A haircut on your jumbo during cramdown?

On the Money
From the May 4, 2007 print edition

Two friends were discussing the fate of their financial futures. The first asked, “Did you have to take a haircut on your jumbo during cramdown?”

The second answered, “I was eating my own dog food, but I backed up the truck before the cat bounced.”

A reasonable conversation, right? Not unless you have an understanding of the sectarian vernacular of the finance industry.

Every industry develops colloquialisms, words and phrases that have special meaning within it. Even the serious community of finance and banking has many catchphrases.

Slang terminology grows out of behavior. Therefore, some insights into the financial activities may be revealed by the following buzzwords.

Haircut — The percentage by which an asset’s market value is reduced for the purpose of calculating value taking into account risk, broker’s commission, fees and other transaction-related costs.

Jumbo — A mortgage with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO), and therefore not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac. OFHEO re-sets the conforming loan limit size on an annual basis.

Cramdown — A well-known and often-employed (though unscrupulous) bankruptcy technique, forcing creditors to accept discounts on their assets. A settlement is “crammed down their throats.”

Eat your own dog food — An idiom referring to companies using their own products for day-to-day operations, rather than sell them for revenue. This phrase became popular during the dot-com craze, when companies didn’t implement their own software and thus couldn’t even “eat their own dog food.”

Back up the truck — A situation where a large buyer scoops up huge quantities of a stock. In other words, when someone likes a stock enough to “back up the truck.”

Cat bounce (dead) — A temporary recovery by a market after a prolonged decline or bear market. In most cases, the recovery is momentary and the market will continue to fall. Remember the saying: “Even a dead cat will bounce if dropped from high enough.”

Trustafarians — People who receive money from their family or an allowance; the word is a play on Rastafarian (a believer in a religion that originated in Jamaica).

Get a lift — The concept that by taking some action, you’ll receive slightly more in profit. The term often is applied to small increases resulting from painfully obvious previous lapses in judgment.

Teenage scribblers — International currency traders and/or analysts. The term arose in the 1980s and ’90s, primarily in the UK. The conservative government at the time blamed currency trading as a nonproductive self-indulgence, hindering real economic stability.

A seat at the table — To have the firm’s stock listed on one of the major stock exchanges, either through a public offering or reverse merger.

Crack — A trading strategy used in energy futures to establish a refining margin. It’s accomplished by simultaneously purchasing crude oil futures and selling petroleum product futures. The trader is attempting to establish an artificial position in the refinement of oil, created through a spread.

Shadow player — Someone who’s investing a large amount of money while attempting to conceal their identity when buying up shares in a company.

Bullet payment — When all interest is deferred until the last day. This often suits people in commercial life, where they don’t have the money to pay interest, although they anticipated having it.

A Bo Derek — A perfect stock. In the 1979 hit movie “10,” actress Bo Derek portrayed the perfect woman — “the perfect 10.” This term was used more often in the early 1980s, after the movie “10” first came out.

Katie Couric clause — A slang term for a controversial proposed clause from a Securities and Exchange Commission rule, requiring publicly traded companies to disclose not only the salaries of their top five executives, but also those of top-earning non-executives, including actors, directors and TV news anchors.

Returning to the conversation above, here’s the translation:

Question: “Did you lose a large amount of money on your nonconforming real estate loan when the borrower forced a settlement in bankruptcy court?”

Answer: “Even though I was using my own products just to survive, I had accumulated a huge amount of an unpopular stock just before it made a temporary recovery — allowing me to sell at a profit.”

Now that you’re armed with the latest in pecuniary lingo, you, too, can mingle with the moguls in confidence.

© C. Stephen Guyer for American City Business Journals Inc. All rights reserved.