Saturday, February 7, 2009

Language and the Financial Mess

In my college days, when I gave barbers little business, I came across a book by a radical thinker the premise of which was that controlling what words were used to describe matters was more important than almost anything else.

That said, we hear all the time about what to do about the banks.

Here is the first definition of a "bank" from Webster's Online Dictionary:

1. A financial institution that accepts deposits and channels the money into lending activities; "he cashed a check at the bank"; "that bank holds the mortgage on my home".

What does this have to do with the discussion about the banking crisis? Everything. Consider the quote from a article today, U.S. Plans New Bank-Capital Injections, Expanded Fed Program:

The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of the rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.

But what really is happening is that the holding companies that may happen to own a depository institution are going to be vetted.

(As a doctor, I am amused about the word "injections". Whose syringe is as big as Henry Paulson's bazooka?)

If the press reported that it is not really the banks that are being bailed out, but rather giant companies, the public mood would be even angrier than it now is. Most people have no idea that Citigroup, for example, happens to own Citibank, but that most of its business is (was) unrelated to plain vanilla depository and related lending functions.

In a related matter, here are quotes from the same article that are designed to obfuscate:

Officials are also considering ways to deal with the toxic assets clogging banks’ balance sheets . . .

A lesson from past experience with banking crises around the globe is that the removal of bad assets from bank balance sheets . . .

What if the article had said: "These conglomerates are insolvent; their assets exceed their liabilities"?

Instead the author makes it seem as though somehow some hairballs of "bad assets" got in the drain and need to be removed.

Newsflash: In what the IMF now calls a "depression", not a recession, the worst thing a lender can do is make a risky loan.

In equity, not in debt, lies the solution.

Copyright (C) Long Lake LLC 2009

No comments:

Post a Comment