Buzzwords

The dictionary defines buzzword as an important-sounding, usually technical word or phrase often of little meaning used chiefly to impress laymen. Impressed be not, dear reader, here are some explanations about buzzwords that the current economic downturn (a buzzword in its own right) has brought.

Stress test

The US government wants to submit the American banks to a stress test. It means that they want to know how much toxic garbage hides under the banks carpets and into their closets. In the process, they expect to know what banks will resist and what will fail in the current crisis. The good ones will be rescued and the bad let go under.

Too big to fail

The above rule does not apply if the bad bank, full of toxic trash, is a big one. Then the risk of letting it fail would be systemic, and it will be rescued anyway.

Systemic risk

It’s a risk that affects the whole system. The whole, as you know, is more than the sum of the parts. Systemic risks are unacceptable and should be avoided at all costs.

Quantitative easing

Having the Central banks tested all monetary measures to remedy the crisis; there is one of last resort, to crank the money printing machine full steam ahead. This is what the British Central Bank is doing. There will be walls of cash all around. Inflation? Oh yeah, we will deal with it later.
Mark to market temporary suspension

This, roughly translated, and means “if facts cannot be changed, let’s change the rules". The banks have to account for assets at their market value. If from one month to another, the value drops, the bank must register a loss. This is killing the bank financial statements and putting many of them under water. They want a suspension of the rule so they can breathe a little air.

Uptick rule

If a stock drops dramatically there is a way to stop the decline: raise the value artificially. That's what the rule does. In the process, the investor is deceived.

How I gauge the depth by the lenght

How deep is the current economic downturn? You can measure it by the fall in GPD, the thrashing of stock markets, the increase of unemployment, the decrease in consumer confidence, the reduction in auto sales, retail sales, and industrial sales. But I gauge it by the length of the taxi queue in front of my favourite department store in Valencia (Spain). The fact is that the queue has lengthened in the last months. The idle drivers chat with one another with long faces, no jokes here, please.
If the queue lengthens, what does it mean? It means that consumer spending has reduced: either fewer customers go to the store, or same number goes, but more of them get out empty-handed. You don’t need a taxi if you don’t carry any packages, do you? A taxi fare is typically 7 € and a bus or metro ride is about 1.20 €. With the difference you may eat a one-course meal in a restaurant with wine and coffee.
A queue that shortens or lengthens is easier to understand to the layman than all the stock exchange charts in the world. However, there is a catch to this: if the current crisis continues, many taxi drivers may loose their jobs and the queue will shorten. This is what an economist in its inhuman jargon would call a demand – supply equilibrium (the price is fixed in this case).