THE WILLIAM MARGRABE GROUP, INC., CONSULTING, PRESENTS
THE DERIVATIVES 'ZINETM     November 2001


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 The Devil's Derivatives DictionaryTM  Last revised: 08/13/00

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #  

- A -

ABC
"Always Be Closing". This is the financial salesman's first and great commandment. The rest are like unto it: "Talk to People. Get all their money. Get all their friends' money." (Andrew Greta, "Hoosier Dispatch: The Trouble with 'Localitis' ", TheStreet.com, 7/10/97.)
Academe
"An ancient school where morality and philosophy were taught." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
Academy
"(from academe). A modern school where football is taught." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
Accredited Investor
In the eyes of the SEC, an outlaw not deserving of the usual standards of financial disclosure, because of his past frugality or past and anticipated near-term productivity. The SEC can rely on a variety of bounty hunters – including bucket shop operators, promoters of limited partnerships and penny stocks, hedge fund managers, and commodity pool operators – to cut this vile character down to size.
 
SEC Rule 505, which offers one way of issuing securities without registering them, defines accredited investor to include
1. a natural person with a net worth of at least $1 million;
2. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
 
According to SEC regulations, an accredited investor is fair game for the sellers of a variety of securities, including interests in hedge funds. This is analogous to the statutory rape laws that define a person over the age of consent (12 years old, in Delaware) as fair game for any smoothie with a good pickup line or a new pickup truck. To quote the SEC, "It is up to you to decide what information you give to accredited investors, so long as it does not violate the antifraud prohibitions."
AC-DC Option
One way for a customer to earn a "shocking" payoff.
 
active manager
An investment manager who professes to focus his energy on extracting abnormally large returns from the market, but actually focuses it on extracting abnormally large investments from his clients. He is difficult to distinguish from his pathological brother, the hyperactive manager. In most cases, given that competitive markets tend to be efficient and that transactions don't come cheap, much less free, the faster he runs, the farther behind his benchmark he falls.
 
Usage: The four greatest lies known to man are
  1. The check's in the mail.
  2. Honey, I've got to work late.
  3. I'm from the government, and I'm here to help you.
  4. I'm an active manager, and I can beat the market.
affinity fraud
"It's a category where people try to take advantage of ethnic or religious similarity or other kinds of things in common to say, 'You can trust me; I go to the same church.' " (Marc Beauchamp, spokesman for the North American Securities Administrators Association, according to Randall Smith, "Loss-Plagued Baptist Foundation of Arizona Undergoes Investigation by Regulators in State," Wall Street Journal, 9/1/99.) 
 
Act-of-Devil Bond
An Act-of-God Bond, in hindsight. After the hurricane strikes, the buyers will complain that "the devil made me do it."
 
adverse selection
The insurance industry’s derogatory name for the unfortunate fact that their most eager customers are those who can benefit the most from their products. Thus, if an insurer offers a contract, such as insurance, to many customers, the least profitable customers will accept the offer.
 
Affluenza
A sickness of the spirit caused by affluence and ambition, aggravated by the devils on Madison Avenue. Best cured by poverty and/or complacency. Not a problem in the Kalahari Desert, the Amazon River basin, or on Skid Row, one presumes. According to the PBS show, "Affluenza", 9/15/97, it is "an unhappy condition of overload, debt, anxiety and waste resulting from the dogged pursuit of more." (Source: Walter Goodman, "Seeing Money as the Ruler, More Despotic Than Kind" [Review of ], New York Times, 9/13/97.)
Air Bag Economy
The Japanese economy, where the government intervenes to protect businesses and banks from crashes in prices of goods, services, stocks, and real estate. As a result, " ‘Everybody has jobs, everybody has health care, and nobody’s out on the street,’ Professor Morse said." Also, nobody has the proper incentive to take strong action and fix what’s broken. The result – economic stagnation from 1990 to 1999 – and still counting. (Nicholas D. Krisfof, "The Japanese and Inertia," NYT, 6/19/98.)
alphabet soup
Where mutual funds these days find the names for their shares, e.g., A, B, C, D, I, R, T, X, Y, and Z. The shares differ mainly in the way the managers confuse their customers about sales and management charges.
 
ambidextrous
"Able to pick with equal skill a right-hand pocket or a left." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
angel
An investor with deep pockets. An "accredited" investor (q.v.). ( Angel Capital Electronic NetworkSM.) An investor who is willing to finance part of a Broadway show just for bragging rights and a ticket to the cast party. An investor who is willing to make an uneconomical investment in a celebrity's restaurant to validate some name dropping.
 
angel capital
Seed money from semi-pro, high-tech nouveau riche investors with money to burn, rather than "VC money" (q.v.) from pros or "3F money" (q.v.) from amateurs. (Rich Karlgaard, "Dollars From Heaven," WSJ, 3/16/98.)
 
apology
A cheapskate’s way of making amends for a horrendous faux pas.
"The Japanese are so much more efficient about this: chop off the little finger and present it to the offended party, neatly wrapped in a pocket handkerchief. If you’ve really screwed up, use a longer blade and disembowel yourself." (Christopher Buckley, "Hoof In Mouth," Forbes FYI, Summer 1998.)
 
Arbitrage
In the marketplace, the act of picking someone's pocket, entirely legally and with his enthusiastic complicity. The financial market's daily performance of The Sting.
 
Art
Something that is – like pornography, a kind of art – impossible to define, difficult to agree on, but easy to recognize when you see it. Works of expression that derive value from their ability to stimulate the senses. Examples range from James Joyce's Ulysses to Piero Manzoni's "Merda d'artista no. 35" (1961), a "signed, numbered – and well-sealed – tin" of his excrement. A connoiseur paid $28,800 for this tin on July 2, 1998 in an auction at Sotheby's London. One wonders if the bidder mistook it, perhaps, for a can of Shinola. ("The commodification of crap," Forbes, 7/2798, p. 244.)
 
Asian flu
An epidemic of economic sickness that swept the Asian Tigers (q.v.) in the last half of 1997.
 
Asian Tigers
Strong Asian national economies, including Hong Kong, Malaysia, Singapore, South Korea, and Taiwan.
 
Asian Paper Tigers
The Singapore Dollar, Malaysian Ringgit, Thai Baht, Indonesian Rupiah, Phillippine Peso, and Taiwan Dollar, circa July 1997, when each suddenly and separately lost value, relative to the dollar. The term alludes to, combines, and twists earlier terms: Asian Tigers (q.v.), Paper, and Paper Tiger. Paper refers to paper money. Mao Zedong's Paper Tiger was an impotent U.S. government. (Source: Data on devaluation and depreciation from Darren McDermott, "Asian Currencies Feeling the Heat Again," WSJ (8/13/97).)
 
Auctioneer
"The man who proclaims with a hammer that he has picked a pocket with his tongue." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
Australia
"A country lying in the South Sea, whose industrial and commercial development has been unspeakably retarded by an unfortunate dispute among geographers as to whether it is a continent or an island." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
Axe
(1) A superstar stock analyst that institutional customers want to hear. Hence his brokerage house markets him the way a Hollywood producer "peddles Harrison Ford and, at one time, Demi Moore."
 
"... That analyst can stop a stock dead in its tracks and get it to jump up or roll over and play dead. You may call that person a charlatan, a mountebank, a hypocritical jester.
 
(Source: James J. Cramer, "Wrong! Cramer on Why He Likes the Axe," TheStreet.com, 8/27/97.)
 
(2) An instrument, security, or derivative product that a trader strongly wants to buy or sell. The salesperson who brings the trader a customer willing to take the other side of that trade is a hero.
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- B -

Baht’s Entertainment!
The reason that a 205-page, government report on the collapse of the Thai economy in 1997 is flying off the shelves. It’s also available on CD-ROM and videotape. Among other tales from southwestern Asia, it tells how the Bank of Thailand squandered $10 billion in one disastrous day, "defending the baht."
(Pichayaporn Utumporn, "Government Report on Thai Debacle Could Be Titled ‘Baht’s Entertainment’," WSJ, 6/24/98.)
Bahtulism
A sickness that began in July '97 as weakness of the Thai baht, then spread across southeast Asia to the Singapore dollar, Malaysian ringgit, Indonesian rupiah, Phillippine peso, and Taiwan dollar. (Source: Paul Krugman, quoted in Andrew Morse, "The Best Links: Curious About Asian Currencies? Here's a Hunting Guide ," TheStreet, 8/1/97.)
 
bailout
What the federal government didn't do for Long-Term Capital – instead, it "persuaded" LTC's lenders to bail it out.

A bailout is an effort to remove the water from a sinking vessel. Sometimes it works – Chrysler Corp.– and sometimes it doesn't – the U.S. thrift industry and the Titanic.
[the] base
People who will vote for one candidate or party, no matter what. For the Democrat party, African Americans and Feminazis. For the Republicans, the religious right. During a midterm election, the name of the political game is turning out the base to vote, which requires "red meat" (q.v.).
basher
A bad news bear who posts derogatory messages about a stock, to drive its price down. "That stock was flying, until a couple of bashers started taking shorts at it." (Terri Cullen, "Translation Required," WSJ, 9/8/98.) The opposite of a hypster (q.v.).
bastinado
"The act of walking on wood without exertion." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
beard
An person who serves to disguise an illicit relationship by pretending to have a relationship with each of the parties in the real relationship, thus giving them a reason to be in close proximity.
Example 1: The president wants to take his bimbo somewhere public. He might order his subordinate to join them and play the role of the bimbo’s lover.
Example 2: The president wants his bimbo to do her thing at the office. He might claim that the bimbo is his secretary’s friend and visitor.
(Michael Craig, "He Talked Too Much," The American Spectator, June 1998.)
 
Beardstown bozos
Elderly women who achieved their place in the investors' hall of fame by means of blue hair and mirrors. Their experience suggests that elderly women are no safer managing money than they are driving cars.
 
Members of the Beardstown (Ill.) Business and Professional Women's Investment Club wrote a book about investing that proclaimed on its cover that they had earned 23.4% per annum from 1983 to 1993 – versus 12.1% for the Dow Jones Industrial Average. The public has bought 800,000 copies to glean their wisdom, and their video won an award. In 1998 Price, Waterhouse found that their annual rate of return was only 9.1%. Now, it seems that, far from outthinking the competition in the stock market, they couldn't do simple arithmetic. They are "terribly sorry for the error and any confusion it may have caused." Nearly a month later, Coliseum Books in Manhattan still displayed their book prominently. (Calmetta Y. Coleman, "Beardstown Ladies 'Fess Up to Big Goof," WSJ, 3/18/98.)
 
Belorussian roublette
The dangerous game of holding the currency of Belarus during 1997 and the first quarter of 1998. On 3/17/98, after a sharp decline in the value of the rouble, Belarus’s strong man, Alexander Lukashenka, ordered firms and shops to use the prices from 3/1 and currency traders to use the exchange rates from 3/1. At those prices, citizens dumped roubles where they could – they bought out the stores immediately and tried in vain to buy hard currencies. On 3/23 "he ordered Belarussian banks to limit settlements with non-resident sellers." In Minsk, the central bank’s official rate was 33,460 roubles per dollar, and currency kiosks posted a rate of 42,000, but the free market rate in Moscow was nearly 70,000. ("Roublette," The Economist, 3/28/98.)
 
best execution
An abstract concept that, like unselfish love or unicorn, is easy to define, but seldom seen.
"Unlike pornography, which while difficult to define is known when seen, best execution is easily defined but often unrecognizable …" J. Macy and M. O’Hara, "The Law and Economics of Best Execution," NYSE Working Paper 97-05, 1997.
 
Bigamy
"A mistake in taste for which the wisdom of the future will adjudge a punishment called trigamy." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
big, swinging dick
A huge money maker on Wall Street, possibly because he has just screwed a customer – in size. An expression made famous by Michael Lewis in Liar’s Poker, his book about the months he spent at Salomon Brothers. Not a nickname for a large orangutan, named Richard.
 
bimbo-topia
"Where the Boys Are" in 1998, judging from "MTV's Spring Break," ("Tony & Tacky," WSJ, 3/27/98.). Little Rock, Washington, The White House, The Oval Office, ... wherever President Clinton is at any given moment, judging from reports in the New York Times, Washington Post, and Wall Street Journal.
black chips
The bags that catch the booty when the new African National Congress government Mau Mau's South Africa's white capitalists. The ANC has accomplished in black-majority South Africa what Jesse Jackson could only dream in the white-majority USA.
Shares, traded in the Johannesburg market, of South African corporations in which black businessmen have at least a ten percent interest, perhaps control. Black ownership gives the corporations an advantage in competing for governmental and related contracts, and may help white capitalists divert the ANC from seizing their property. Consequently, in 1997 black chip stocks outpaced the South African all share index by 16%. The name suggests that black chips are the African counterpart of Chinese red chips (q.v.). (Neil Behrmann, "Black-Chip Stocks Take Center Stage In South Africa," WSJ, 2/20/98.)
blank check company
An empty vessel, into which 
1. naive investors can pour their unwanted cash, the easier for stock promoters to steal it
2. sophisticated companies can pour their assets to get around  excessively onerous SEC registration requirements. 
A public, shell company with few or no assets, income, products, services, activities, business plan, management team, employees, or anything else that an ongoing business ordinarily has -- except for registration with the SEC. A private company can use a blank check company to go public via a "reverse merger" without doing an expensive IPO. (Schellhardt, Timothy D. "As 'Blank-Check' Firms Regain Allure, Businessman Lines Up Numerous Suitors." WSJ, 10/29/99.) 
blue sky law
A license to steal, issued by a state legislature. It takes its name from speculative business propositions that a judge in the early 1900s said had about as much substance as "blue sky".
boiler room
Sherwood Forest for modern day Robin Hoods. A room, densely packed with matched desks, phones, and telefleecers, dedicated to the proposition of separating fools from large sums of their money.
[the] bouncing Czech"
A nickname for two infamous swindlers, who colorful antics have beggared thousands of persons and put a small country on the map of financial fraud. 
1. Victor Kozeny, also known as the Pirate of Prague (q.v.). 
2. Robert Maxwell, the late financier, who was posthumously accused of looting the corporations and pension funds under his control or influence.
Robert Maxwell, a Czech immigrant to the U.K., who built a business empire with thousands of employees, whose pension fund he looted of some 400 million pounds Sterling.
brain
"An apparatus with which we think that we think. ... In our civilization, and under our republican form of government, brain is so highly honored that it is rewarded by exemption from the cares of office." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
Buba
A nickname and abbreviation for "Bundesbank", the German central bank.
Bubba
An excessively complimentary nickname for the 42nd President of the United States.
bubble
An wildly overvalued financial market, most clearly recognized via hindsight. The classic example given is Amsterdam's market for tulips in the 1600s, when the price of one rare tulip was "2 lasts of wheat; 4 lasts of rye; 4 fat oxen; 8 fat swine; 12 fat sheep; 2 hogsheads of wine; 4 tuns of beer; 2 tuns of butter; 1,000 lbs. of cheese; a complete bed; a suite of clothes; and a silver drinking cup." A more current example that some "experts", with no money in the market, one presumes, put forward is the U.S. stock market, cira July 1998.
 
bucket shop
A field of dreams for investors and field of nightmares for regulators and exchanges. The Bucket Shop creates trades in the underlying assets – ordinarily, shares – out of thin air. Regulators claim to hate the Bucket Shop because it can fold and leave investors with nothing, and otherwise cheat them. However, so can regulated dealers. Exchanges hate Bucket Shops, because they can produce the same returns as investments, but at lower cost than exchanges. Investors clearly love a Bucket Shop ex ante, if they trade with it. They may hate it, ex post, if they win, but it doesn't pay off and flies by night.
A Derivatives Dealer.
burn rate
The amount of capital that a startup company consumes each month.
(Michael Wolff, Burn Rate - How I Survived the Gold Rush Years on the Internet, New York, Simon & Schuster, 1998.)

 

business ethics
The philosophical issues that crop up when someone who lives to make a profit faces the opportunity of taking candy from a baby. "So when a client walks in with a $1 million inheritance, you earn $320 to stick it in a T-Bill, $2,500 in your average mutual fund, or $50,000 in a variable annuity. You make the call." (Andrew Geta, "Hoosier Dispatch: For Brokers, It Pays to Be Honest," TheStreet.Com, 12/4/97.)
bulletproofing

A business arrangement that makes it difficult or impossible for a creditor to put a severely wounded debtor out of his misery. For example, "Long-Term Capital did have a strategy of 'bulletproofing' itself from a liquidity squeeze." It consisted of convincing lenders to pay $3.65 billion for 90% of a bankrupt partnership, rather than liquidate it immediately and reap an even larger loss. (Steven Lipin, "Unwinding the Bets Stressed Long-Term Capital," The Wall Street Journal, 9/28/98.)

Business School

A nursery for human predators who prefer green paper to red meat. "A professor of ethics at Stanford Business School described the task of holding the attention of his ambitious, driven students as trying to give an intellectual life to baby wolverines." (Peter Robinson, Snapshots From Hell: The Making of an MBA, Warner Books, 1994.)

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- C -

cache
"A portion of RAM set aside as a temporary storage area, or buffer, to speed up communications between the microprocessor and the hard drive or other components." ("Jargon Watch," Fortune Technology Buyer's Guide, Winter 1998, p. 10.)
 
A portion of the balance sheet set aside as a temporary storage area, or buffer, to slow up the communication between the trading area and the controllers, financial accountants, top managment, and/or the shareholders. In commercial banks, it has in the past consisted of an investment portfolio that the bank need not mark to market and can carry on the books at cost. In investment banks, it has recently consisted of a reserve account and non liquid investments that the trader can mark at will.
 
Catastrophe Derivatives
How modern finance would have dealt with the Biblical seven plagues of Egypt. If Pharaoh had had these, the Israelites would would still be tilling Egyptian fields and Europeans would still be worshipping rocks and trees – instead of hard currency.
 
New shears for new sheep. ("Between 1988 and 1992 the losses on Lloyd's policies ran to about $13 billion, of which more than two thirds fell on the names recruited in the '80s. U.S. names have alleged in lawsuits that they were recruited to be taken – 'If God hadn't meant them to be sheared,' a deputy chairman of Lloyd's once wrote of names who did not take proper responsibility for their affairs, 'he wouldn't have made them sheep' – to reinsure about $3 billion of losses Loyd's insider knew were coming. Lloyd's vehemently denies that allegation ..." Martin Mayer, "Return from the dead," Institutional Investor, June 1997, pp. 37-40.)
 
chaebol
Literally, "fortune clusters". In Korea, a huge conglomerate or industrial group – such as Samsung, Hyundai, and Daewoo – that many accuse of trading with itself as much as possible, with other chaebols to a lesser degree, and with U.S. and other foreign companies as little as possible. The mutual admiration society consisting of the chaebols and the ruling party has dominated Korean politics and economics for some 50 years. The disastrous culmination of this unholy alliance was the bankruptcy of Korea and its complete formal surrender to the IMF circa 12/5/97. Only time will tell whether the surrender is genuine or just the start of a long guerrilla war, but preliminary results suggest the latter.

Update (8/19/99): Daewoo is breaking up, a good sign for Korea's economic health, allowing the sort of "creative destruction" that capitalism fosters, and which has made America's economy the world's envy during Bill Clinton's presidency. 
certificates of guaranteed confiscation
Russian Acting Prime Minister Viktor Chernomyrdin’s persuasive argument for the notion that 80-year-old defaulted debt from the Russian Empire is worth more than newly issued GKOs (Treasury bills) of Boris Yeltsin’s Russian government.
 
The government appears ready to force holders of its debt to swap for new debt that matures in three to five years and carries a coupon of 30 percent. They might choose to swap up to 20 percent of their old debt for new, dollar-denominated debt with maturity in eight years and a coupon of five percent.
 
With the Russian central bank unwilling to support the ruble, and the government unable to collect taxes and preserve the rule of law, people who bet in 1997 on a strong Russian recovery appear to have lost that bet.
 
(David DeRosa, "Russia’s Certificates of Guaranteed Confiscation," Bloomberg, 8/26/98.)
Chapter 22s
Two-time corporate losers. What bankruptcy lawyers call “firms that file under Chapter 11, reorganize and file again.” Three-time losers are “Chapter 33s”. (Daniel R. Fischel and Randal C. Picket, “A Firm That Failed Well,” Wall Street Journal, 10/12/98.)
 
cheat sheet
Definition: The investment banking equivalent of the crib sheet that a dishonest pupil uses during a closed-book exam. Sales literature that goes illegally beyond what appears in the prospectus.
Comment: In the world of education, during an exam, the pupil brings his own crib sheet and hides it from the teacher. In the investment banking world, during the period of analysis before the offering (exam), the banker (teacher) supplies the sheet to the prospective investor (pupil) and hides it from the SEC (principal).
The SEC requires the prospectus to be the complete, balanced, and exclusive piece of sales literature that the broker offers the potential investor. Errors of omission or commission carry serious penalties. The rationale is to put the investment game on a level playing field, because the prospectus goes to the individual investor, as well as insitutional investor.
SEC rules allow investment bankers to use any information – no matter how shaky – for internal evaluation of an issue. The rules allow the bankers to present potential customers with a wide range of information orally and visually, but not to leave it in writing. For example, during a "road show", brokers may hand out information that is not in the prospectus, but must collect the information before the prospects leave the room. Some institutional investors prefer to take this information away, and do take it, complete with the words "Internal Use Only".
Source: Susan Pulliam, " 'Cheat Sheets' On IPOs Raise Fairness Issue," WSJ, 12/31/97.
 
Chinese Wall
Definition: An ambiguous fixture in the compliance structure of American finance, analogous to the River in American history. In theory, an investment bank's Chinese Wall impedes the flow of valuable financial information from its mergers and acquisitions department to its brokers and traders.
Comment: In practice, if you can believe the press allegations about Marisa Baridis ("Ratings & Briefs", Financial Trader, Dec. 1997, p. 9.) , the Chinese Wall can serve as an information superhighway. In just the same way, in the early to middle 1800s, the mighty Mississippi River interrupted wagon traffic moving west, but made possible inexpensive riverboat travel from New Orleans to St. Louis .
 
chop
Definition: "[T]he immense profit margins" – bid-ask spreads – on Chop Stocks (q.v.).
(Source: Gary Weiss, "Investors Beware: Chop Stocks Are on the Rise," Business Week [online], 12/15/97.)
 
chop houses
Definition: "[D]ealers in penny stocks such as Blinder, Robinson & Co."
(Source: Gary Weiss, "The Mob on Wall Street: Why You Can't See It," Business Week [online], 3/24/97.)
 
chop stocks
Definition: "Street lingo for easily manipulated micro-cap stocks."
Source: Gary Weiss, "The Mob on Wall Street: Why You Can't See It," Business Week [online], 3/24/97.
churnin' and burnin'
Trading a customer's brokerage account excessively, just to create commissions, with the result that much of the customer's portfolio value goes up in smoke.
churning
In financial sales, the fine art of taking candy from a baby, done typically in three steps:
1. Open a brokerage account (stock, bond, or futures) to receive money from a naive youth, overworked and inattentive professional, or helpless geriatric
2. Gain that customer's confidence and receive or assume control over the account.
3. Betray that confidence for one's own financial gain by draining the account via commissions for frequent, unnnecessary transactions.
 
An insurance salesman can play a variation on this theme, persuading an insurance policyholder "to switch policies in a transaction that would do little or nothing more than generate commissions for the insurance agent." (Leslie Scism, "Despite Strikes Made Against Churning, Caution Is Key in Purchasing Insurance," Wall Street Journal, 1/21/98.)
 
circuit breaker
A device by which the batter has arranged for the umpire to postpone the game for rain every time he has to face a strong pitcher.
 
A colossally destructive stock exchange rule that stops the community of investors, controlling trillions of dollars of equity investments, from behaving like rational human beings, whenever rationality calls for bidding the prices of shares down sufficiently. The rule protects about forty small businessmen, who have agreed to play Russian roulette, in return for having monopoly power in the market for one or more corporation's shares. The small businessmen are NYSE "specialists" – market makers. Their suicidal bargain requires them to keep their assigned share prices moving in tiny increments, no matter what kind of hell is breaking loose in the markets around them. On occasion – not rare occasion – a market crash has bankrupted conscientious specialists.
(Holman W. Jenkins, Jr., "Why Circuit Breakers? Hint: Not for the Little Guy," WSJ, 2/4/98.)
 
A miracle cure for a feverish stock market that has just fallen out of bed – break the thermometer! Its advocates are now working on an amazing cure for airplane crashes that consists of shutting off the altimeter if an aircraft falls suddenly more than 350 feet. After that we reform campaign financing by ending the collection of data on contributions whenever we find widespread abuse. Could we perhaps straighten a winding road by locking the steering wheel when a car goes into a skid? O Happy day! The millenium is here! ("Trading on the [NYSE] halts for half an hour if the [DJIA] falls 350 points from the previous day's close, and an hour if it falls 550 points. ... These circuit breakers, which are coordinated with futures exchanges, have never been triggered." Deborah Lohse, "Nasdaq Revamps Its Order System," WSJ, 8/25/97.)
 
Just in from the WSJ, the NYSE has proposed the following circuit breakers: When the Dow-Jones Industrials fall 10% / 20% / 30% the NYSE would halt trading for one hour / two hours / the rest of the day. (Aaron Luchetti and Greg Ip, "Big Board May Loosen Its 'Collar'," WSJ, 3/23/98.)

Just in, from the "If all your friends jumped off a bridge, would you jump off a bridge?" Department: The Wall Street Journal reported – appropriately, on Friday the 13th of March, 1998 – that the Chicago Mercantile Exchange and Board of Trade have decided to have their Circuit Breakers take effect on the following April Fool's Day (4/1/98). The New York Stock Exchange's Circuit Breaker halted trading in October 1997, after the market fell more than the 500 point limit (554.26 points, less than 8% of its beginning level). The new Circuit Breakers at the Merc will halt trading in its S&P 500 index futures contract when the S&P 500 index falls 10% and 20%. The new Circuit Breakers at the CBOT will halt trading in its Dow-Jones Industrial Average contract when trading halts on the NYSE. (Clifton Linton, "Circuit Breakers Spark Debate In Futures Arena," WSJ, 3/13/98.)
clairvoyant
"n. A person, commonly a woman, who has the power of seeing that which is invisible to her patron – namely, that he is a blockhead." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
CMOs
"The exploding cigars of the financial world." (Howard L. Simons, "Posting Up," http://www.futuresmag.com/library/oct95/tradetech.html.)
coin-operated employee
"An employee brought in for a particular project or set time period." ("Jargon Watch," Wired, April 1998.)
collar
The means by which the New York Stock Exchange (NYSE) strangles trading on its exchange and blinds its customers, while trying to suffocate its competition at the Chicago Mercantile Exchange. In effect, an additional uptick rule (q.v.) (downtick rule) that prevents a trader from selling (buying) a stock in a down (up) market – unless the last trade was above (below) the immediately preceding trade. The expressed (but untrue) wish is to prevent arbitrageurs from aggravating swings in the market prices. The unexpressed (but true) wish is to prevent arbitrageurs from picking the pockets of the specialists who do their jobs – or embarrassing those who don't. (Aaron Luchetti and Greg Ip, "Big Board May Loosen Its 'Collar'," WSJ, 3/23/98.)
commerce
"n. A kind of transaction in which A plunders from B the goods of C, and for compensation B picks the pocket of D of money belonging to E." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
common cents
Something totally lacking in the American stock market, but available in virtually every other market in the world. While the U.S. was the first country to decimalize its currency (circa 1776) and Yemen was the last (1974), U.S. stock markets still operate as though "pieces of eight" were the coin of the realm. Clearly the leadership in this market is crazy – like a fox! When the minimum price differential is an eighth of a dollar, so is the minimum bid-ask spread, which stymies vicious price cutters. (Jack Weatherford, "Let Common Cents Prevail on Wall Street," WSJ, 3/26/98.)
connoisseur
"n. A specialist who knows everything about something and nothing about anything else.

An old wine-bibber having been smashed in a railway collision, some wine was poured upon his lips to revive him. 'Pauillac, 1873,' he murmured and died." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
convoy system
1. The incredibly stupid and short-sighted Japanese approach to insuring the solvency of their financial system by having the stronger banks bail out their weaker brethren. (Jathon Sapsford, "Hedge-Fund Bailout Allows Japanese to Lecture U.S.", The Wall Street Journal, 9/28/98.)
2. The incredibly brilliant approach of the Federal Reserve Board to insuring the solvency of their financial system by "persuading" commercial banks and investment banks bail out a failing hedge fund.

For those without business sense, the potential problem with the convoy system is that it may end up weakening even the strong to the point where everybody is in danger of sinking – as in the Japanese financial markets at the end of the 20th century..
cookie jar accounting
The term for a pattern of taking excessive reserves against possible losses – e.g., loan losses – during times when earnings are large, then reducing those reserves during hard times, using the reserves as a "cushion", thus "smoothing earnings" to deceive "investors, funds providers, regulators, or other affected parties." The SEC, Federal Reserve, FDIC, Office of the Comptroller of the Currency, and Office of Thrift Supervision signed a statement (circa 11/24/98) opposing this sort of manipulation. (Richard Waters, "Warning on use of loan loss reserves," Financial Times, 11/25/98.)
corporate opportunity
1. A doctrine of human greed that says a corporate executive must take personal advantage of any financial opportunity that presents itself to the executive by virtue of his office.
2. A doctrine of corporate law that says that "Corporate executives can't take personal advantage of financial opportunities that come to them by virtue of their position at the company. Instead, the executives are required to offer the opportunities to their company." (Michael Siconolfi, "SEC Broadens 'Spinning' Probe To Corporations," WSJ, 12/24/97.)
Costly Collar
A significantly more accurate – but much less marketable – term for what Derivatives salesmen commonly term the "Costless Collar".
courtesy call
The telemarketer's euphemism for wasting your time by rudely interrupting your otherwise productive day. You can fight "courtesy calls" and maybe even "make money at home, just answering the phone" by using the Junkbusters Anti-Telemarketing Script. It really works! Listen to them squirm, silently, politely.
 
coward
"One who in perilous emergency thinks with his legs." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
crossed market
A market where the dealer community loses a nickel on every trade, but makes it up on volume.

In a crossed market the bid exceeds the ask, which is a difficult position to maintain. In both theory and practice, dealers don't maintain it. Nor is a prolongued crossed market required to make money. Instead, a dealer crosses the market for an instant to set a spurious underlying price and a confederate takes the profits in an ill-designed derivatives market. (Leslie Eaton, "Nasdaq Fines Morgan Stanley $1 Million, NYT, 4/14/98. "NASD Fines Morgan Stanley $1 Million For Allegedly Manipulating Stock Prices," WSJ, 4/14/98.)
currency speculation
"Currency speculation is the financial equivalent of AIDS." (Roughly translated from Jacques Chirac.)
cybersucker
Definition: A high tech lamb who, finding boiler rooms archaic, prefers to find his slaughterhouse on the World Wide Web.
Comment: "THERE'S A CYBERSUCKER BORN EVERY MINUTE . . . As you read this, there are probably several scam web servers opening for business. The offers and pitches are incredibly varied, though they narrow into the same end game: separating the online sucker from his or her money. 'Sucker' seems a harsh term, but what else do you call someone who throws away money on too-good-to-be-true offers from total strangers?"
Source: Lance Rose, "STATE REGULATORS: PROBLEM OR ANSWER?" LEGALLY ONLINE.
cynic
"n. A blackguard whose faulty vision sees things as they are, not as they ought to be. Hence the custom among the Scythians of plucking out a cynic's eyes to improve his vision." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
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Dagenham smile
"The unsavoury (and typically hirsute) buttock cleavage exhibited by a certain calibre of building site worker, such as might come from Dagenham, a fairly grim outskirt of London. This grim [and vertical] smile is especially prominent when bending over. Caused by enormous beer gut at front preventing T-shirt at rear ever tucking into jeans." (Andy Webb)
D&D
Due diligence. (Terri Cullen, "Translation Required," WSJ, 9/8/98.) The process by which underwriters, investors, and stock analysts give the Devil his due.
8/28/00 Darrell Zimmerman Rule
Definition: A rule of the Chicago futures exchanges that allows the clearing firms to keep the profits on any positions that exceed what their margin supports. Named after the man who created havoc in the CBOT bond pit in 1994 by buying huge amounts of option bond options on margin that consisted of a worthless $50,000 check.
Comment: If it had been in effect when Hillary Clinton made her $100,000, Refco would have been entitled to keep all her profits. Of course, that would have defeated Refco's purpose in letting her trade. 
Source: Ted C. Fishman, "...Almost," Worth, 1/94,  2000http://www.worth.com/articles/Z9401F04.html. 
Day-After Option
A much-needed Derivative Product that gives the customer the right to cancel a trade after 24 sobering hours.
day trader
The financial market's equivalent of the little old lady who spends every day at the casino, sticking quarters into a slot machine. One who believes you can lose a nickel on every trade and make it up on volume.
dead cat bounce
A small, unsustainable increase in a speculative price after a precipitous drop. For example, the Korean won fell precipitously from about 900 won per dollar in October to about 1700 in early December, had a dead cat bounce to around 1400, fell to about 2000, bounced to about 1400, and fell again to about 1700 at the end of the year.
"At a recent $281.40, gold is at a 17-year low. ... The Bre-X fiasco, along with other scandals, demoralized investors and combined with tax-loss selling of unprecedented savagery to devastate gold stocks.
"But even dead cats bounce ..."
(John Brimelow, "Dead-cat bounce?", Forbes, 1/12/98.)
If a warped individual drops a dead cat off a tall building, after it hits the pavement, it will bounce a little. However, don't expect much of a bounce.
dead hand
A board-room villain that refuses to die – the "dead hand" is to the drama of corporate governance what seemingly immortal Freddie Kruger is to "Friday the 13th".
In the documents governing a corporation, a continuing director clause that "authorizes the incumbent board of directors of a target company and only the incumbent board of directors – to remove a target company’s ‘poison pill’." (Thomas E. L. Dewey, "Loosening the Grip of the ‘Dead Hand’," Wall Street Journal, 8/24/98.
dead Tiger bounce
A dead cat bounce (q.v.) for stocks of the Asian Tigers.
death spirals
Convertible, preferred shares, with a conversion ratio that increases as the share price decreases. Also known as "toxic convertibles." (Aaron Lucchetti and Leslie Scism, "Unusual Convertible Preferred Raises Needed Cash-- and Risks," The Wall Street Journal, 9/28/98.)
defibrillator
A contingent option now available near the trading floor of the New York Stock Exchange. It pays off if a trader has a heart attack and the electric shock restores normal rhythm. It has gone in the money about five times a year. Also available off the exchange at Grand Central Terminal. ("New York Exchange Faces Reality of Heart Attacks," New York Times (courtesy of Bloomberg News), 1/2/98.)
delay, deny, denigrate, and distract
The four pillars that support the Clinton administration’s strategy for dealing with Special Prospecutor Kenneth Starr and other small-minded critics – in the press and the Republican party – who miss the big picture, while nipping at their ankles for little things like selling U.S. trade secrets to the Red Chinese for illegal campaign contributions, perjury, subornation of perjury, and obstruction of justice:
  • Deny that any crime occurred.
  • Delay the investigation of the crime.
  • Denigrate the investigator and his investigation.
  • Distract attention when the investigation turns up solid evidence.
democratization of capital
Racist socialism in Jesse Jackson's dreams.
 
dentist
"A prestidigitator who, putting metal into your mouth, pulls coins out of your pocket. (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
 
digerati
What the literati call anybody who knows how to use a [digital] computer. (Webster's College Dictionary, New York, Random House, 1997.) Cf. numerati.
 
Dismal Science
[Positive] Economics (q.v.). So-called because of its stubborn attempts to describe the world as it is, rather than Pollyanna thinks it should be. "Its dismalness is largely a delusion, due to the fact that its chief ornaments, at least in our own day, are university professors. The professor must be an obscurantist or he is nothing; he has a special and unmatchable talent for dullness; his central aim is not to expose the truth clearly, but to exhibit his profundity, his esotericity – in brief, to stagger sophomores and other professors." (H.L. Mencken, "The Dismal Science," in Prejudices; A Selection, p. 149. Baltimore: Johns Hopkins, 1996.)
 
distinguished, portly, elderly gentleman
A fat old fart who has retired with at least ten million dollars.
Diving Board Effect
Definition: The tendency of certain falling (rising) forward price or yield curves to go (up) down more for the nearby delivery and less for the more distant delivery. AKA Horizontal Tornado.
Source: Culp, Christoper, and Miller, Merton. "Auditing the Auditors." Risk 8 (April 1995), pp. 36 ff.) .
Doctor Death
Albert Wojlinower, a perennial market bear. For 23 years as First Boston's chief economist, he preached gloom, doom, and even "plagues".
dogeza
A traditional Japanese institution that sometimes makes suicide a better way than reorganization to handle default on corporate debt. "[A] meeting with creditors in which the ruined company owner sits on the floor, bows deeply, and begs forgiveness while his creditors scream abuse." (Edward W. Desmond, "When Suicide Makes Sense," Fortune, 5/25/98, p. 28.)
DOGS
Drastically Overpriced Government Securities. A "pet" name for SLUGS (q.v.).
"dogs of the Dow"
Ten stocks that have recently lived up to their name. The ten stocks in the Dow-Jones Industrial Average having the highest dividend yield. They ordinarily get that high yield by having a recent and severe decline in share price. In 18 out of 23 years from 1971 to 1993 they outperformed the DJIA over the ensuing year, which gave them a reputation as future winners. Alas, in three out of four of the years from 1993 to 1997 the DJIA beat the dogs, which put the "dogs of the Dow" theory in the same category as the hemline theory in the minds of some. (Greg Ip, "Bull Market in Stocks Is Trampling Some Investment Rules of the Past," WSJ, 4/6/98.)
downshifter
A euphemism for a victim of career burnout.
8/28/00 drop the H-bomb!
An immensely successful technique for scoring with the opposite sex in singles bars    . "For us, it was a guaranteed entrée. 'Like a neutron bomb which wipes out humans but leaves buildings standing, the H-bomb leaves brunettes standing but puts blondes on their backsides ... It worked very simply. We'd wade into a crowd with a beer in each hand, start talking to a girl, and casually mention we'd gone to business graduate school. If the girl asked, "Which one?" we paused, looked at her with slight curiosity and then said quietly, 'Harvard.' Someone scored with the H-bomb every night." 
Source: Joseph Jett (with Sabra Chartrand), Black and White on Wall Street," New York, William Morrow, 1999.   
dumb money
The opposite of "smart money". Money "invested" – i.e., flushed down the toilet – by large corporations in research and development, according to Michael Jensen's 1993 article in the Journal of Finance. (Rich Karlgaard, "Dollars From Heaven," WSJ, 3/16/98.)
D.W.B.
Driving While Black. A popular term among the criminal class – including drug runners, their attorneys, their legislators, and any clueless bleeding hearts in the neighborhood. Similar to
  • D.W.I. – Driving While Intoxicated
  • D.W.U. – Driving Under the Influence.
According to some African-Americans, police unfairly target blacks, particularly younger, black, male drivers, for investigation. A New Jersey state judge ruled that police were selectively enforcing laws by focusing on blacks, because the probability that the police will pull over a black driver is 4.85 times as large as the probability that they will pull over a white driver. (John Kifner and David M. Herszenhorn, "Facial ‘Profiling’ at Crux of Inquiry Into Shooting by Troopers," NYT, 5/8/98.)
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Easy-Come, Easy-Go Option
Definition: A variety of Knock Out Option. Specifically, (1) if it goes in the money, it knocks out, and (2) if it goes back out of the money, it knocks back in, again.
Source: A trader who shall remain anonymous.
economics
Definition: The dismal science (according to Thomas Carlyle), so called because it focuses on understanding how humans make choices.
economist
Definition: A professional cynic (q.v.), schooled in the dismal science.
Examples:
1. Economist, Normative. An theoretical economist schooled more in mathematical analysis and less in statistical analysis.
2. Economist, Positive. An empirical economist, schooled more in statistical analysis and less in mathematical analysis.
3. Economist, Policy. An applied economist, more schooled in the architecture of castles in the air, less in mathematical and statistical analysis.
4. Economist, Business. An applied economist who tries to predict the future, ideally by speaking with someone who is about to announce it.
education
Definition: The only market where the buyer customarily pays in advance, but adamantly refuses to take delivery.
emerging market
A backward economy, temporarily growing faster than its indigenous thieves can deplete it, as brokers and dealers, those imaginative authors of modern financial fairy tales, describe it to their starry-eyed victims. A future submerging market (q.v.).
EMU
1. A large, flightless Australian BIRD (Dromiceius novaehollandiae) related to the CASSOWARY and OSTRICH. A swift runner, it is 5 to 6 ft (150 to 180 cm) tall. Its brownish plumage is coarse and hairlike. Iin the early 1990s, American farmers paid up to $70,000 to get a breeder, because the meat is low in cholesterol. In 1997, with about 2,000,000 emus in the U.S. and a pair of emus worth less than $400, one Texas physician and farmer clubbed 22 of his recalcitrant emus to death.
2. European Monetary Union. A large European organization, related politically to the OECD and NATO, but in some ways more closely related to the mythical CHIMERA and DRAGON. Its body exists, but shows no signs of performing as advertised. Everyone agrees it's a slow runner. Some people think it's a nonstarter. So far, no one has clubbed it to death.
Episcopal Church
"The Republican Party, at prayer." (William McGurn, "Rum, Romanism And Republicans", The Wall Street Journal, 1/29/99.) A church that weeds out the intellectually unfit through Sunday morning exercises that involve juggling prayer book, program with inserts, hymnal, and supplementary sheet music, while alternately standing, sitting, kneeling, as well as listening, reading, speaking, singing, and – during the sermon – snoozing.
European Central Bank
The institution that the European Monetary Union has put in charge of manipulating the value of its currency, the euro. (Dagmar Aalund, "What's the Euro?", The Wall Street Journal, 9/28/98.)
European Monetary Union
The European attempt to compete in the currency market with the dollar and obtain interest-free financing of hundreds of billions of dollars of European debts.
Eurotrash
Attractive, well-dressed, well-spoken – at least, while sober – degenerate druggies who hang out at clubs in major American cities. "That New York City club has become a compactor for Eurotrash."
executive
Definition: "An officer of the Government, whose duty it is to enforce the wishes of the legislative power until such time as the judicial department shall be pleased to pronounce them invalid and of no effect." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
experience
Definition: "The wisdom that enables us to recognize as an undesirable old acquaintance the folly that we have already embraced." (Ambrose Bierce, The Devil's Dictionary, New York, Dover, 1958.)
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