For non-economics majors, the intricacies of the economy and the terms thrown around to describe today's financial woes can be tough to grasp. Today, the Daily provides a list of commonly used economic terms and offers a simpler explanation of them.
Bailout: This occurs when a bankrupt or nearly bankrupt financial institution is given extra immediately accessible liquid funds, typically by the government or groups of investors. Bailouts have historically been controversial because it is widely thought that bankruptcy results from an institution's inability to satisfy its customers — and that "bailing out" is going against the actions of the consumers.
Hedge fund: An investment fund that is private and thus only open to a small number of investors, usually those who are particularly wealthy or experienced. These funds are handled by investment managers and invest in a broad range of types of investments. The term "hedge" comes from the tendency for these funds to guard against potential losses by "hedging," which usually means selling short.
Foreclosure: A phenomenon that occurs when homeowners are unable to pay mortgage loans and as a result, the lender seizes the house.
Real-estate bubble: A term that characterizes a period in real-estate markets during which property values increase dramatically and become unsustainable in relation to other economic factors. This bubble can pop; for instance, after national housing prices in the United States peaked in early 2005, they began to decline and are still going downhill.
Sub-prime lending: A newly popular term, this refers to the lending of funds by institutions to riskier borrowers. Because the borrower typically has a weaker income, job history or credit status, high interest rates are associated with sub-prime loans, and borrowers are more likely to pay late or slip into defaults.
