A tactic used by employees to share blame or divert blame should something go wrong. "Covering your ass" is usually done in big projects where an employee may choose to avoid taking credit for doing a critical part of the project just in case it goes bad. For example, if the acceptance or rejection of a crucial project relies on your forecast of cash flows for future years, you may include a footnote that your estimates were based on data provided by another employee in case your forecasts are completely wrong. This practice is often frowned upon.
Policy tools used by central banks to make credit more readily available in the event of a financial crisis, such as the one experienced in 2007-2008. In the United States, the policy tools, as described by Federal Reserve Chairman Ben Bernanke in early 2009, include "lending to financial institutions, providing liquidity directly to key credit markets and buying longer-term securities." The Fed implemented these tools because it needed a way to make interest rates go down and make credit more available to individuals and businesses even though the federal funds rate was already near zero. Credit easing entails an expansion and focus on the asset side of the Federal Reserve's balance sheet. This, according to Ben Bernanke, differentiates credit easing from the policy of quantitative easing used by Japan's central bank from 2001 to 2006. Although both methods involve the expansion of the central bank's balance sheet, quantitative easing focused on the liability side of the Bank of Japan’s balance sheet.
An economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers. Credit crunches are usually considered to be an extension of recessions. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, which results in higher rates. The consequence is a prolonged recession (or slower recovery), which occurs as a result of the shrinking credit supply.
A crisis that occurs when several financial institutions issue or are sold high-risk loans that start to default. As borrowers default on their loans, the financial institutions that issued the loans stop receiving payments. This is followed by a period in which financial institutions redefine the riskiness of borrowers, making it difficult for debtors to find creditors. In the case of a credit crisis, banks either do not charge enough interest on loans or pay too much for the securitized loan, or the rating system does not rate the risk of the loans correctly. A crisis occurs when several factors combine in the marketplace, affecting a large number of investors. For example, banks will charge teaser rates on loans, but when the initial low payments change, they become too high for borrowers to pay. The borrowers default on the loans, and the loan's collateral value simultaneously drops. If enough lending institutions reduce the number of new loans issued, the economy will slow down, making it even harder for other borrowers to pay their loans.
A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century. Schumpeter goes so far as to say that the "process of creative destruction is the essential fact about capitalism." Unfortunately, while a great concept, this became one of the most overused buzzwords of the dotcom boom (and bust), with nearly every technology CEO talking about how creative destruction would replace the old economy with the new.
A bankruptcy concept that is often employed to obtain a Chapter 11 bankruptcy reorganization plan while there are still objections from one or more creditors. Cramdown allows the bankruptcy courts to modify loan terms subject to certain conditions in an attempt to have all parties come out better than they would have without such modifications. The conditions are mainly that the new terms are fair and equitable to all parties involved. The term "cramdown" comes from the idea that the loan changes are "crammed down" creditors' throats - they can either renegotiate the loan through a Chapter 11 reorganization, or lose everything through a Chapter 7.Secured creditors will often do better in a Chapter 11 reorganization than unsecured creditors, and are are usually the ones with objections. The unsecured creditor's best defense against an unwanted reorganization plan is usually to stay away from arguing whether the plan is fair and equitable and to instead challenge whether the debtor can meet the plan's obligations.During the financial crisis of 2008, cramdown was used to help troubled mortgage borrowers by allowing the bankruptcy courts to alter mortgage terms, subject to certain conditions, in an attempt to keep borrowers from foreclosure when one or more tranches of the mortgage did not agree to loan modification.
1. A situation in which a creditor is forced to accept undesirable terms imposed by a court during a bankruptcy or reorganization. 2. A merger or acquisition with unfavorable terms, in which shareholders or debtors of the target company are forced to accept because no better option exists. This generally occurs when the target company is in a troubled financial state. The term "cram-down deal" can be used in several situations in finance, but consistently represents an instance where someone is forced to accept adverse terms because the alternatives are even worse. An example of a cram down deal would be where a bondholder is forced to take equity in a reorganized company in lieu of receiving cash.
The most valuable unit(s) of a corporation, as defined by characteristics such as profitability, asset value and future prospects. The origins of this term are derived from the most valuable and important treasures that sovereigns possessed. Despite the fact that crown jewels are often the most valuable part of a company, some companies opt to use their crown jewels as part of a takeover defense. A company can employ this crown jewels defense by creating anti-takeover clauses which compels the sale of their crown jewels if a hostile takeover occurs. This deters would be acquirers from attempting to take the firm over.
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