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By CJP | September 23, 2008
 We've had several requests for a mini-glossary to help the Janes sort through the coverage of the ongoing market crisis.  If you don't know a debt swap from a swap meet, you've come to the right place. Use this mini-explainer as you read the news, yell at your broker, or on your blind date with the former analyst at Lehman Brothers.  Knowledge is power, gals, and it's the one asset that gets MORE valuable the further the markets sink.  Today, we look at the proposed financial bailout...
- The Bail Out: Â A proposal from the Secretary of the Treasury to use $700B to buy stinker investments from banks, which the feds will sell within two years. Â Think of it as the banks putting their ugly children up for adoption, and the U.S. government acting as foster parents (and paying their bills) until the kids get through their awkward phases two years from now. Â It's possible the Treasury could get all, none, a portion or more of the $700B back.
- A Security:Â A piece of paper that proves ownership of stocks, bonds, and other investments.
- Securitized Debt: Â Â A marketing technique that converts long-term loans to marketable securities, also known as the root of our financial crisis. Â FOR EXAMPLE, if your mortgage was a layer of pastry, banks realized that they could stack up hundreds of mortgages, slice them up and sell them off like baklava at a bake sale. Â The problems came when the flakier, sub-prime pastries ended up being poisonous, but were sold into the food supply with no way to get them back or know precisely which pastries are fine and which are toxic.
- Ratings agencies: Â The companies, like Standard & Poor's, that decided how safe the mortgage-backed securities were to buy. Â The ratings agencies gave many sub-prime securities their highest AAA ratings, thus calling the poisonous pastries good enough to eat in a five-star restaurant. Â Â
- Short sell:  Selling a security that the seller does not own but is committed to repurchasing eventually.  FOR EXAMPLE, let's say you borrow a pair of shoes from your mom.  You then sell the shoes to your sister for $100.  You tell your sister you want to buy the shoes back from her, but since new shoes just came in to Nordstrom's, you only pay your sister $50 for the shoes, since they're worth less.  You put the shoes back in your mom's closet, give her a $5 fee for the loaner, and pocket the $45.  You just shorted those shoes.  Easy money!! Â
To bring it full circle, investors were shorting bank stocks because they knew the banks had lots of mortgage-related stinkers on their books.  The S.E.C. just suspended shorting of financial stocks, since they worried it was putting those companies in danger of total failure at the hands of investors. Ironic. Those stinkers will now be purchased and sold by the Feds if the bailout goes through. (Sources:  Bloomberg, Forbes, CNBC)Â
Come back tomorrow, when we'll discuss AIG, Fannie and Freddie, and all the other companies you own now.
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