haircut

Question

A court case got under way to determine whether Detroit’s plan to restructure its debts and emerge from bankruptcy is fair. Detroit’s “grand bargain” would somewhat reduce pension and health-care benefits for the city’s employees and impose a severe haircut on some bond insurers.

I think this word should be a metaphor here. Could you tell me what the meaning is?

GPY · Accepted Answer

See for example http://en.wikipedia.org/wiki/Haircut_(finance), though I am not totally clear why this would apply to bond insurers.

Dave_anon · Answer

Hi

The Urban Dictionary is sometimes good for this kind of thing. It is meaning 3 in the link below ...

- The bond insurers will lose money

http://www.urbandictionary.com/define.php?term=haircut

Dave

Dave_anon · Answer

Hi

My guess is that some city employees will have taken out bond insurance on their retirement incomes or healthcare. If Detroit reduces their pensions or healthcare benefits then the bond insurers will have to make up the difference

Dave

GPY · Answer

dave_anonMy guess is that some city employees will have taken out bond insurance on their retirement incomes or healthcare. If Detroit reduces their pensions or healthcare benefits then the bond insurers will have to make up the difference

It may be that there are two kinds of use: technical use, e.g. as explained at the Wikipedia article, and the looser "lose money" use. It's the technical definition that I couldn't quite understand in relation to bond insurers.

Dave_anon · Answer

I see what you mean - there is quite a technical definition behind it!

I think the phrase is often used in a very loose way

- If the judge fines you, you're just gonna have to take a haircut

Dave

Rpsh · Answer

Got it! Thank you so much!

Rpsh · Answer

I think the definition in the Wiki makes sense according to the financial contexts. Thank you all the same.

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