How Financial Market Vocabulary and Lingo Have Changed Since the Financial Crisis

Economy

Published: September 17, 2018 12:35 pm

Last Updated: January 11, 2020 5:48 pm

It is without argument that the financial crisis changed America. It also changed the world’s economic landscape. It has now been about 10 years since the collapse of Lehman Brothers and since the forced buyout of Bear Stearns, and many former banks and financial institutions have vanished or been altered drastically. Even though the financial markets and economies have all by and large recovered from the financial crisis, there are still many deep scars that remain legacy issues and are clear and present today.

24/7 Wall St. recently featured eight major scars left over from and financial crisis and recession. It is important to not overlook these issues, because many of them almost undoubtedly will persist for many years ahead. One issue that changed drastically was the financial market vocabulary and terms used by the financial media each day.

The long and short of the matter is that a new financial vocabulary was created during and in the aftermath of the financial crisis. Some of the new economic and financial terms have been made up by governing officials. Some others seem as though they were pulled out of thin air.

Former Federal Reserve Chair Alan Greenspan was notorious for using terms in his testimonies and speeches that required dictionaries and scholars to interpret which exact definition he meant when speaking without explanation. Two peculiar terms used by Greenspan were “irrational exuberance” and “cupidity,” but the list was endless. And in the late 1990s, the term “Asian contagion” was used. These have all now faded with time.

Here are just some of the terms that the financial media have kept using over and over in the years since the financial crisis.

Quantitative easing. Going beyond mere interest rate cuts, this persists in 2018. It is when central banks have already taken interest rates down to zero or close to it but they have to keep coming up with creative ways to save their economy or financial system. The term “quantitative easing” is going to return every time there is even hint of a recession in the decades ahead.

Negative interest rates. Most lenders (debt buyers and owners) earn interest for lending. In today’s world outside of the United States, you might not make any money at all lending to a government. In Europe and Japan, debt investors often have to just be happy to let the government keep some of that money when they get paid back. This was never present in the modern pre-recession financial era.

Too big to fail. After the pain of seeing Lehman and Bear Stearns fall and the takeovers of Countrywide, Wachovia, WaMu and others, the nation’s top banks have become so large that if any single one of them were to fail then they could topple the entire financial world. The TBTF acronym is not used that much anymore, but the financial media now reference “too big to fail” every time there is even a hint of a disappointment.

Systemic risk. Similar to the notion of too big to fail, this term became synonymous with bailouts and was applied to many institutions in which the failure of one might cascade throughout larger and smaller banks and institutions alike.

Systemically important financial institutions (SIFI). This was not just about banks. General Electric, MetLife, Prudential and American International Group (AIG) all ended up on the list of SIFI names due to their importance. Most have since been removed from the list.