abu yahya's definitions
(ECONOMICS) crisis created when a government or firm cannot pay its obligations in any reasonable time frame. Often confused with illiquidity, which is a when an entity suffers a temporary shortage of cash.
When a firm has assets that are greater than liabilities, it is solvent. In a lot of cases, the management of a firm runs out of ways to make money with the assets it has, so it "invests" in poor quality assets with high risk of default (for example, by lending money to borrowers using inflated housing prices as collateral).
When a firm has assets that are greater than liabilities, it is solvent. In a lot of cases, the management of a firm runs out of ways to make money with the assets it has, so it "invests" in poor quality assets with high risk of default (for example, by lending money to borrowers using inflated housing prices as collateral).
Most of the time, insolvency is the result of corrupt or feckless management. In a few cases, however, it can be the result of a vicious cycle in which a well-managed company's customers all become insolvent first.
by Abu Yahya May 5, 2010
Get the insolvency mug.*noun*; series of programs enacted by the administration of Franklin D. Roosevelt (1933-1945) in response to the Great Depression. This definition refers to the New Deal in US history (as opposed to the current "New Deal" in Great Britain).
The main architects of the New Deal were Harry Hopkins, Henry A. Wallace, and Harold L. Ickes. The chief prigrams were:
--- The Works Progress Administration (WPA);
--- the Public Works Administration (PWA);
--- the Agricultural Adjustment Administration (AAA).
These were set up to address industrial and farming failures.
Other programs addressed a long-standing need:
--- the Civilian Conservation Corps (CCC);
--- the Tennessee Valley Authority (TVA), which introduced electrical power infrastructure to much of the impoverished rural South;
--- the Civil Works Administration (CWA), which supplied electrical power generation;
--- the Federal Depository Insurance Corporation (FDIC), which provides insurance for bank accounts;
--- the Securities Exchange Commission (SEC);
--- the Social Security Administration (SSA);
Legislation included:
--- the National Labor Relations Act (NLRA), or Wagner Act, which gave most workers the right to organize;
--- the National Industrial Recovery Act (NIRA), which was struck down in 1935 by the US Supreme Court;
--- the Fair Labor Standards Act (FLSA), which set basic working standards.
The New Deal's main impact was to establish basic protections for workers, consumers, and farmers. While some of these protections could have been better designed, they perform an indispensable function. In terms of actual fiscal policy, the New Deal was far too small to hasten the end of the Great Depression itself.
The main architects of the New Deal were Harry Hopkins, Henry A. Wallace, and Harold L. Ickes. The chief prigrams were:
--- The Works Progress Administration (WPA);
--- the Public Works Administration (PWA);
--- the Agricultural Adjustment Administration (AAA).
These were set up to address industrial and farming failures.
Other programs addressed a long-standing need:
--- the Civilian Conservation Corps (CCC);
--- the Tennessee Valley Authority (TVA), which introduced electrical power infrastructure to much of the impoverished rural South;
--- the Civil Works Administration (CWA), which supplied electrical power generation;
--- the Federal Depository Insurance Corporation (FDIC), which provides insurance for bank accounts;
--- the Securities Exchange Commission (SEC);
--- the Social Security Administration (SSA);
Legislation included:
--- the National Labor Relations Act (NLRA), or Wagner Act, which gave most workers the right to organize;
--- the National Industrial Recovery Act (NIRA), which was struck down in 1935 by the US Supreme Court;
--- the Fair Labor Standards Act (FLSA), which set basic working standards.
The New Deal's main impact was to establish basic protections for workers, consumers, and farmers. While some of these protections could have been better designed, they perform an indispensable function. In terms of actual fiscal policy, the New Deal was far too small to hasten the end of the Great Depression itself.
by Abu Yahya March 6, 2009
Get the New Deal mug.(FINANCE) originally, a bond rated as not investment grade by a credit rating agency (e.g., Standard & Poor, Ernst & Young, or Moody's).
Later, a bond was a financial instrument deliberately created to have absurdly high levels of risk (of default), which was then priced in and "hedged" by a fund manager. Junk bonds are routinely used to finance leveraged buyouts.
Later, a bond was a financial instrument deliberately created to have absurdly high levels of risk (of default), which was then priced in and "hedged" by a fund manager. Junk bonds are routinely used to finance leveraged buyouts.
Michael Milken was the junk bond innovator who figured out how to make them an effective investment vehicle. Yes, he later went to jail for securities law violations.
by Abu Yahya September 1, 2010
Get the junk bond mug.(FINANCE) when a private equity fund sells a company it has taken private to another fund. Usually financed with junk bonds.
The secondary buyout became a hot trend in the period 2005-2008, partly because other segments of the equities markets were doing so poorly. The hedge funds were willing to buy the junk bonds because they believed they had mastered the risk control; but the deals themselves were absurd.
The whole purpose of a leveraged buyout is to restructure the target company so profits from its resale can be used to pay for the deal. But if a capital management firm has already issued the junk bonds to finance a restructuring, there's little hope of another takeover artist squeezing any more profit out of restructuring. The whole point is to scam the markets.
The secondary buyout became a hot trend in the period 2005-2008, partly because other segments of the equities markets were doing so poorly. The hedge funds were willing to buy the junk bonds because they believed they had mastered the risk control; but the deals themselves were absurd.
The whole purpose of a leveraged buyout is to restructure the target company so profits from its resale can be used to pay for the deal. But if a capital management firm has already issued the junk bonds to finance a restructuring, there's little hope of another takeover artist squeezing any more profit out of restructuring. The whole point is to scam the markets.
The sudden popularity of the secondary buyout never made any sense, except as a scam. As a vehicle for peddling exotic financial derivatives, it was mildly interesting, but there was no common sense to the idea of two consecutive takeover artists doing LBO's of the same company. One of them had to be incompetent for there to be any reason for it.
by Abu Yahya September 1, 2010
Get the secondary buyout mug.*noun*, efforts by the government to intentionally run a deficit in order to stimulate the economy during a recession. Loosely associated with Keynesian economics.
According to basic economic theory, recessions occur because there is a basic mismatch between aggregate demand and potential output. One approach for solving this is for the government to buy more goods and services than it has revenues to cover, thereby creating conditions in which effective demand is greater than the stock of goods currently in business inventory (given recessionary prices).
Under a stimulus, the jolt of extra money in circulation creates inflation, which has the effect of lowering real prices. Customers then respond to the {de facto} price reduction by buying more, which leads to more hiring, thence to more effective demand, thence to economic recovery.
Another reason fiscal policy stimulates the economy is that the private sector is not investing or consuming its own output. Increased taxes would simply reduce private consumption, so those cannot be increased; but spending is increased to fill the breach.
According to basic economic theory, recessions occur because there is a basic mismatch between aggregate demand and potential output. One approach for solving this is for the government to buy more goods and services than it has revenues to cover, thereby creating conditions in which effective demand is greater than the stock of goods currently in business inventory (given recessionary prices).
Under a stimulus, the jolt of extra money in circulation creates inflation, which has the effect of lowering real prices. Customers then respond to the {de facto} price reduction by buying more, which leads to more hiring, thence to more effective demand, thence to economic recovery.
Another reason fiscal policy stimulates the economy is that the private sector is not investing or consuming its own output. Increased taxes would simply reduce private consumption, so those cannot be increased; but spending is increased to fill the breach.
I think it is possible that fiscal policy will have even more 'oomph' in this situation," Christina Romer, who heads the Council of Economic Advisers, told an economics conference.
"When households and businesses are liquidity-constrained by reduced lending, any money put in their pockets is more likely to be spent," she said.
--Reuters, "White House's Romer: Stimulus may pack more punch" (3 March 2009)
"When households and businesses are liquidity-constrained by reduced lending, any money put in their pockets is more likely to be spent," she said.
--Reuters, "White House's Romer: Stimulus may pack more punch" (3 March 2009)
by Abu Yahya March 3, 2009
Get the fiscal policy mug.(FINANCE) real estate mortgage backed securities; usually used to refer to the derivatives created by Fannie Mae and Freddie Mac that were used to create collateralized debt obligations CDO's.
Most economists seem to agree that the 2008 crisis was caused by the collapse of the real estate market, which was mainly caused by the toxic relationship between RMBS's and the CDO's created mostly with them.
Most economists seem to agree that the 2008 crisis was caused by the collapse of the real estate market, which was mainly caused by the toxic relationship between RMBS's and the CDO's created mostly with them.
For almost eighty years the RMBS business helped people buy homes, with few serious problems. Then Congress abolished Glass-Steagall, the banks merged and created CDO's, and total disaster followed.
And now our neighborhoods look awful as well.
And now our neighborhoods look awful as well.
by Abu Yahya April 5, 2010
Get the RMBS mug.(ECONOMICS) Any of the 12 constituent district banks of the Federal Reserve System. Federal Reserve Banks may be referred to either by the number of the district they serve (e.g., 12th FRB) or by the city in which they are headquartered (e.g., FRB of San Francisco).
Representatives of the FRB's are eligible to serve on the Federal Open Market Committee (FOMC), the committee that actually administers monetary policy through sales or purchases of treasury securities.
The Federal Reserve Bank of New York (2nd FRB) is by far the most important of the 12 district banks. Each bank holding company is likely to have a subsidiary in NYC, and the 2nd District is uniquely guaranteed a seat on the FOMC. The other 11 rotate, with 4 taking a year-long turn at the FOMC at any given time.
Representatives of the FRB's are eligible to serve on the Federal Open Market Committee (FOMC), the committee that actually administers monetary policy through sales or purchases of treasury securities.
The Federal Reserve Bank of New York (2nd FRB) is by far the most important of the 12 district banks. Each bank holding company is likely to have a subsidiary in NYC, and the 2nd District is uniquely guaranteed a seat on the FOMC. The other 11 rotate, with 4 taking a year-long turn at the FOMC at any given time.
The Federal Reserve Bank of New York has historically supplied the secretaries of the Treasury or else the chairmen of the Federal Reserve Board.
by Abu Yahya May 5, 2010
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