Talk:Haircut (finance)

Lead paragraph

I'm no finance expert, but I'm not happy about the statement in the first paragraph: "The lower the haircut, the safer the loan is for a lender.". Isn't this back to front? That suggests that a low haircut makes a loan safe for the lender. But isn't it the other way round? Either a safe (low risk) loan can have a low haircut, but a risky loan is made safer for the lender by having a high haircut?

I won't change it because it's not my field, but if anyone else can word it better, that would be nice! — Preceding unsigned comment added by 81.158.18.136 (talk) 15:49, 22 August 2014 (UTC)

I (an economics major) had an identical conclusion. As a novice Wikipedian, I'm adding a citation needed flag thing. — Preceding unsigned comment added by 192.5.110.6 (talk) 20:25, 13 October 2014 (UTC)

Working in the field and having an actuarial science degree, but being new to Wikipedia, I can contribute the following wording "A low haircut percentage would indicate a lower degree of risk being placed on the collateral by the lender." — Preceding unsigned comment added by Rshultz212 (talk • contribs) 15:45, 14 January 2015 (UTC)

I tried to rewrite most of the intro to: 1. make clear the purpose of the haircut and that it's the lender's prerogative, 2. remove causal ambiguity (larger haircut is a result, not a cause of a riskier loan.) 3. add a reference to the way the term is regularly used in the lay media. Also added some links. I'm not a financial expert, so please check me! Yellowdesk60 (talk) 23:12, 15 February 2015 (UTC)

The definition of haircut given in the first phrase of this article is erroneous! The right definition should be: Haircut is difference between the market value of a security used as a collateral in a loan and the value of that security assessed by the lender. JBarreto (talk) 12:09, 12 August 2015 (UTC)

References

References

Alternative yet currently prevalent meaning of term

Can other editors please step in and contribute to the ongoing attempt to erase the massively prevalent definition of the term "haircut"? For some weird reason, a couple of editors do not seem to accept the abundant sources testifying to it. It was somewhat funny until it became tedious. (See diff.) Here is the alternative yet currently prevalent meaning of the term, as presented in the article, fully sourced:

In mass media, as well as in economics texts,especially post-GFC, the term "haircut" has been used mostly to denote a reduction of the amount that will be repaid to creditors, or, in other words, a reduction in the face value of a troubled borrower's debts, as in "to take a haircut": to accept or receive less than is owed. In 2012, world media was reporting on the "biggest debt-restructuring deal in history," which included the "very large haircut" of some "70 percent of par value" of Greek state bonds, in NPV terms.

The charade was somewhat funny until it became tedious.

-The Gnome (talk) 11:15, 3 July 2018 (UTC)

• Look above. A comment from 3 years ago citing the same problem. WP articles cannot be a collation of unrelated topics that share words in common. WP is not a dictionary. If you want to write a well-referenced article on the debt forgiveness and restructuring of Greek debt, you can add a disambiguation link to the word "haircut" in whatever meaning some journalist or politician or pop-culture pundit may have used it. But the term "haircut" in finance has a specific meaning with respect to regulatory capital and risk analys

The dominant mainstream and professional usage of the term haircut can be found here, at the website of the US Federal Reserve Bank, which oversees the largest chunk of the world financial markets. The following link will give you 4000 items to verify this. I suggest you read and digest them before making further references to your situation-specific, cherrypicked, limited appropriation of the term in an context that's irrelevant to the mainstream usage. Link: [1].

SPECIFICO talk 12:53, 3 July 2018 (UTC)

There is no dispute about the originally prevalent meaning of the term; it's what the link to the U.S. Fed, as well as numerous other links, indicate. s happens continuously in language depending on times, social context, events, ans so on. The currently prevalent meaning of haircut is in reference to sovereign-debt write downs. Anyone who searches for the term on- and off-line in texts of the past decade or so could verify this. The previous meaning has not been lost nor did it disappear. All that has happened is that there is a similar and currently prevalent meaning - and to deny this is beyond weird. -The Gnome (talk) 16:24, 3 July 2018 (UTC)

Here on Wikipedia all you need is a RS authoritative statement that, in your words, The currently prevalent meaning, however, has changed. -- Of course you haven't shown us any such reference, notwithstanding how easy it would be, because no such authoritative analysis exists. It's purely your fringey OR. SPECIFICO talk 16:42, 3 July 2018 (UTC)

I provided the sources. All one can do is examine them. I'm obliged to explain myself; I'm not obliged to make you understand. But the terms you use when interacting with other editors (e.g. "you belong in a nutshell") are indicative of the quality of your contributions to Wikipedia and your credibility here. There is nothing of substance to what you write. Sad but true. -The Gnome (talk) 05:40, 5 July 2018 (UTC)

• "Prevalent" can mean just "widespread"; it does not have to mean "predominant". The new meaning (a reduction of the amount of debt to be repaid to lenders) has definitely become one of the common meanings. It is a somewhat obvious extension of one of the original meanings, as it is the spread between the nominal and actual value of an asset.
      The oldest occurrences I saw were in relation to the aftermath of the financial crisis of 2007–2008. The first one is in an article by Jeffrey Sachs from March 31, 2009, criticizing the Geithner–Summers plan to remove toxic assets from the banks. Quote: "The cheaper and more equitable way would be to make shareholders and bank bondholders take the hit rather than the taxpayer. The Fed and other bank regulators would insist that bad loans be written down on the books. Bondholders would take haircuts, but these losses are already priced into deeply discounted bond prices." A next occurrence is in a report on the financial crisis by Alan Greenspan, written in April 2010, where he wrote: "Its creditors (when equity is wholly wiped out) would be subject to statutorily defined principles of discounts from par (“haircuts”), and the institution would then be required to split up into separate units, none of which should be of a size that is too big to fail." Then, in a speech of December 7, 2010, Irwin Stelzer said, now in relation to the 2010 European sovereign debt crisis: "And German chancellor Angela Merkel says that from now on investors in countries and banks that go broke will have to bear some of the losses – some call that a haircut – and the price of eurozone bonds jumps."
      These examples show (1) that the term is used in the extended sense by very prominent economists; (2) that the term is also used outside the context of the Greek government-debt crisis. It will be very strange if we cannot write about this meaning of the term without "a RS authoritative statement" that the meaning has been extended to lenders' taking a hit upon debt restructuring.
      A possible way out of the current conundrum is to give a better treatment of the term "haircut" in our Debt restructuring article, which applies to more than bond haircuts; to create a redirect page Haircut (debt restructuring) redirecting there; to put an appropriate {{About}} hatnote on the present article; and to add an entry to Haircut (disambiguation). The extended meaning is so close to the older one, though, that treating it here is also quite defensible.  --Lambiam 19:58, 3 July 2018 (UTC)

Good work, Lambiam. -The Gnome (talk) 05:40, 5 July 2018 (UTC)

Does the term 'haircut' as used in financial contexts actually have any legal or contractual meaning?

I ask the above question, as it seems to me unlikely that what can only have started out as a metaphor would somehow become anything more than informal shorthand. And if it is just an informal phrase, arguing about its exact definition, or of the nuances of its meaning in different contexts, would seem to me to be rather a waste of time. Wikipedia is neither a dictionary of slang nor a dictionary of financial jargon, and accordingly we are under no obligation to determine which usage is more common, which usage is 'correct', or even what all the numerous usages of the word are supposed to signify. Metaphors are, by their very nature, subject to reuse in all sorts of novel contexts and accordingly not the sort of thing one can 'define' in any useful way. The word, as used in financial contexts, seems to carry some sort of implication of an imposed reduction in value, or loss, but beyond that there seems little core meaning. Best left to dictionaries to define in my opinion, given the lack of evidence that anyone considers 'haircuts as financial metaphor' a notable subject. 86.147.197.65 (talk) 21:57, 3 July 2018 (UTC)

• So, "given the lack of evidence that anyone considers 'haircuts as financial metaphor' a notable subject", as you opine, we should obviously get rid of this article. Correct? Alright then, go ahead and nominate the article "Haircut (finance)" for deletion. Should be lively. -The Gnome (talk) 05:49, 5 July 2018 (UTC)

Broad hint for the audience: WP:NEO & WP:WORDISSUBJECT. -The Gnome (talk) 05:49, 5 July 2018 (UTC)

Broad hint for The Gnome. If you don't want to look a compete idiot, read things before you post links to them. 86.147.197.65 (talk) 13:06, 5 July 2018 (UTC)

Now, ignoring the ad hominem (only the latest), I must say I do not think you have understood properly, in context, the meaning of the phrase "Wikipedia is not a dictionary." The relevant policies and even the accompanying essays go at lengths to define the meaning of that phrase, because it can easily be misconstrued or applied inappropriately. We have articles like "franchise tag", in which a term is "simply defined" one could argue and thus proclaim it to be a dictionary entry. Yet, such articles are here, and quite legitimately too, on the basis of the following reasons, copied verbatim from the links I gave above:

In some cases, a word or phrase itself may be an encyclopedic subject. In these cases, the word or phrase in and of itself passes Wikipedia's notability criteria as the subject of verifiable coverage by reliable sources.

...

Encyclopedia articles should begin with a good definition and description of one topic, but the article should provide other types of information about that topic as well. An encyclopedic definition is more concerned with encyclopedic knowledge (facts) than linguistic concerns.

...

To support an article about a particular term or concept, we must cite what reliable secondary sources say about the term or concept, not just sources that use the term, which is what is done in this article, as I see it. That is all. -The Gnome (talk) 06:09, 6 July 2018 (UTC)

I'm not the slightest bit interested in reading your vacuous regurgitation of policies you clearly don't understand. 86.147.197.65 (talk) 15:17, 6 July 2018 (UTC)

That is definitely a personal attack.  --Lambiam 21:14, 6 July 2018 (UTC)

Expecting precisely such a response from 86.147.197.65 is why I posted up the relevant passages of policy, verbatim, in green. So that others can read and judge for themselves. -The Gnome (talk) 05:56, 8 July 2018 (UTC)

• When a term has several meanings in common use, we usually use a dab page for disambiguation. Whether the term is informal is irrelevant. "Pot" for cannabis is slang, yet it is listed at Pot (disambiguation). In the case we have here, it is (IMO) mostly a matter of taste and convenience whether we treat the extended sense of the metaphorical use of the term "haircut" here or under Debt restructuring, where it is already mentioned, but not as applied to sovereign debt. I must say that I do not quite understand the objection to treating the extended meaning here, where readers are most likely to expect to find a treatment, unless it is a consequence of objecting to having an article Haircut (finance) at all. If there is consensus we should not have this article, we could treat the restricted meaning instead at Mark-to-market accounting.  --Lambiam 21:14, 6 July 2018 (UTC)

My point was that I don't think there are several independent well-defined meanings: just the one metaphor applied in multiple broadly similar contexts. Unless of course there is some sort of clear legal definition. Which is why I asked the question. 86.147.197.65 (talk) 23:16, 8 July 2018 (UTC)

• My two cents here (as someone who swims in the trade) (came here from the finance project post) - haircut is slang for a multiplicative factor on a security (which may indeed be a write down on debt (sovereign or corporate)), which can also be used as slang for margin. See A Dictionary of Finance and Banking who agrees with me. Personally - I would not be averse to AFDing this - the article makes a mess of this slang term, and we should be covering finance slang anyways - NOTDICDEF.Icewhiz (talk) 15:38, 11 July 2018 (UTC)

That reference gives the common meaning in finance and is the same as the one in the Fed source I cited. The other meaning is off-the-mark. Articles need a specific subject and if there is to be an article entitled Haircut (finance) it would have to refer to the meaning you and I have cited. SPECIFICO talk 16:43, 11 July 2018 (UTC)

Thank you for your two cents, Icewhiz. (I don't understand why you bolded the word "slang." Of course it's slang, or more precisely a term from the language of the trade. No one asserted any literal use of the term in the context of finance! When technical analysts, bless their sweet hearts, starts about Head & Shoulders, I simply pity them. I do not think "hair shampoo"! But I digress.)

I never disputed that the term "haircut" in finance denotes what the Oxford Dictionary states. (By the way, Oxford contains also the more esoteric meaning of "haircut" as "fee or commission", which seems absent from Fed papers. Don't tell this to Specifico. But I digress.) I have posited and I repeat that the main meaning of the term, however, has changed since the time the Oxford Dictionary was written, which was 2007, and now, according to the plethora of sources available, is mostly used in mass media and papers mostly to refer specifically to the percentage from the sovereign debt asset held by the private sector that is deducted as part of sovereign debt relief.

By the way, and since you talk about AfDs: I have no qualms whatsoever about destroying the entire article. If this is what the Wikipedia community decides, through due process, then so be it. But as long as the article is on, we have to take good care of it. Take care, BSD. -The Gnome (talk) 22:04, 11 July 2018 (UTC)

This is brazen and patently defective OR. The meaning on the Fed website is used by every broker, bank, trader, institutional asset manager, and other participant in every financial market in the world -- a sector that dwarfs the size of the restructured debt markets that are a subset of it. Any OR about this subsidiary jargon supplanting the global terminology of risk management is nonsense. If it were not nonsense, we would have a source that says "XXX has replaced YYY as the meaning of the term Haircut in finance." but we don't. SPECIFICO talk 23:40, 11 July 2018 (UTC)

The main meaning nowadays is, to my understanding, writedowns on debt (soverign or corporate) - usually part of a restructuring agreement. However - this is a non-technical term - pure financial slang. No one would use this in a contract. It is the sort of lingo people use between themselves and in the media.Icewhiz (talk) 04:00, 12 July 2018 (UTC)

Fully agree with Icewhiz's comments so far about the meaning: it's about "writedowns on debt (sovereign or corporate) - usually part of a restructuring agreement", per sources. On the part about "haircut" being "the sort of lingo people use between themselves and in the media", I'd comment that now we see it everywhere, e.g. in European Central Bank papers (link), Reuters (link), etc, along with the original jargon meaning, e.g. Forbes (link). It's no longer an esoteric term. That's how language evolves. We encounter "haircut" widely in mass media now, for the simple reason that people got seriously hurt financially from events. (BTW, "slang," which is used with an exclusionary intent, is not the same as "jargon"/"lingo".) -The Gnome (talk) 08:02, 12 July 2018 (UTC)

@The Gnome: The ECB paper you are referring to is using the only non-slang use of this - a multiplicative factor on securities given as collateral - e.g. if you give a treasury worth X with a maturity of Y for collateral - it would be worth, say, 98% of its market value (or face value - depending where/what) for collateral purposes. A longer maturity bond from a more dangerous issuer - might be worth 95% for collateral. The ECB is not using the slang of a debt write down in a restructuring agreement (which is the main use).Icewhiz (talk) 08:11, 12 July 2018 (UTC)

You're correct, the ECB paper belongs in the second category, the one about the term's original meaning. We seem to agree that the "main use" of "haircut" is in "a debt write down in a restructuring agreement." -The Gnome (talk) 08:21, 12 July 2018 (UTC)

But we already have - Debt restructuring - why wouldn't we just mention "Haircut" as a slang term there? (not all restructuring is a "haircut" - e.g. if you extend the term it is, prima facie, not a "haircut" - the "haircut" is when you cut the value to be paid). However, I would not write (not would most professionals) "haircut" without quotation marks in this context - I might say it. Or even type it in an e-mail. But it is really just slang.Icewhiz (talk) 08:25, 12 July 2018 (UTC)

We might differ on the exact categorization of "haircut" (slang? jargon?) but it is not an important issue. If you believe, as our friendly IP correspondent seems to also believe, that this whole article should be deleted and merged to "Debt restructuring," go ahead and make an AfD proposal. I already suggested as much, above. -The Gnome (talk) 08:48, 13 July 2018 (UTC)

A small note abt quotation marks: They're not linguistically necessary when it is obvious we're talking metaphorically. Unless you have an in-house barber working the pits, writing about haircuts should always be taken in the context of finance, with its precise meaning depending on context. Take care. -The Gnome (talk) 08:48, 13 July 2018 (UTC)

Specifico's now supposedly on a quest for sources verifying explicitly that the term's currently prevalent meaning is the term's currently prevalent meaning. (At this point one should demand from Speci to provide sources that support their claim that "the meaning on the Fed website is used by every broker, bank, trader, institutional asset manager, and other participant in every financial market in the world", see how far that goes! )

Plus, watch out for misdirection. Specifico writes: "The meaning on the Fed website is used by every broker, bank, trader, institutional asset manager, and other participant in every financial market in the world -- a sector that dwarfs the size of the restructured debt markets that are a subset of it." Leaving aside the language clumsiness, I should point out that worries about "haircuts" are visible and expressed routinely in all sovereign-debt markets. The worldwide size of sovereign debt markets (and not just "restructured debt markets", as if there're separate pits for that) was in 2017 some $44 trillion (Reuters). Dwarf that. -The Gnome (talk) 08:02, 12 July 2018 (UTC)

What's larger than the sovereign debt markets? ANS: The totality of all financial assets held, which comprises all that sovereign debt plus all other public and private debt and equity assets. You don't seem to understand what the Fed and ECB are talking about, so it would be best to stick to the tried and true... Before making sweeping assertions of your personal opinion, check RS references. SPECIFICO talk 12:13, 12 July 2018 (UTC)

Better stick to social sciences. . You just argued that A+B>B with A,B real, non-zero, positive numbers. Well, no kidding!.. As to the comment about me not knowing what ECB and the rest are talking about, you do not know me and I don't want you to know me, so no comment will be forthcoming (which is all the better for you) except to say that your take is truly hilarious.

Oh, and besides the expected paraphrasing, there has not been any trace of "personal opinion" in any of the texts I ever wrote for Wikipedia, including my contributions here. But you could not acknowledge the reliable sources provided in the context of this and then this AfD, so no one expects an acknowledgement now. Carry on. -The Gnome (talk) 08:38, 13 July 2018 (UTC)