The Danger of Financial Jargon | Hacker News Reader

The Danger of Financial Jargon

newyorker.com

71 pointsapplecore27 comments

Look at the history of the terms discussed (plus a bonus, "femur") and their history in print.

I'm a huge fan of Google's ngram viewer, which allows tracing the frequency of occurrence of words and phrases.

E.g., "femur", which scoofy mentions, grew in usage during the first half of the 19th century: https://books.google.com/ngrams/graph?content=femur&year_sta...

"quantitative easing" has a rather newer pedigree, emerging briefly in the early 1980s, and again following 2000.: https://books.google.com/ngrams/graph?content=quantitative+e...

Google Trends shows the more recent interest as a search term: http://www.google.com/trends/explore#q=quantitative%20easing

CDOs emerged in the late 1980s: https://books.google.com/ngrams/graph?content=collateralized...

Euro zone is a post-1995 phenomenon: https://books.google.com/ngrams/graph?content=Euro+zone&year...

REITs date to the 1970s, but boomed in the 1990s: https://books.google.com/ngrams/graph?content=REIT&year_star...

Hedge funds may date to 1949, but print, they're another concept which emerged only in the later half of the 1990s: https://books.google.com/ngrams/graph?content=hedge+fund&yea...

Securitization: the latter half of the 1980s: https://books.google.com/ngrams/graph?content=securitization...

The article uses a simple sports betting example and gets it wrong:

> At the start of the season you’ve made a bet that the Green Bay Packers will get to the Super Bowl, at odds of twenty to one. You put down ten bucks. The team advances to the conference championship, where it’s playing the San Francisco 49ers. At this point, you decide to hedge your bet by putting ten dollars on the 49ers, who are three-to-one favorites to win the game. You’re guaranteed a profit, whatever the outcome.

So you made two bets:

* $10 at 20:1 for Packers, pays $10 + $10 * 20/1 = $210

* $10 at 1:3 for 49ers, pays $10 + $10 * 1/3 = $13.33

You spent a total of $20. Assuming the house takes no fee, you might win $190 or lose $6.67.

If you didn't spot the error, perhaps the author tricked you in a way quite analogous to what the article complains about: by skimming over the actual math and using a lot of words, the banker (or author) might make you believe "You're guaranteed a profit, whatever the outcome."

If you want to guarantee a profit, put e.g. $150 on the 49ers. Then you'll have a net profit of $50 ($210 - $10 - $150) if the Packers win, and $40 ($200 - $10 - $150) if the 49ers win. That's a better hedge; the perfect hedge is left as an exercise.

You've made a mistake there. He says the 49ers are 3:1 favourites to win. Those a strange odds for are favourite team, but maybe they think a draw is most likely...

Or more likely he just pulled some dodgy odds out of thin air and forgot that if you have a team at 3:1 odds, they probably aren't the favourites. Either way, his maths is fine. Just not his odds.

I think he just meant they are paying 3:1

This isn't just limited to finance. Language creates barriers in all fields, finance and science are the ones most familiar to me.

Programming as well -- someone recently looked alarmed when I told them to "kill" an app on their phone.

This is incredibly true. In programming, just as in construction, "jargon" is required to keep things concise and to the point. Many times this "obfuscation" is really just necessity.

'halt' would work just as well as 'kill' but the latter sounds cooler. It's OK to use jargon within a professional context, but using it without regard to one's audience is generally obfuscatory.

The latter isn't used because it sounds cooler, it is literally rooted in the "kill" command on UNIX systems of old. The kill command is still used today, but can be used to send signals to running applications aside from "please exit immediately".

If you want to get really nitpicky, halt isn't as absolute and precise as kill. Halt can mean that the app's activity is simply paused, but its resources are still held and it can in the future be resumed from its original position. Kill very much and in no uncertain terms means to immediately terminate the execution of an application without further processing of the current task.

They really aren't interchangeable terms. If you are talking about interchangeability to an end-user who doesn't have such knowledge, I would argue even then some users may understand the different between not using an app and actually terminating it. Such as halting a video vs closing the window. If you are looking for analogies of proof of understanding, people say to "kill the engine" or other mechanical devices. So again, the term "kill" used in reference to terminating things isn't that weird.

The individual who was surprised to hear of killing an app could have been surprised for a variety of reasons, but not in such a way that I think "halt" should be used over kill.

"Halt" isn't strong enough. You aren't just making it pause wherever it happens to be, you are getting rid of it.

Halt used to mean absolute termination rather than a pause, as in The Halting Problem. This was still used as the canonical term in UK computer terminology when I was growing up, but it may be different elsewhere.

Isn't "absolute termination" the Unix meaning of "halt" as well?

I thought so but others seem to disagree.

I don't disagree about its technical meaning, but this entire debate is about what it OUGHT to be so that NON-technical people have an easier time.

In that respect, "kill" is probably better, since it accurately conveys common ideas like "irreversible" and "messy".

This is kind of the key to communication; knowing your audience, and tailoring your communication to them.

Too often we attempt to explain jargon once, which the audience still doesn't follow, and then we blithely continue using it.

Or worse, acronyms; we think it's sufficient to expand them once and we're done (rather than explain it, and then use something the reader will actually remember in every case).

It's a skill to recognize what level of understanding your audience has, and to be able to explain yourself to their level. We forget either that our audience isn't (whatever), or we forget that the point isn't to turn our audience into (whatever), in fact, that our audience may care nothing about (whatever) -except for the particular bit we're trying to communicate-; we need to use our position as (whatever) to explain a concept in a way that is understandable from the audience's perspective as it is. That's why analogy is often used, for better or ill.

It is even worse when you cross cultural barriers. I was recently in a discussion where a guy from an unnamed company in India has decided to change "Sign Up" in one of their services to "Join" just because in India the first does not immediately suggest a user what to do.

There's also the perennial complaint that sporting analogies and slang make no sense across countries - G. H. Hardy's cricketing analogies and an American professor's baseball or NFL insights are gibberish on the other side of the Atlantic.

Every time u implement someone else's API you fall Into the same trap.

it's comforting to think that understanding the "language" of finance would have protected us. I also think it's comforting to think that this was the work of simply some greedy guys on wall street using strange words.

underlying all these instruments was the assumption that americans have never defaulted on home loans over historical norms, and even in the worst case assumption, still wouldn't be that bad.

this assumption was the bet implicit in every mortgage backed issuance. the names and the details are actually not as relevant - this basic concept was. perhaps that is why the author still struggles to understand - he's looking in the wrong direction.

this author writes of the greed of bankers who want to one-up the next guy, but when it comes to homeowners, are they not equally guilty of wanting to one-up the next guy with a bigger house, a quick flip, a granite countertop, or a cash-out refi?

> I also think it's comforting to think that this was the work of simply some greedy guys on wall street using strange words.

Yes, actually, it was in a lot of cases. From the aggressive use of NINA loans (in some cases targeted at minorities) to selling mortgage-backed securities while betting AGAINST them, the financial industry had a much larger hand in this. Read the Levin-Coburn Report if you'd like to get better informed about what happened: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd...

> are they not equally guilty of wanting to one-up the next guy with a bigger house, a quick flip, a granite countertop, or a cash-out refi

1) The assumption you're making the insinuation that all homeowners engaged in this kind of activity which is an existential fallacy. 2) In situations like this, where one party (the financial industry) has more training, connections, influence, and knowledge and the other (homeowners) have CNBC, it's a stretch to say that the homeowners are the ones to blame.

> From the aggressive use of NINA loans (in some cases targeted at minorities)

Which was being done by the local banks, not the wall street guys. If anything the banks were ripping off the institutional investors they sold these bonds to, by selling mortgages that they wouldn't've taken themselves.

> selling mortgage-backed securities while betting AGAINST them

Any trade has two sides; anyone you buy a stock from is essentially betting against that stock.

> The assumption you're making the insinuation that all homeowners engaged in this kind of activity

No more than you're assuming everyone in the finance industry engaged in such activities.

> one party (the financial industry) has more training, connections, influence, and knowledge and the other (homeowners) have CNBC, it's a stretch to say that the homeowners are the ones to blame

Some of the losses were from complex products that were missold, reverse-amortization mortgages and the like, and yeah, the guys who sold those are responsible for most of the damage they caused. But a lot of the crash was simply people taking out a loan for $x/month when they couldn't afford to pay $x/month (or could until they lost their job), and that's not a complex question where training and experience make a difference.

I think you miss the point and write it off as quaint or comforting. The idea is that if more people understood what was going on in terms of common parlance, such as "gambling," then there would be more transparency simply because of less fog of obscurity and therefore potentially more eagerness to call for regulation or what have you.

The homeowners are not a major factor in this sense because the economy should not have rested on these risks. It's not about assuming people don't default. In fact, such defaults can be quite profitable for some people.

I think you're making it about personal responsibility or something when there is real merit to wheels of finance running in ways many would prefer them not to but are quite unaware of, partly due to "difficult" language. Whether this is really a problem with the language or with education levels or whatever is another matter but I think it is a real issue in a democracy.

The article seems wrong on the sporting example - if 49ers win, then you have invested $20 and obtained only $10*4/3 in return.

I think the article does have a point. To my limited understanding, the false distinction between "insurance" and "credit default options" and the illusion that "they could get away with it" was crucial in the financial meltdown of 2007-09.

Things have reached a point where even people who have Ph. D in mathematics or science hardly know how to invest their money. I think financial literacy should be considered one of the basic necessities of existence in a capitalist society, and activists should launch public information campaigns to educate the vulnerable public.

But some of the remarks are overboard - the fact that credit means debt, I think, goes all the way back to double-entry book keeping. I think this hardly counts as jargon, any more than the word debt itself.

What I'm really wondering about is how much financial jargon is intended or abused to obfuscate what is going on to other people in finance. I suspect that there is a relatively bigger risk of people having that intent in the financial industry than elsewhere, since scamming people without being detected is a lot easier (and probably more tempting) when money itself is the product.

Let them get as obscure and ridiculous as they want as they attempt to shave institutional investors for another point or two.

Just don't bail them or their marks out.

That's the core problem.

This is the case in any technical occupation. The femur is called "femur" instead of "leg bone #1." The one benefit of this is that it makes it extremely difficult to fake being an expert.

I often think that the ability to easily identify experts would help in republics, but i am not so sure. On the other hand, you have Lessig's approach in republic lost. That the problem is the money, and not the non-technical politician.

> The one benefit of this is that it makes it extremely difficult to fake being an expert.

The problem with this is that it only makes it easy for experts to identify non-experts. I'd argue that it makes it harder for laypeople to spot experts, because in both cases, they're just hearing the same set of words which they don't understand. This just leaves laypeople identifying experts based on using certain words rather than the content of what's being said.

In this way, misused technical words make it easier for non-experts to pose as experts to laypeople.

I remember reading an essay about an internet dispute (as I recall, over the term "rule of thumb") where the essay's author wrote (in my paraphrase) "I know nothing about the history or scholarship involved, but I can see that the person on one side, who coincidentally shares my politics, is adhering to scholarly forms, citing sources, etc., and the person on the other side is doing nothing but dismissing it and basically saying 'come on'. I know who to trust here."

That person displaying the ideal scholarly comportment was citing to a crank who claimed to have a piece of the legal code set down by Romulus. You know, the mythical founder of Rome. The scoffing counterparty was pointing out (again, in my exaggerated paraphrase) "a classicist who could show plausible evidence that a historical Romulus existed, much less find part of his code, would be the greatest classicist in the history of the world. If there were a Nobel prize in history, he'd win." And that second person was entirely correct.

There's always a citation available for anything you might want to argue. And if you don't have any knowledge of the field, seeing someone cite a paper you can't understand isn't an improvement over seeing them speak as if they themselves were the highest authority. I'd used that same "the side I like behaves more like real scientists than the side I don't like" argument myself in the past; seeing this came as a bit of a blow.

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