"Skin in the Game"
September 11, 2008
You gotta have "skin in the game" is an expression used recently in a workshop on lending rules.
The speaker was referring to the present foreclosure debacle in which owners with no equity in their properties (even when they purchased them with 100% financing) were walking away and giving the properties back to the lenders. The implication was that since the owner had invested nothing, there was nothing for him to lose. The theory is that buyers who invested their own money would be less likely to abandon their properties. Because of this latter theory, lenders are now requiring the borrower to have a 10%, 15% or more of their own money as a down payment. As I posted yesterday, FHA loans are still the best available financing opportunity for borrowers with limited down payment funds.
My curiosity was whetted and I searched the Internet to find the source of the expression "skin in the game". One would think it originated with a coach who was referring to the attitude and effort of his players and the fact that players often get scraped and bruised when they are playing with determination. However, according to the Internet Free Dictionary site, the renowned investor, Warren Buffett, coined the phrase. He was allegedly referring to insiders who used their own money to buy stock in the company that they were running. The idea was that this would ensure that managers had a stake in the company's success when they put their own money on the line.
I suspect that you will here more of this phrase in contemporary commentary. I read an oped piece about health care that raised the question about health care insurance and whether the insured should have "skin in the game" and how much?
Aren't these word pictures fun?
You gotta have "skin in the game" is an expression used recently in a workshop on lending rules.
The speaker was referring to the present foreclosure debacle in which owners with no equity in their properties (even when they purchased them with 100% financing) were walking away and giving the properties back to the lenders. The implication was that since the owner had invested nothing, there was nothing for him to lose. The theory is that buyers who invested their own money would be less likely to abandon their properties. Because of this latter theory, lenders are now requiring the borrower to have a 10%, 15% or more of their own money as a down payment. As I posted yesterday, FHA loans are still the best available financing opportunity for borrowers with limited down payment funds.
My curiosity was whetted and I searched the Internet to find the source of the expression "skin in the game". One would think it originated with a coach who was referring to the attitude and effort of his players and the fact that players often get scraped and bruised when they are playing with determination. However, according to the Internet Free Dictionary site, the renowned investor, Warren Buffett, coined the phrase. He was allegedly referring to insiders who used their own money to buy stock in the company that they were running. The idea was that this would ensure that managers had a stake in the company's success when they put their own money on the line.
I suspect that you will here more of this phrase in contemporary commentary. I read an oped piece about health care that raised the question about health care insurance and whether the insured should have "skin in the game" and how much?
Aren't these word pictures fun?
posted by shirley harry at 8:39 AM
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