Ward on Words

Two interesting headlines in the WSJ: One headline says "J.P. Morgan Profit Jumps 47%. " The other reads: " New Hit to Strapped States ." So what is the new hit to the distressed states? Borrowing costs are on the rise. Here's an example of the duress states are feeling: In Texas, J.P. Morgan Chase & Co. has taken control of a debt that it back-stopped in a 2001 deal that requires the public agency running the Houston Texans' football stadium to pay back a 30-year bond over the next three-and-a-half years. "Think of having a 30-year mortgage, and then someone suddenly says you have to pay your house off in five years," said Janis Schmees, executive director of the Harris County Houston Sports Authority, which built the stadium. "That is pretty much our scenario." A representative for J.P. Morgan declined to comment. What shows as profit for bankers exerts an extremely heavy burden on everyone else.

I was an American Studies major in college, which I've lately realized does not give me the expertise in finance needed to figure out what has gone wrong with our economy.  Waiting until after the market crashes is probably not the best time for a crash course in new vocabulary terms like "credit default swaps" and "collateralized debt obligations." If only I'd gotten an MBA instead of an MFA! From my rudimentary research, credit default swaps (CDS) are contracts that promise to cover losses on securities in the event of default.  But apparently, as we have all learned, people who own these contracts don't necessarily have the money to cover losses should a default occur.   Apparently people bought and sold the idea of money without actually having any money to back it up. Visualizing the Vague In all honesty, I have not been able to uncover what it means to own a collateralized debt obligation.  But you can read more about it here in this nifty int...