The Devil's Financial Dictionary

Here are a few entries that give a taste of The Devil’s Financial Dictionary, my glossary of financial terms published by PublicAffairs in November 2015. Inspired by Ambrose Bierce’s masterpiece The Devil’s Dictionary, which the great American satirist published sporadically between 1881 and 1911, the book is meant to make you laugh and learn at the same time.  (View free versions of Bierce’s text here or here.) Like Bierce’s brilliantly cynical definitions, the explanations presented here should not — quite — be taken as literally true.


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B

 

BARU, n.  In ancient Mesopotamia, a priest who specialized in predicting the future by studying the shape and features of a liver or lung taken from the body of a freshly sacrificed sheep.

The baru worked from an incredibly intricate template, often rendered as a clay map that charted dozens of different variations on the surface of the sheep’s organ, as in this example from the British Museum:

Clay model of a sheep's liver, Babylonian, ca. 1900-1600 B.C., probably from Sippar in what is today Southern Iraq. From the collections of the British Museum.

Clay model of a sheep’s liver, Babylonian, ca. 1900-1600 B.C., probably from Sippar in what is today Southern Iraq. From the collections of the British Museum.

We may safely presume that when the baru’s predictions didn’t come true, he blamed it on the dead sheep. The modern version of a Mesopotamian baru is known as a TECHNICAL ANALYST.

 

BONASUS, n.  Also known as a “bonnacon,” a mythical creature described by the ancient Romans and often included in medieval bestiaries, the bonasus closely resembles a bull, but with its horns curled back toward its tail. Since the horns are only for show, the bonasus has no way to deter predators and will turn and run away as soon as it is threatened. When it becomes panic-stricken, the bonasus spews immense quantities of manure in its wake.

In the words of the great Roman naturalist Pliny:

“In Pæonia [near modern Macedonia in northern Greece], it is said, there is a wild animal known as the bonasus; it has the mane of the horse, but is, in other respects, like the bull, with horns, however, so much bent inwards upon each other, as to be of no use for the purposes of combat. It has therefore to depend upon its flight, and, while in the act of flying, it sends forth its excrements, sometimes to a distance of even three jugera [approximately 100 feet or 30 meters]; the contact of which burns those who pursue the animal, just like a kind of fire.”

As the next stock-market crash will show, the typical investor who believes himself to be a BULL will, in fact, turn out to be a bonasus. Unless you have a mighty shield, do not stand too close behind him.

The Bonasus. From a 15th-century British bestiary, collection of the Royal Library (National Library of Denmark), Copenhagen

The Bonasus.
From a 15th-century British bestiary, collection of the Royal Library (National Library of Denmark), Copenhagen

 

BOURSE, n.  An exchange building or meetingplace for traders; synonym for STOCK EXCHANGE; borrowed from the French bourse, or “purse,” from the Latin and Greek bursa, meaning “pouch” or “sac,” originally a wine-skin made out of hide. (See BROKER for another financial term whose early use was related to alcohol.) Bourse shares the same root as “bursar” and “disburse.”

The term is said to have arisen in Bruges, Belgium. The aristocratic Van der Buerse or Van der Beurze family had run a hotel on the square since at least 1276. Its ancestral coat of arms, featuring three moneybags or sacks (bursae in Latin), was carved onto the front of one of the family’s buildings along the square. Trading occurred outdoors, under the sign of those bursae, thus leading the area to be called the “bursa.” Not all lexicographers believe this derivation to be authentic, however.

The Bourse of Bruges, as it was in the 15th century The "house" of Genoese merchants is second from left; the house of the Florentines is third from right. The old bourse, third from left, is topped by a stork's nest. The stork, known for the repetitive clattering it made by grinding its beak, may symbolize the clamor of trading. Engraving from Antonius Sanderus' "Flandria Illustrata" (1641), collection of Ghent University Library, http://search.ugent.be/meercat/x/all-view?q=rug01:000984576

The Bourse of Bruges, as it was in the 15th century
The “house” of Genoese merchants is second from left; the house of the Florentines is third from right. The old bourse, third from left, is topped by a stork’s nest. The stork, known for the repetitive clattering it made by grinding its beak, may symbolize the clamor of trading.
Engraving from Antonius Sanderus’ “Flandria Illustrata” (1641), collection of Ghent University Library, http://search.ugent.be/meercat/x/all-view?q=rug01:000984576

In Amsterdam in 1688, Joseph de la Vega wrote that the term “is explained by the fact that [the exchange building] encloses the merchants like a purse or because here everybody makes eager efforts to fill his purse. As the word ‘purse’ means skin in Greek, [perhaps not surprisingly] it is that many players leave their skins at the Exchange.”

The word bourse is also related to the medical terms bursa and bursitis, which can be caused by repetitive motion syndrome, a condition that can afflict frequent traders.

 

BUBBLE, n.  A mania; a rise in asset prices that seems irresistible at the time and irrational in retrospect; a bull market blown full of hot air until it reaches the bursting point.

The term is commonly believed to have originated around 1719-1720, when shares in the Mississippi Co. in France, the South Sea Co. in Britain, and the Dutch East East India Company Co. in the Netherlands rose approximately tenfold in a matter of months and then collapsed.

But there is there is evidence that the word might be older. The earliest joint-stock firms in England – what today we would call publicly traded companies – date back to the mid-16th century. One of the first was the Muscovy Co., formed by adventurer Sebastian Cabot in 1555. By the late 16th and early 17th century, many English merchants had plunked surplus cash into shares of corporations that promised to exploit the newfound wealth of North America.

It was one of the first IPO booms in history. To give just one example, the Massachusetts Bay Company was an investment – or, more accurately, a speculation – before it turned into a colony.

Many of these deals ended badly. The risks — shipwreck, disease, massacres, and so forth — were enormous. Losses of nearly 100% were common. And so, presumably, was criticism of the promoters who had led many investors into such disappointment. (To see a more-detailed discussion with the late language maven William Safire, go here and enter “bubble” in the Search Inside This Book window.)

To bubble, meaning to cheat, to trick, or to be victimized, was a common term in England several decades before the Mississippi Co. mania. Daniel Defoe, for instance, used it in his pamphlet “The Free-Holders Plea against Stock-Jobbing Elections of Parliament Men” (1701): “let them be bubbl’d by them that know no better.”

As a noun, “bubble” was also a synonym for someone who had been robbed or defrauded. It appears in at least three Restoration comedies: William Wycherley’s The Country Wife  (1675), William Congreve’s The Way of the World  (1700), and George Etherege’s The Man of Mode (1676). As the rake Dorimant advises in The Man of Mode: “Lose it all like a frank gamester on the square, ’twill then be time enough to turn rook [swindler] and cheat it up again on a good substantial bubble.”

It seems plausible that a famous passage in Shakespeare’s Macbeth (1607) was inspired by the early boom and bust in American joint-stock companies. In Act I, Scene 3, when the three witches, or “weird sisters,” disappear before explaining their prophecies, Banquo cries, “The earth hath bubbles, as the water has, and these are of them. Whither are they vanish’d?” Macbeth answers, “Into the air, and what seem’d corporal melted as breath into the wind. Would that they had stay’d!”

Shakespeare, for whom words were always freighted with multiple meanings, could well have written this passage to draw painful laughs of recognition from the merchants in his audience. Many of these people had likely bought into the joint-stock bubbles that financed the American colonies – including the Virginia Co., which had set a tentative foothold in “Jamestowne” in 1606, just a few months before Macbeth’s debut.

The Dutch were also familiar with the word “bubble” (which they presumably borrowed from the English), as you can see here. It was closely related to windhandel, or “dealing in wind,” the Dutch expression for trading in securities that weren’t in the speculator’s possession, as short-sellers do today – and did back then, too. (Windhandel also referred to trading in derivatives like options and futures instead of common stock or physical commodities.)

Wind trading is first recorded shortly after the Dutch East East India Company was founded in 1602. By early 1610, the Dutch authorities had already issued their first edict to prohibit short-selling; it didn’t work. They tried again in 1621, still to no avail; the wind trade continued to blow.

Joseph Penso de la Vega, who in 1688 wrote what is commonly regarded as the world’s earliest book about the stock market, Confusion de Confusiones, described a stratagem used by short-sellers at the Amsterdam exchange:

…they offer for the stocks more than the price of the day (what we call ‘inflating’ the price). They influence the price this way in order to sell [short] at the higher figure and thus to gain in the end. God with one breath breathed life into Adam, whereas the bears take the life of many people by inflating the price [of the shares]….

This image – pumping up prices by puffing them full of air – is the most logical and likely derivation of the financial term “bubble.”

In de la Vega’s image, a bubble literally brings stock prices to life. As a Portuguese Jew who had written Hebrew poetry and considered becoming a rabbi, de la Vega would have known that the Hebrew word for “breath” or “wind,” ruach, also means “spirit” or “soul.”  (The same was true in other ancient languages: In Greek, pneuma meant “soul,” but also “breath” or “wind,” a connotation that survives in English with terms like “pneumatic drill” and “pneumonia.” And, of course, to “animate,” from the Latin anima, means to breathe life into someone or something.)

After several bubbles blew up and burst almost simultaneously, windhandel acquired a more scatological meaning. An explicit Dutch engraving from 1720, “Arelquyn Actionist,” or “Harlequin the Stockbroker,” shows securities dealers selling their offerings to a speculative mob through a unique distribution system: by breaking wind. Customers snatch stock certificates from the streams of gas blasting out of the brokers’ posteriors – a fitting metaphor for investments that ended up too foul to touch.

Arleqyn Actionist

This vulgar meaning of windhandel may already be foreshadowed in Macbeth, when the three sisters cackle, “I’ll give thee a wind…. And I another.”

From almost the very beginning of financial markets, people have understood that bubbles turn from invigorating to disastrous in the wink of an eye. In more recent times, “bubble” has been used indiscriminately by investors to describe any asset that they think is overpriced. Reliably identifying and steering clear of bubbles, however, has never been easy and probably never will be — except in hindsight.


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