Funds paid out over time. Annuities are frequently used to provide a steady cash flow during retirement.
Summary of assets and liabilities.
Bank holding company
A company that does not directly engage in banking but owns banks and other subsidiaries involved in non-banking activities, such as mortgage lending, consumer and credit card operations.
Markets where companies or governments raise money to fund themselves. The stock market and the bond market are the most widely used.
A type of account on a municipality's or company's balance sheet reserved for long-term capital investment or future anticipated expenses.
Collateralized loan obligations
Commercial loans repackaged as securities, representing different levels of risk, and sold to investors.
A bank that receives a significant proportion of its funds from small depositors.
The short-term borrowing that companies use to finance their day-to-day operations and cash needs. The corporate equivalent of a credit card.
Bulk goods such as food, gold and oil traded on commodities markets.
A legal status similar to bankruptcy, in which the government takes control of a company with the intention of restructuring it and returning it to private ownership. Housing finance companies Fannie Mae and Freddie Mac are now under conservatorship.
Credit default swap
A contract that allows investors to make bets on the likelihood a company will be unable to pay its debts.
compares losses related to delinquencies and foreclosure to the overall scale of a firm's mortgage business.
Complex financial contracts used to hedge against risks. Credit default swaps, or contracts that allow investors to make bets on the likelihood a company will be unable to pay its debts, are a form of derivatives.
Exotic home loans
Unconventional loans such as those allowing payment of interest only, those with balloon payments or those with an interest rate that may adjust steeply. Not all adjustable-rate mortgages are exotic. One-year ARMs have been used responsibly since the early 1980s.
A company created by the government in 1938 to expand the flow of mortgage money. Formally known as the Federal National Mortgage Association. It operates under a congressional charter that directs the company to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate- and middle-income Americans. The firm buys mortgages that meet its standards, guarantees their credit and repackages them as bonds for sale to investors. The federal government put the company into conservatorship in early September.
A company created by the government in 1970 to expand the flow of mortgage money. Formally known as the Federal Home Loan Mortgage Corp. It operates under a congressional charter that directs the company to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate- and middle-income Americans. The firm buys mortgages that meet its standards, guarantees their credit, and repackages them as bonds for sale to investors. The federal government put it into conservatorship in early September.
The Federal Deposit Insurance Corporation insures bank deposits up to $100,000 per individual. The FDIC wants Congress to temporarily increase the ceiling, but it hasn't said by how much.
Federal funds rate
The interest rate at which banks make overnight loans to each other through the Federal Reserve. The Fed sets a target for this rate, then buys and sells government bonds to try to keep the rate banks actually charge each other at the target. It is the primary tool that the Fed uses to expand or contract the supply of money in the economy.
An aggressively managed portfolio of investment strategies known for risky and sometimes speculative bets in a wide range of markets to generate high returns.
Stocks, bonds or other commodities, such as troubled mortgages, not easily convertible into cash.
A bank that specializes in issuing, managing, underwriting, trading and distributing new securities.
A mortgage that exceeds the limit at which Fannie Mae or Freddie Mac will buy it. Until earlier this year, that limit was $417,000. It was raised to $729,750, creating a category of jumbo conforming loans. Because jumbo loans cannot normally be bought by Fannie Mae or Freddie Mac, the interest rates on them tend to be higher.
Debt in relation to a firm's equity. Also, the concept that a small amount of cash can be turned into a larger profit through the use of debt.
The London interbank offered rate is a key rate at which banks lend to each other. Many other rates, such as those on corporate loans, are tied to this rate. Lately, it has been unusually high, suggesting that banks are hoarding cash and afraid to lend to each other.
Line of credit
An agreement in which a bank agrees to lend up to a certain limit of money for a specified period.
The free flow of money through the financial system.
Mark to market
The act of placing a fixed price on an asset, even if no sale is imminent. Businesses are required to employ "fair value" accounting, but in recent months some banks affixed fire-sale prices to their assets.
Money-market mutual fund
A mutual fund that invests exclusively in short-term debt such as Treasury bills, certificates of deposits, or commercial paper. These funds are generally viewed as safe investments that yield more income than savings accounts, though in the past week the government has acted to bolster their safety.
The idea that when investors and executives are protected from punishment for their bad judgments and risk-taking, they will continue such behavior in the future.
A type of bond that is made up of principal and/or interest payments from many individual home mortgage loans. Traditionally, they were seen as less risky than other securities because they were secured by home equity.
Taking an industry or assets into the public ownership of a national government.
A class of stock that pays dividends at a specified rate. Preferred to common stock in payment of dividends and liquidation of assets.
The process that converts mortgage loans, credit card debt and other types of assets into securities that can be traded on global markets. This allows investors all over the world to indirectly make credit available to ordinary Americans, while protecting the lender from risk if any one borrower defaults.
An action that enables the person doing it to make money if the value of a stock or other asset falls. An investor borrows shares of stock from someone else and sells them. He or she then buys the shares back at a later point to return them, and if the price has fallen in the interim, profits on the difference.
A loan made to a borrower who is considered risky. That can mean the borrower has a poor credit rating, unstable income or other factors that makes him or her more likely to default. Interest rates are higher than for prime loans to compensate the lender for the extra risk.
Term auction facility
An instrument used by the Federal Reserve to increase liquidity in the financial markets.
Short-term debt -- effectively, loans that have a duration of less than a year -- of the United States government.
The downward adjustment of the accounting value of an asset.