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How To Speak Money

John Lanchester

(London Times)

How to Speak Money is aimed at that section of the educated population who studiously avoid reading anything about banking or the economy because they simply don't understand the words that are being used. They should do, argues William Flew: "The language of money is a powerful tool, and it is also a tool of power. Incomprehension is a form of consent. If we allow ourselves not to understand this language, we are signing off on the way the world works today."

And there's another reason for learning the lingo - if you don't, and you're English, you risk being bamboozled by your offspring because starting next week 11 to 16-year-olds are going to learn about finance on the national curriculum.

The first thing to understand is that when you learn to talk money, you start with the euphemisms. The markets don't plummet like a rock, they 'correct'. They don't lurch hopelessly along with the rest of the economy, they present 'buying opportunities'. Investors who don't deserve to borrow sandwich money let alone 90 per cent of the value of a house are merely 'sub-prime'. Early employees in a start-up are not robbed by late-stage investors, they just find their ownership stakes 'diluted'.

When I went from being a newspaper journalist to an MBA student at Harvard Business School I found the language of finance applied to people as well as financial products. The low-risk, low-reward character in the front row of the classroom preparing for life as a management consultant was considered 'low-beta', like a utility stock that is less volatile than the market. The high-risk, high-reward entrepreneurial type was 'high-beta', capable of delivering 'alpha', an outsized return, but just as likely to go bankrupt.

Down among the traders and even up in the rarefied air of high finance, the language can turn nasty, with talk of domination and humiliation, 'raping' clients and 'vomiting' on borrowers to force them to pay up or hand over their assets.

In many cases, financial language is simply necessary to explain complex ideas, but in others it becomes cover for idiocy, greed and occasionally criminality. Here is a quick guide to some of the terms you might hear on a walk through Wall Street or the City today.

Bear hug

Making an offer so generous it is impossible to refuse. Often involves 'backing up the truck', loaded with cash and dumping it on your target's front step.


Contingent convertibles notes. Debt that converts to equity contingent on a particular event, such as the share price staying above a certain level for a certain length of time. One of many snazzy new forms of 'hybrid' debt.


Slang for a million.

Buy side v sell side

The two broad categories of employment in finance. The buy side are those who invest, the private equity companies and fund managers who buy ideas and services from the sell side. The sell side are the brokers, analysts and investment bankers, the wolves of Wall Street out hustling for commission. The buy side make a lot more money and treat the sell side with contempt. The sell side, when not sending out CVs for jobs on the buy side, worry about the dwindling margins on their historically overpriced services.


Short for carried interest. This is the incentive fee earned by a fund's managers (see general v limited partners, below). Management fees pay the bills. The carry leads to quite humdrum bankers making hundreds of millions of pounds. Cheetahs

High-frequency trading firms that go in and out of markets in micro-seconds. The term was coined by Bart Chilton, a commissioner on the US Commodity Futures Trading Commission.


'Reorgs' - reorganising companies that are in bankruptcy or close to it - deserve a glossary all of their own. Cramdowns occur when a bankrupt company's reorganisation is approved over the objections of lenders who won't be paid back in full. The deal is crammed down their throats.


A term taken from bridge to describe the months-long internal vetting process for Goldman Sachs partners. Once you are made partner, the bucks, bars and monkeys (£500,000) follow.

Dark pools

Increasingly popular private exchanges where traders can buy and sell large blocks of stock away from public view.

Dumb money

Most of us, unfortunately, who entrust our money to intermediaries who chivvy away at it with fees and bad investment ideas then ask us for more. Smart money doesn't put up with this nonsense.


Sons and daughters of wealthy or powerful Asians given jobs at western banks. More politely known as 'princelings'.


When a hedge fund hits trouble and its investors want to leave, it can stop them by bringing down the 'gates'. Quarantining investors tends to be a very bad sign, but it can stop a run on a fund and help it survive until the markets turn. Funds can also create 'side pockets', funneling all of their illiquid investments into a separate fund as a way of detoxifying the main fund. If you find yourself gated in a side pocket, you are officially dumb money with no chance of being cross-ruffed.


Loading up on debt to create a high debt-to-equity ratio. You do this either because you're a risk junkie or because you genuinely believe that the cash flows from your asset will outstrip the interest payments on your debt. Also known as 'levering up', to be said with a cranking motion of the right hand.

General v limited partners

The most common structure for private equity, hedge funds and venture capital firms. Limited partners are the poor saps who put up most of the money, the mutual funds, pension funds and individuals who invest. General partners are the fund's managers, who collect the all-important management fees of 1-2 per cent of the fund's value, incentive fees of 10-20 per cent of the fund's profits (though occasionally as high as 50 per cent) and may or may not sling in some of their own cash.

The Greeks

Delta, gamma, theta and vega. When you buy an option to buy or sell a stock in the future, its price will depend on the price of the stock today, the date and price at which you can exercise your option, and the expected volatility of the stock. The Greeks are measures of these. Vega is not actually a Greek word, but since traders needed a 'v' to refer to 'volatility' and vega sounds Greek-ish, it has been taken up.


A popular excuse used by fund managers to explain why their funds have performed so poorly.

Naked shorting

If you believe a company's stock price is going to fall, you can arrange to borrow a chunk of it at today's price, buy it when it falls, return the borrowed stock to your lender and bank the profit. Naked shorting happens when you don't bother to arrange to borrow the stock but use various technical and legal loopholes to drive down its value. Its legality varies from country to country.

Pik toggle

May sound like the name of a Dutch EU commissioner, in fact a complicated form of high-interest borrowing. The Glazer family used Pik toggles when they bought Manchester United. Pik stands for 'payment in kind'. Instead of making an interest payment every month, you and your lender decide on an appropriate payment in kind, perhaps an increase in the principal or an adjustment in the interest rate. Not for the faint of heart or those concerned with the long-term health of their football club.

Samurai bonds and dim sum bonds

Samurai bonds allow non-Japanese companies to tap Japanese investors by selling yen-denominated bonds in Tokyo. The dim sum bond is denominated in renminbi and issued by companies in Hong Kong. It allows foreign investors shut out of China's domestic debt markets to buy renminbi debt.


An endless source of giggles on the trading floor. If you don't know which way a stock price is going to move but think that either way it will be significant, you can buy options to buy and sell the stock in the future at prices straddling the current price. Variations include the bull or long straddle and the bear straddle.

Target-rich environments

Has moved from the military to finance, to bankers trolling bars on a Saturday night, to describe a setting where you are spoilt for choice.

Two and twenty

God's gift to fund managers (see general v limited partners, above). Originated at the buy-out firm Kohlberg Kravis Roberts & Co in 1976. At an industry event in 2007, Henry Kravis, one of KKR's founders, apologised to his peers: 'You could have gotten 25 per cent.'

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