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Credit Crunch Glossary

In 2008 we all learned new words and phrases around the credit crunch and it looks like things will be the same in 2009 whilst we get to grips with terms like quantitative easing.  Predaptive’s OD glossary has expanded to fit in some of these new words and phrases that clients ask us about.  Take a look, and if there are any more you’d like us to add, just ask.



Liquidity

Liquidity is a measure of how easily and quickly any assets can be turned into cash.  If you have a pile of chocolate Santas you can quickly sell them for cash, although perhaps not at the price you’d hoped for.  If you have a two bedroom apartment in Gdansk, it may be harder and take longer to convert to cash.  A SIV may not have any cash value at all at the moment, but could still have a future value, so is illiquid.



SIV

Structured Investment Vehicle – an investment that no-one understands.  At its most basic a fund which lends for the long term whilst borrowing in short term credit markets.



Credit Crunch

A short supply of cash to lend to businesses and consumers resulting in limited credit availability and /or credit available at high interest rates.



Credit Squeeze

See credit crunch.



Sub-Prime

A euphemism for lending to people with poor or no credit history and limited ability to pay back loans.  Previously considered to be  low risk as house price rises meant repossessed properties would be worth more than outstanding loans, however, this strategy relied on high asset price growth.



NINJA Loan

A loan made to someone with No Income, No Job or Assets.



LIBOR

London Inter Bank Offered Rate is the interest rates at which banks offer to lend unsecured funds to each other.  Traditionally this has been close to Bank Of England rates, however, a break down in trust between banks can drive it higher.



Quantitative Easing

A method of increasing the money supply by Central Banks buying assets such as bonds and mortgage backed securities for cash freeing more liquidity without physically printing more currency.