
* Write a put option for INTC, committing yourself to buy more INTC stock if the price goes down over the near term
* Buy a futures contract for INTC at spot (or more).
CAVEAT LECTOR: there are many _potential_ definitions of long position; I have given the broadest one available.
MICHAEL: I want to flatten my long position on T-bills.
ANNA: I would recommend buying a covered interest swap with another major currency, like yen.
ANNA: I would recommend buying a covered interest swap with another major currency, like yen.
by Abu Yahya April 10, 2010
Get the long position mug.