WASHINGTON — The credit crisis that has led to calls for a bailout of the nation’s financial system also has introduced some unfamiliar terms to the public.
Asset: Anything with commercial or exchange value, such as a house, stocks or bonds.
Asset-backed securities: Bonds or notes backed by assets, such as loans, leases, or credit-card debt.
Bond market: A financial market in which debt securities are bought and sold, usually in the form of bonds.
Bankruptcy: Legal protection from the collection of debts.
Covering a short: Buying back an asset, such as a stock, that was previously sold short when the price rises instead of falls as hoped.
As a result, the investor takes a loss rather than making a profit.
Credit-default swap: A contract that allows investors to make bets on the likelihood a company will be unable to pay its debts.
Mark to market: An accounting standard that took effect in November that requires businesses to employ “fair value” accounting, meaning that at regular intervals businesses must adjust the value of assets to reflect market prices — even if they do not intend to sell those assets for a long time.
Naked short sale/naked short selling: Investors effectively sell stock that was never borrowed. Cash changes hands but no actual shares do.
Receivership: A type of bankruptcy that allows creditors or bankruptcy court to appoint a receiver to run the company. Often receivers will liquidate a company’s assets.
Recession: A significant, widespread decline in economic activity, including in income, employment, retail sales, and industrial production, among other indicators. A recession often lasts more than a few months; a sustained recession may become a depression.
Sallie Mae: Student Loan Marketing Association. It is a publicly traded company that is the largest provider of educational loans in the United States.
