Housing/financial haircut

[Ben Zimmer]

For more on the history of the financial "haircut," see William
Safire's 2009 On Language column:

http://www.nytimes.com/2009/01/11/magazine/11wwln-safire-t.html

I provided him with cites back to 1955, which I presented in full here:

http://listserv.linguistlist.org/cgi-bin/wa?A2=ind0901B&L=ADS-L&P=R2196

--bgz


On Fri, Aug 12, 2011 at 11:18 AM, Dan Goncharoff <thegonch at gmail.com> wrote:
>
> In financial terms, "haircut" usually refers to a discount in
> valuation, falling under #2 below. If you give me collateral worth
> $100 million dollars at today's market price, I have to consider that
> it may be worth less tomorrow (and you may be hard to find and ask for
> more collateral) and that the market price might not hold firm if I
> tried to sell $100 million worth of the collateral in one go.
> Accordingly, I put a haircut on the collateral. The size of the
> haircut will reflect the quality of the collateral. I might not
> haircut a T-bill at all; a good quality corporate bond may get a 10%
> haircut, today a mortgage bond might get a 50% haircut.
>
> More generally, "haircut" is used to mean discount. The "home price
> haircut" is not very common, and the "shorter and shorter" comment is
> confusing to me, too, and looks like it was invented on the spot by a
> writer who should be less creative in his or her imagery. That said,
> "haircut" meaning "discount" has a long history.
>
>
> On Fri, Aug 12, 2011 at 11:01 AM, Ann Burlingham
> <ann at burlinghambooks.com> wrote:
> >
> > While searching for information about cutting hair, I came across a
> > usage today I hadn't seen before: "haircut" to refer to cutting the
> > asking price of real estate. I'm not yet clear on the definition - a
> > little off the top? a lot off the top? The first article I came across
> > is a Seattle real estate column discussing "worst haircuts" - the
> > biggest price-drops in housing prices:
> > http://seattlebubble.com/blog/2010/10/04/whats-the-worst-home-price-haircut-youve-found/
> >
> > this one http://housingdoom.com/2008/02/17/a-33-haircut/ is headlined
> > "A 33% haircut– and we're just getting started"
> > and includes
> > "Home is currently listed for sale at $190,890.  That would be a 33%
> > haircut- if it sold at list, which isn’t going to happen."
> > It concludes:
> > "Look for the haircuts to get shorter and shorter this year- and more
> > properties will be wearing them. "
> >
> > which I find confusing - is a "shorter haircut" a smaller drop, as I
> > first thought, or, my second guess, the resulting price is lower,
> > therefor  "shorter"?
> >
> > I find it defined in a couple online glossaries, for instance here
> > http://www.investopedia.com/terms/h/haircut.asp#axzz1UpJGq4pU
> >
> > What Does Haircut Mean?
> > 1. The difference between prices at which a market maker can buy and
> > sell a security.
> >
> > 2. The percentage by which an asset's market value is reduced for the
> > purpose of calculating capital requirement, margin and collateral
> > levels.
> >
> > Investopedia explains Haircut
> > 1. The term haircut comes from the fact that market makers can trade
> > at such a thin spread.
> >
> > 2. When they are used as collateral, securities will generally be
> > devalued since a cushion is required by the lending parties in case
> > the market value falls.
> >
> >
> > So, a new one to me, clearly in use by insiders but opaque at my first
> > glance. It sounds like it's been around in financial circles longest.
> > (I apologise if this is woefully off-topic; I guess it's more jargon
> > than dialect.)
> >

--
Ben Zimmer
http://benzimmer.com/

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