Economy

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

The Great Recession. This didn’t exactly feel so great. Our grandparents may have endured the Great Depression of the 1930s and into World War II, but there had never been anything worse than normal recessions from the 1950s until 2008. The last recession was so bad that they had to give it its own name. In all of its “greatness,” there was really nothing that felt positive while it was happening. Many people still have not recovered.

Algorithmic and machine trading. The term “black-box” trading had been used prior to the recession, but now most black-box trading is referred to as “the machines” and “algos” in the market. There has been an explosion in trading by machine, and now we are in a financial world with far fewer trading floors and trading pits. If they remain, they are run by a skeleton crew equal to a tiny portion of the people it used to be just two decades ago. Now the algos and machine trading, also aided by the massive expansion from exchange traded funds (ETFs), account for most of individual stock trading. Some estimates project that only 10% of equity trading in the United States is done by humans.

And several terms and acts have became synonymous with the bailouts and the post-recession world that still are used in reports to this day.

The U.S. Troubled Asset Relief Program (TARP). This was the funding the government invested into the banks and that was paid back directly by them. The government even made a profit — even if Warren Buffett received better terms when he invested directly into companies during or right after the Great Recession.

The PIIGS. It’s been a while since Portugal, Italy, Ireland, Greece and Spain have dominated the headlines as risks to pulling Europe (and further afield) back into the depths of recession. Still, nations like Turkey and elsewhere are compared to the PIIGS whenever financial contagion and trouble arise in the international market coverage.

Flash crash. In a world dominated by algos and machines, it’s no surprise that a garden variety market sell-off can get out of hand real quick. In 2010, there was a flash crash that took the market down almost 10% within minutes, and there was no news to explain it. There have been multiple instances in the years since when miniature versions of this have been seen, and the major exchanges have changed their limits on equities and have trading curbs that go into effect for the broader markets if the selling pressure reaches certain hurdles each day.

Some other terms were used before the recession, but on a very limited basis. For example, the term “subprime” was used before the recession, but it became the hallmark used routinely during and since then for those with poor credit.

The financial media also still uses terms such as “the next crisis” and “the next crash” routinely, despite the massive economic recovery and despite the instances of serious risks in 2018 paling in comparison to the 2006 to 2008 period. Imagine what media ratings would be like if you weren’t being scared and just heard: “It’s all good, carry on until you hear differently!”

There are literally an endless number of financial market terms that simply did not exist ahead of the financial crisis. Some may be more of an evolutionary development that would have occurred anyhow, but there are many financial market terms that exist now and will into the future that are directly as a result of the Great Recession.