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The devil’s work, part two

16 October 2015 By Edward Chancellor

American writer Ambrose Bierce published “The Devil’s Dictionary” in 1911. Bierce’s acerbic definitions ranged from government to commerce and life in general. He displayed a profound understanding of finance, for example defining “riches” as “the savings of many in the hands of one”.

Breakingviews published a pioneering appropriation of his form in 2007, when the global financial crisis was barely beginning. Call it “The Original Devil’s Dictionary of Finance”. But it no longer seems adequate for the post-crisis task. Herewith part two – for the letters L to Z – of the sequel, updated and enlarged for the world of hedge funds, private equity, structured finance, subprime equity and the like: “The Devil’s Dictionary of Post-Crisis Finance”.

Part one was published last week.


Laddering: A broker’s manipulation of the market following an IPO by promising to repurchase shares at a higher price. Prevalent during the dot-com era.

Lender of last resort: The traditional role of a central bank, providing funds to the markets at times of panic. Originally restricted to lending against high-quality collateral at penal rates of interest. More recently provided against toxic assets at subsidized rates.

Libor scandal: The illegal manipulation of short-term interest rates by traders to generate bankers’ bonuses. Not to be confused with the legal manipulation of interest rates by central banks to generate bankers’ bonuses.

Liquidity: Since the financial crisis, the oxygen of Wall Street, supplied on demand by the Fed. “Of the maxims of orthodox finance none, surely, is more antisocial than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of ‘liquid’ securities. It forgets that there is no such thing as liquidity of investment for the community as a whole” (Keynes).


MBA: A person with neither ethics nor business sense. See Business school.

Mean reversion: The touching belief of value investors that life will one day return to normal.

Mergers and acquisitions: An activity undertaken by CEOs whose pay is linked to a company’s turnover and market capitalisation. Debt-funded M&A is commonly used to enhance earnings per share.

Mine: “A hole in the ground with a liar standing next to it” (attributed to Mark Twain). See Commodity supercycle.

Money: A zero-coupon perpetual bond.

Money market fund: A mutual fund that behaves like a bank deposit but which is uninsured, opaque, liable to fall below its presumed value (known as “breaking the buck”), and able to impose gates on investors.

Moral hazard: Wall Street’s mentality of “heads I win, tails you lose”, fostered by Fed policy.

Muppet: See Client.


Occupy Wall Street: A traveling troupe which entertained Lower Manhattan in the aftermath of the financial crisis. Hoping for a rerun.

Off balance sheet: The hidden truth.

Oligarch: A member of an emerging-market elite, whose initial fortune, gained by ripping off locals, is enhanced by flogging dodgy shares to Western investors.

Options reset: The reissuing of corporate stock options at a lower price after the shares have fallen sharply. Often coincides with the arrival of a new CEO. See Kitchen sink.

Other people’s money: A financier’s plaything. “The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else’s goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people’s own money.” (Louis Brandeis, U.S. Supreme Court justice.)


Pension plan: A collection of unpayable corporate promises backed by inadequate funds and managed on the assumption of unrealistic returns.

Pension consultant: Someone who cannot find employment with an investment firm.

People’s quantitative easing, or PQE: The printing of money to fund government spending. Long practiced throughout Africa. Lately, a “progressive” policy proposal for the UK. See QE.

Ponzi scheme: The operation of modern capitalism, from the United States to China, which requires ever-rising asset prices to sustain economic activity and validate ever-increasing debt levels. See Debt supercycle.

Principal-agent problem: The ancient danger of trusting your assets to another person’s care, especially pronounced on Wall Street: “The good shepherd giveth his life for the sheep. But he that is an hireling, and not the shepherd, whose own the sheep are not, seeth the wolf coming, and leaveth the sheep, and fleeth: and the wolf catcheth them, and scattereth the sheep.” (John 10.11-13, King James Version.)

Private equity industry: One of the most undeserving beneficiaries of the Fed’s easy money policy. Despite overpaying for and overleveraging buyouts prior to the global financial crisis, the industry has been able to refinance its deals with even cheaper money.

Profit: Currently, America’s biggest manufacturing industry.

Proprietary trading desk, or prop desk: A place where investment bank traders front-run trades placed by their clients. Recently rebranded as the “flow desk”.


QE: Quantitative easing, exemplified by the Fed’s purchase of securities with newly printed money with the aim of defeating U.S. deflation and boosting economic growth. In practice, QE has resulted in asset price bubbles, over-investment in commodities and emerging-market credit bubbles, whose ongoing collapse is producing global deflation and lower world economic growth.


Rate rise: Wall Street’s Godot.

Red capitalism: The shell game of Chinese finance by which all losses are concealed and transferred between state-owned enterprises on Beijing’s orders. See State capitalism.

Regulatory capture: the process by which dumb and lazy public officials are got the better of by smart and hard-working bankers. See Revolving door.

Regulatory arbitrage: How Wall Street gets around financial regulations, thus preparing the ground for the next financial crisis.

Rehypothecation: An investment bank’s use of a client’s collateral to support its own debt. If the bank goes bust, as Lehman Brothers did, the client discovers his assets have vanished too.

Retail investor: An outsider on Wall Street who isn’t rich enough to be a fully fledged muppet and thus pays higher fees. See Principal-agent problem and Bandwagon.

Rent seeking: The extraction of profit without creating value, the principal economic activity in emerging markets. Wall Street’s rent seeking is supported by lavish political donations and the largest lobby in Washington.

Revolving door: The process by which former government officials are rewarded by Wall Street with lucrative jobs (see Robert Rubin at Citigroup, Alan Greenspan at Paulson & Co, and Ben Bernanke at Citadel). Known in Japan as “amakudari”, which translates as “descent from heaven”.

Risk-free rate: The yield on U.S. Treasury bonds. Also known as “return-free risk” (Jim Grant, editor of Grant’s Interest Rate Observer).

Risk management: A cost centre for a bank. Next to compliance, the most futile activity in finance.

Risk parity: An asset-allocation strategy which involves buying large amounts of government bonds using leverage at a time when yields are at all-time lows. Popular with Endowments.

Risk-weighted assets: The outcome of a game of Regulatory arbitrage, used by banks to reduce reported leverage.

Rogue trader: An investment bank employee who couldn’t get a job on the prop desk.


Sage of Omaha: The name that value investors give to Warren Buffett, an investor of inconsistent principles. Publicly opposed to using debt in order to goose returns, the Sage has leveraged his own insurance company’s balance sheet for nearly half a century. An ardent tax avoider, he wants less wealthy persons to pay more taxes; and despite being a longstanding Wall Street critic, Buffett hops into bed with bankers if the price is right.

Savings glut: The mistaken notion, popularised by Bernanke, that interest rates have fallen due to excess Asian savings. The real cause of low rates has been a “banking glut”. (Claudio Borio, Bank for International Settlements).

Scapegoat: Someone or something other than their own fecklessness that the public and politicians can blame for the global financial crisis.

Securities and Exchange Commission: A U.S. regulator which sleeps during booms and prosecutes some small fry after busts.

Securitisation: A cause of financial insecurity.

Shareholder value: A cover for the transfer of wealth from shareholders to company managers.

Sharpe ratio: A distorted measure of investment returns based on the assumption that past volatility is a guide to the future and on the Bell curve. The Sharpe ratio conceals investors’ exposure to fat-tailed risks. A hedge funds can achieve a high Sharpe ratio and large performance fees by selling out-of-the-money put options – a trade which blows up when prices crash.

Short sellers: Investors who attempt to impose rationality on the market by betting against bubbles and exposing corporate frauds. Theirs is one of the least profitable activities on Wall Street.

Sovereign debt: “Countries don’t go bust.” (Walter Wriston, Citigroup). Instead, they default.

Spinning: An allocation of shares in a hot IPO to favoured clients. A common practice during the dot-com bubble.

State capitalism: A stage of economic development in which all rents are siphoned off by public officials and their cronies. When taken to excess, results in arrested development. See China.

State-owned enterprise: An emerging-markets business whose capital is misallocated for policy purposes and what remains is diverted into the pockets of public officials.

Swiss watches: A currency of corruption in emerging markets.

Survivorship bias: The systemic exaggeration of hedge fund returns by excluding the results of failed funds.


Target 2: The payment system for central banks within the euro zone which results in worthless IOUs from insolvent European countries accumulating on the ECB’s balance sheet.

Target redemption forwards: Complex derivatives originally designed to hedge foreign exchange exposure but lately used for leveraged bets on the “inevitable” appreciation of China’s currency. Remember the initials “TRF” – they are a source of enormous potential losses.

Tiger hunting: The periodic pursuit of corruption in China, the tigers in question being wealthy public officials. The aim of the hunt is not to purge corruption from the system – an impossible task – but to replace one set of rent seekers with another.

Time horizon: On Wall Street, one quarter.

Too big to fail: The notion that very large banks act irresponsibly in the knowledge that they will be bailed out by the state. In fact, banking crises are more likely to break out in places where many small banks compete with each other.

Tracking error: A mistake made by well-paid asset managers when they deviate from the benchmark whose returns they are supposed to outperform.

Trump: Also known as The Donald. A leveraged real-estate mogul and serial corporate defaulter, who has benefited from three decades of declining interest rates and rising property prices. In other words, a lucky fool.


Value investor: An old-fashioned type who buys stocks in the vain expectation that the future will resemble the past.

Value-at-risk: A self-serving risk-management metric used by investment banks to justify taking on too much risk and managing it ineffectively.

Veil of money: The mistaken idea held by modern economists that money is a veil over the “real” economy that can be safely ignored. In truth, the real economy distracts people from observing the all-important operations of finance.

Volatility: In modern finance theory, the mistaken notion that the market gyrations are equivalent to genuine risk, namely the prospect of permanent loss of capital.

Volcker, Paul: Former Fed chairman worshipped by Wall Street heretics.


Wall Street economist: A person who applies to the job of economic analysis the principles of hear no evil, see no evil and, above all, speak no evil.

Washington consensus: The policy recommendation of the IMF and other international organizations for less-developed countries to “stabilize, privatize, and liberalize” (Dani Rodrik, economist). This has resulted in rising inequality in the developed world, while providing a cover for public officials in emerging markets to plunder their economies.

Whale: A London-based trader for JPMorgan with enormous market positions. In 2012, the Whale lost over $6 billion. These losses were initially dismissed by Jamie Dimon, the giant U.S. bank’s CEO, as a “tempest in a teapot”.


Yield curve: The difference between long- and short-term rates. After every financial downturn the Fed engineers a steep yield curve. This helps banks but also attracts global carry traders whose activities lead inexorably to the next crisis.

Yield hunger: “‘John Bull’, says someone, ‘can stand a great deal, but he cannot stand TWO per cent’ … Instead of that dreadful event, they invest their careful savings in something impossible – a canal to Kamchatka, a railway to Watchet, a plan for animating the Dead Sea, a corporation for shipping skates to the Torrid Zone.” (Walter Bagehot, British journalist and businessman). If our Victorian forefathers did dumb things when interest rates were so terribly low at 2 per cent, is it any surprise that people make even crazier investments with rates near zero? See Bitcoin.


Zaitech: The Japanese term for financial engineering, which taken to excess turns corporations into Zombies*.

ZIRP: The policy of zero interest rates, which held in place for too long turns whole economies into Zombies*. 

    *These cross-references refer to the previous Breakingviews publication, The Devil’s Dictionary of Finance, from 2007.


The devil’s work

9 October 2015 By Edward Chancellor

American writer Ambrose Bierce published “The Devil’s Dictionary” in 1911. Bierce’s acerbic definitions ranged from government to commerce and life in general. He displayed a profound understanding of finance, for example defining “riches” as “the savings of many in the hands of one”.

Breakingviews published a pioneering appropriation of his form in 2007, when the global financial crisis was barely beginning. Call it “The Original Devil’s Dictionary of Finance”. But it no longer seems adequate for the post-crisis task. Herewith part one – for the letters A to K – of the sequel, updated and enlarged for the world of hedge funds, private equity, structured finance, subprime equity and the like: “The Devil’s Dictionary of Post-Crisis Finance.”

Part two will be published next week.


Activist: One who makes importunate demands for financial engineering*.

Alpha: An investment return above that of a benchmark index, usually achieved by luck or by “gaming” the index.

Analyst: A stock puffer whose purpose is to generate brokerage commissions. See Chinese walls.

Arbitrage: The time-consuming and risky activity of buying an underpriced asset whilst simultaneously selling an equivalent overpriced asset. Eschewed by Wall Street, which instead profits from regulatory arbitrage, accounting arbitrage, jurisdictional arbitrage and fiscal arbitrage.

Asset price bubble: The most noticeable consequence of the U.S. Federal Reserve’s easy money policy. See ZIRP.

Auction house: A place where Wall Street high-flyers blow their windfall gains. See Contemporary art.

Austerity: Also known as “sado-fiscalism”. A forlorn attempt to stave off government bankruptcy.


Bandwagon: That which every investor jumps upon. “If you see a bandwagon, it’s too late.” (James Goldsmith, financier.)

Bank: An institution which, by applying leverage and mismatching assets and liabilities, earns short-term profit and generates long run losses.

Bankrupt: A person who has run out of liquidity. Also, the intellectual state of modern economics.

Basel: The Swiss home of the Bank for International Settlements, an institution which creates global banking rules thus setting the stage for regulatory arbitrage and, thereby, precipitating crises at regular intervals.

Behavioural finance: The field of study resting on the notion that an asset price bubble is the result of “irrational exuberance” (see Greenspan*) rather than the inevitable consequence of bad monetary policy and conflicts of interest on Wall Street.

Bell curve: A visual representation of the false assumption, baked into most financial models, that outcomes are what statisticians call “normally distributed”.

Bernanke, Ben: Former Fed chairman who failed to spot the housing bubble before it burst and in 2007 claimed that U.S. subprime mortgage problems were “contained”. After the Lehman Brothers bust, Bernanke succeeded in re-inflating the Greenspan* superbubble. Soon after leaving the Fed, he was rewarded with a job at Citadel, a hedge fund, which presumably didn’t hire Bernanke for his market insights. See Revolving door.

Biotech: A pharmaceutical Ponzi scheme of a company. See Burn rate.

Bitcoin: A digital tulip bulb.

Black swan: A common bird on Wall Street, renowned for its fat tail.

Bonus: In banks, a large payment out of short-term profit to retain “talent”. While a bank’s profit is generally illusory, bonuses endure.

BRIC: A “Bloody Ridiculous Investment Concept” (Peter Tasker, fund manager and author). An emerging bull market acronym comprising the first letters of Brazil, Russia, India and China coined by Jim O’Neill, a former member of the Goldman Sachs marketing department.

Burn rate: The alarming pace at which technology and biotechnology companies run through their cash piles.

Business school: Networking hotspot where young people pay large sums of money to have their scruples expensively removed. See MBA.

Buybacks: Debt-funded purchases of a company’s own shares in order to enhance growth in earnings per share. A tool to maximize the value of a chief executive’s stock options.


Capex: The splurging of shareholder funds on the latest investment fad (see Mine). Sensible CEOs prefer financial engineering*.

Capital controls: A futile attempt to evade the global carry trade. Chinese capital controls are circumvented through gaming in Macau, faking exports, offshore borrowing and the age-old expedient of carrying suitcases of cash abroad.

Capital flight: The last act of the global carry trade. Currently under way in China.

Career risk: The near inevitability that a fund manager will be sacked if he or she refuses to participate in an asset price bubble or exhibits more than a hint of tracking error.

Carried interest: The “performance” fee extracted by private equity firms for leveraging assets. Proposals to remove the advantageous tax rate on carried interest were compared by Stephen Schwarzman, co-founder of private equity firm Blackstone, to the Nazi invasion of Poland.

Carve-out: A seemingly profitable Chinese business freshly separated from a larger loss-making state-owned enterprise, which retains control, in preparation for an initial public offering.

Chief executive officer: A corporate boss who extracts any surplus value created by the business he or she runs for his or her own benefit. See Shareholder value.

China: Since GDP growth started slowing, a country suffering from 3,000 years of bureaucratic despotism and corruption.

China dream: The age-old business vision of selling a toothbrush to everyone in China. Until recently, a useful way of pushing stocks. Now Wall Street’s worst nightmare.

Chinese credit guarantees: The provision of credit insurance, unregulated and without adequate reserves, which supports China’s non-bank, or shadow, financial system.

Chinese economic growth: “Unstable, unbalanced, uncoordinated, and unsustainable” (Wen Jiabao, Chinese premier, in 2007).

Chinese GDP: A “man-made” figure (Li Keqiang, future Chinese premier, in 2007).

Chinese infrastructure: The construction of bridges to nowhere, ghost cities and the like, which has driven recent economic growth. “In China you don’t rob a bank, you rob infrastructure” (Minxin Pei, expert on Chinese corruption).

Chinese public debt: Beijing’s vastly understated liabilities, which are mostly hidden off balance sheet – in local government funding vehicles, asset-management companies, policy banks, and so forth.

Chinese real estate: Jerry-built apartment buildings standing empty on the outskirts of second-tier cities and providing the collateral for China’s broken credit system.

Client: See Muppet.

Commodity supercycle: A term coined in 2004 so that investment banks could extract fees from selling commodity index funds and arranging mining-related IPOs, mergers and debt issuance.

Company accounts: A misrepresentation of a firm’s profitability and financial state. See Off balance sheet and Kitchen sink.

Compensation committee: A group of people, often the chief executives of other companies, tasked with ratcheting up the CEO’s pay. See Executive pay consultants.

Compliance officer: A box-ticking functionary charged with ensuring the letter – but not the spirit – of the law is observed on Wall Street.

Contemporary art: A bubble asset class, which combines conspicuous consumption with tradability whilst making no demands on taste.

Corporate governance: A set of rules intended to preserve the fiction that executives are working on behalf of shareholders. See Shareholder value.

Corporate psychopaths: Clive Boddy, who studies company leadership, maintains the recent financial crisis was the consequence of Wall Street being run by mentally unstable types. A plausible hypothesis.

Correlation: A spurious statistical relationship between the prices of different assets, used in risk models.

Credit cycle: The ebb and flow of finance determined by the actions of central bankers, who are blissfully unaware of its existence. See Bernanke, Ben.


Debt supercycle: The apparently endless accumulation of financial obligations by people and governments around the world. The road to perdition.

Default: “A thorough and complete deception of the creditor by the debtor” (Max Winkler, 1933). See Greece.

Deflation: A benign fall in the price level due to productivity improvements and the expansion of global trade. Not to be confused with debt deflation, the consequence of the Fed’s easy money policies.

Derivatives: “Financial weapons of mass destruction” was the definition once used by Warren Buffett, but that hasn’t stopped the Berkshire Hathaway chairman from dabbling in them himself. See Sage of Omaha.

Dollar: A worthless token conjured up by an entry in the Fed’s balance sheet. The lynchpin of the global financial system, which results in low U.S. interest rates wreaking havoc in all corners of the globe.

Dollar-weighted return: The investment industry’s dirty little secret. The average return on every dollar invested in a fund over its lifetime. Invariably lower than the published return of a fund since inception, and sometimes negative.

Dot-com 2.0: The second coming of the internet bubble. See Burn rate.


Earnings per share: A corporate performance metric, published quarterly, which says little about a company’s true profitability and is easily manipulated. Often set as a target for executive compensation schemes.

Economist: A person who failed to anticipate the global financial crisis; generally, an undistinguished mathematician with a poor understanding of finance. See Bernanke, Ben.

Efficient market hypothesis: The discredited notion that market prices reflect all available information and that asset price bubbles cannot be identified in advance.

Elon Musk: A company promoter who may one day be seen to have taken investors for a ride (in electric cars, spaceships, and so on).

Emerging markets: A collection of relatively poor countries with little in common save a history of economic mismanagement, widespread corruption and the absence of the rule of law. See BRIC.

Endowment: A speculative investment fund, which embraces illiquidity and leverage in an attempt to emulate Yale University’s past success.

Eurodollar market: A $5 trillion unregulated offshore financial market in which banks fund the global carry trade and enable emerging market countries to borrow cheap dollars. Such asset-liability mismatches lie at the heart of most emerging market crises.

European Central Bank: An institution which holds the euro zone together by providing limitless credit to insolvent members. See Target 2.

Exchange-traded fund: An investment vehicle which trades like shares, providing retail investors with exposure to illiquid assets and the latest investment fads, for example the ALPS U.S. Equity High Volatility Put Write Index Fund.

Euro zone: Europe’s “permanent” currency union. A doomsday machine which generates debt deflation, economic sclerosis and sovereign bankruptcy.

Evergreening: the practice of rolling over a bank’s bad debts in order to avoid reporting losses and to support corporate zombies*. A Japanese invention of the early 1990s, more recently adopted by China and the euro zone.

Executive pay consultants: Advisers who justify one CEO’s proposed pay increase by reference to another client’s recent pay increase.


Finance: The work of the devil, sometimes known on Wall Street as “God’s work” (Lloyd Blankfein, CEO of Goldman Sachs).

Financial innovation: New ways conceived by Wall Street to extract fees, conceal risks, and evade financial regulation.

Financial liberalization: The loss of control by a government of its domestic financial system, antecedent to the system’s collapse.

Financial regulation: A Maginot Line constructed around Wall Street after the last bust. See Regulatory arbitrage.

Financial repression: The Fed’s mechanism for transferring wealth from savers to bankers by keeping interest rates below the rate of inflation.

Fine: A punishment inflicted on a bank’s shareholders after its employees have abused their trust.

Flack: A purveyor of financial propaganda and public relations pabulum, normally an ex-journalist, who ensures a favourable news flow by feeding pet journalists with “scoops”.

Flash Crash: A brief but large dip in the stock markets on a May afternoon in 2010, resulting from the antics of high-frequency traders. The authorities have found an unlikely scapegoat for this event in the Hound of Hounslow.

Forecast: An inaccurate prediction, invariably optimistic, produced by brokers to generate turnover and by pension plan sponsors to mask insolvency.

Fund management: An industry built on the “illusion of skill” (Daniel Kahneman, Nobel laureate). Although it takes several decades to distinguish luck from skill in the investment world, successful fund managers are inclined to believe in their own skill. See Lucky fool*.


Gate: That which slams on investors in hedge funds and money market funds during periods of market turmoil, preventing them from redeeming their investments.

Gaussian copula: A quantitative tool used to measure securitization risk based on faulty assumptions of correlation and normal distributions. Sometimes known as “the formula which killed Wall Street”, this invention of rocket scientists was one of the biggest causes of the global financial crisis.

German banker: The patsy of global finance.

Global carry trade: The flooding of the global financial system with cheap dollars. This trade normally comes to a sudden stop when U.S. rates rise, ushering forth the inevitable emerging-market crisis.

Global financial crisis: An event which, before the Fed came to the rescue, threatened to bring to an end Wall Street’s well-oiled fee-extraction machine.

Globalisation: The opening up of the world economy to the global carry trade.

Gold: “A pet rock” (Wall Street Journal).

Goldman Sachs: “A great vampire squid wrapped around the face of humanity” (Matt Taibbi). Wall Street firm that specializes in “handling” conflicts of interest.

Goldman Sachs alumni: Former employees who infest central banks and finance ministries around the world, ensuring that the authorities bail out the bank whenever it is about to go belly up.

Goodwill: An accounting entry quantifying how much a firm has overpaid for past acquisitions. Written off by incoming CEOs. See Kitchen sink.

Greece: A country which has spent half its time since independence in default. Qualified to join the euro zone after taking off-balance-sheet financial advice from Goldman Sachs.

Greenspan put: The Fed’s practice of using monetary policy to prevent asset price bubbles from bursting. A cause of even bigger bubbles. See Moral hazard.

Gunning the fund: The practice of marketing investment funds with good initial track records. Funds with poor initial returns are either dropped or merged with better performing funds. See Survivorship bias.


High-frequency trading: A zero-sum game played by computer nerds.

High-water mark: The high point of a hedge fund’s value, below which it cannot charge extra fees. Falling below this level indicates that it is time to start a new fund.

Hot money: Short-term debt used to finance the global carry trade. Runs for the door at the first sign of trouble.

Hound of Hounslow: A trader operating from his parents’ sitting room underneath the Heathrow flight path, blamed by the authorities for the Flash Crash. 


Inequality: The social consequence of Fed policies that inflate Wall Street fees and CEO pay while simultaneously reducing returns on the public’s savings.

Initial public offering: An opportunity for insiders to sell overpriced shares to outsiders and for Wall Street to extract exorbitant fees, manipulate markets and distribute favours. See Spinning and Laddering.

Interest: A reward for saving enjoyed in distant memory by our forefathers. See ZIRP.

Interest rate: The price of money over time, which balances saving and investment. In the hands of the Fed, a dangerous policy tool.

Internal rate of return: A distorted measure of performance used by private equity firms to boost reported returns. A high IRR can be achieved by selling their best investments early whilst hanging on to the dogs.

Investment conference: A place where asset managers meet to discuss the latest investment fad. Investment strategist: A person who always recommends buying equities regardless of price.


Keynesians: Economists “who hear voices in the air (and) are distilling their frenzy from some academic scribbler of a few years back” (John Maynard Keynes).

Kitchen sink: Excessively large writedowns whose subsequent reversal becomes a source of future profit. Usually announced by an incoming CEO. Also known as “cookie-jar accounting”.

*These cross-references refer to the previous Breakingviews publication, The Devil’s Dictionary of Finance, from 2007.



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