Crash of 2008/Related Articles
From Citizendium, the Citizens' Compendium
- See also changes related to Crash of 2008, or pages that link to Crash of 2008 or to this page or whose text .
See the economics index for an index to topics referred to in the economics articles.
See the economics glossary for definitions not shown on this page
- : (Asset Backed Commercial Paper) debt instruments that are issued to meet short term financing needs (usually repayable after 3 months).
- : A basket of credit default swaps linked to subprime mortgages.
- Agency cost : The cost to the owners (or company shareholders) of an organisation of actions by their agents (or the company management) that are contrary to the owners' interests - and the cost of attempting to prevent such actions.
- Arbitrage : transactions to take advantage of a price differences of a product in different markets by buying where it is cheap and selling where it is dear. The possibility of arbitrage often prevents the occurrence of price differences.
- Basel I & Basel II : international banking regulations put forth by the Basel Committee on Bank Supervision of the Bank for International Settlements requiring banks' minimum capital adequacy ratios to be related to the riskiness of their loans.
- Beta : A measure of the degree to which the rate of return of a share tracks that of the equity market as a whole (defined as the covariance between the share's rate of return and the average market rate, divided by the variance of the market rate). If beta = 1 the share's rate of return moves in line with the market rate; if it is negative, it falls when the market rate rises.
- Bubble (economics) : A surge in prices that raises expectations of further increases, so generating further increases: a process that continues until confidence falters, the bubble "bursts" and prices rapidly revert to an objectively-based level.
- Building society : UK mortgage lender, British counterpart of Savings and Loans.
- Capital adequacy ratio : The ratio of a bank's capital to its risk weighted credit exposures. May be defined in terms of tier 1 (core) or tier 2 capital.
- Capital Asset Pricing Model : (CAPM) a model which relates the rate of return of an equity to the equity market rate of return and to that equity's beta factor (see the formula at  and see the definition of beta ).
- : Collateralised Debt Obligation. A portfolio of corporate bonds, grouped into tranches that are ranked by estimated risk.
- CDS : Credit-Default Swap. An insurance agreement that guarantees protection against a bond default in return for a fee.
- Central Bank : A government agency that is responsible for monetary policy and the support of the banking system (for example the Federal Reserve Board and the Bank of England). Usually responsible for controlling a country's monetary policy and preserving the value of its currency.
- : Collateralised Mortgage Obligation. A portfolio of mortgages, grouped into tranches that are ranked by estimated risk
- Commercial paper : unsecured debt_instruments that are issued by corporations to meet short term financing needs (usually repayable after 3 months).
- Credit risk : The risk that the value of a loan-based security will fall as a result of defaults on the part of borrowers (as distinct from interest rate risks and exchange rate risks).
- Debt_instrument : A formal obligation assumed by a borrower to replay the lender in accordance with the terms of an agreement, including bonds, debentures, promissory notes, leases and mortgages.
- Derivative : An asset whose value depends upon the expected value of another asset.
- Discounting : (i) The action of selling a bill of exchange before its due payment (or "maturity") date "at a discount": that is to say after paying the purchaser a fee for accepting it. (ii) The practice of calculating the current equivalent of a future cost or benefit by the application of a chosen discount rate.
- Discount_rate : (i) The percentage by which current value exceeds value in a year's time. (ii) The rate at which banks may borrow at their central bank's discount window.
- Discount window : A facility provided by central banks that enables a bank to make secured short-term loans at its central bank's discount rate.
- Fair value : An accounting convention under which the balance sheet valuation of an asset is an estimate of a price that would be fair to both a seller and a buyer of that asset, taking account of the advantages of the transaction to each (replacing the "historical" convention under which assets were valued at the price at which they had been acquired).
- Fannie Mae : (Federal National Mortgage Association) US government-sponsored enterprise created to provide financial support to Savings and Loans. Privatised in 1968.
- Federal funds rate : The overnight interest rate at which banks lend balances at the Federal Reserve to other banks.
- Financial_regulator : The United States Securities and Exchange Commission gives as its mission "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation". Financial regulators in other countries have similar responsibilities.
- Gearing: see Leverage
- Freddie Mac : (Federal Home Loan Mortgage Corporation) Fannie Mae clone created to provide competition to Fannie Mae.
- Hedging : Protecting against price changes by simultaneously buying(/selling) an asset and making a futures contract to sell(/buy) it.
- Hedge fund : A limited-membership, aggressively-managed investment fund, often escaping regulation.
- Interbank market : a market in which a group of banks lend to each other (for example, see LIBOR).
- Interest rate risk : The risk that the value of a fixed-rate security or loan will fall as a result of a rise in interest rates.
- Leverage : (i) The use of borrowing to increase the amount of money that is available for investment or consumption. (ii) A proportional measure of indebtedness, such as the ratio of a company's debt to its shareholders' equity (the same as British "gearing"), or the ratio of the indebtedness of a household to the net value of its assets (ie net of its debts).
- LIBOR : (London Interbank Offer Rate) the rate of interest at which a group of banks (16 banks from seven countries, including the United States, Switzerland and Germany) are willing to lend to each other for periods ranging from a day to a year .
- Liquidity : (i) The quantity of available assets in its possession that an organisation could rapidly exchange for cash (assets that cannot be exchanged for cash at a particular time are considered to be "illiquid" at that time); (ii) the funding that is unconditionally available to settle claims through monetary authorities (termed "official liquidity").
- Liquidity risk : the risk that assets cannot be sold at time when cash is needed to meet a commitment.
- Liquidity spiral : a situation in which falling asset prices can prompt banks to reduce the supply of credit, causing further falls in asset prices.
- : an arrangement that enables customers to buy securities with money borrowed from a broker, subject to a minimum maintenance level related to the market values of the securities.
- : a demand for the additional securities required to maintain the minimum maintenance level of a margin account when security prices fall.
- Market risk : The risk that the value of an investment in a financial product will fall as a result of a fall in the market for that product.
- Mark to market : A version of the fair value accounting convention that values a security at its current market price.
- Money market : A market for short-term debt instruments (generally of maturity after less than one year) such as certificates of deposit, commercial paper, and Treasury bills.
- Moral hazard : Motivation to take an otherwise unwarranted risk because the cost of an unfavourable outcome would be borne by someone other than the risk-taker.
- Option : A right, but not an obligation, to buy (or to sell) an asset, usually at a stipulated price (termed the "exercise price") and at a stipulated time. An option to buy is called a "call option" and an option to sell is called a "put option".
- Portfolio insurance : A way of protecting a portfolio against market risk by selling short on the share index futures market, or by buying put options on the share index.
- Prime rate : The interest rate that commercial banks charge for loans involving the lowest risk of default - such as loans to large companies.
- Recession (economics) : Conventionally defined as two consecutive quarters of negative growth of gross domestic product (except in the United States).
- Reserve ratio : The ratio of a bank's reserves to its deposits, a minimum value of which is set by its central bank with the effect of limiting the proportion of its deposits that the bank is permitted to lend.
- Risk premium : The ratio of the rate of return from an asset to the rate of return available from a risk-free investment.
- Roll-over : The reinvestment in a similar asset of money released by the maturity of a bond.
- : US mortgage-lenders. American counterpart to British building societies.
- Securitisation : The conversion of a cash flow into a marketable security (usually a claim upon debt repayments) and often categorised according to the expected risk of default (examples include collateralised debt obligations and structured investment vehicles.)
- Selling short : Selling borrowed stock in the expectation that its price will fall, and with the intention of subsequently buying it back and returning it.
- Structured investment vehicle : (SIV) a fund that borrows money - usually at LIBOR rates - by the issue of asset backed commercial paper and uses it to finance longer term loans at higher interest rates.
- Subprime lending : Lending at interest rates above the prime rate because of an above-minimal risk of default.
- Swap: see CDS
- : (Troubled Asset Relief Program) US Treasury Secretary's proposal to take troubled assets out of the banking system.
- : the risk that arises in a situation in which the probability of an occurrence that is three standard deviations away from the mean is greater than it is in a normal distribution.
- Value at risk : The maximum possible loss in the value of an asset within a given time span and at a given confidence level.
- Warrant : A right, but not an obligation, to buy (or to sell) an asset, at a stipulated price and time. (Similar to an option but of longer duration.)
- Wholesale banking : transactions other than those with a bank's retail customers, including trading in derivatives and in the interbank markets, stock markets and foreign exchange markets.