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Haircut is a relatively recent term, considering that Romans began to cut the hair about A.U.C. 454, when Ticinius Maenas introduced Barbers from Sicily: (Etymonline)

  • also hair-cut, 1887, "act of cutting the hair," from hair (n.) + cut (n.). As "style of wearing the hair," by 1890. (Ngram haircut)

The term haircut is also used in finance with the following meaning:

  • In debt restructuring agreements, a haircut is a percentage reduction of the amount that will be repaid to creditors. For example, when Argentina defaulted on its bonds in 2001 it agreed restructuring terms with over 90 per cent of its creditors which involved haircuts of between 45 per cent and 75 per cent. (lexicon.ft.com)

According to Wikipedia:

  • Haircuts have been used for almost 200 years in American commercial finance.
  • But this seems to refer to the practice and not to the term of which, as Ngram shows, there is no evidence before 1880.

The expression is unfortunately becoming more and more common given the precarious financial conditions of a number of states around the world, among which Greece, probably, stands out:

  • Greek Debt Deal Will Force Bondholders To Take 'Voluntary' 70% Haircut.

My questions:

1) What's the origin of the term? Why is the cut of hair used as a metaphor of a debt reduction?

2) When was the term first used metaphorically with reference to debts?

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    I strongly suspect that "haircut" had a general figurative meaning, in and out of finance, before it "settled" on that specific meaning. It's not hard to envision a haircut as being something short of having your head cut off. – Hot Licks May 23 '15 at 17:51
  • OED records the noun/adjective form from 1832 Chambers's Edinb. Jrnl. 1 60/2 - The announcement ‘Hair-cutting rooms’ in the window. So the "literal" usage isn't quite as recent as it seems. I never saw the "financial" usage until a decade or two ago, but apparently it goes back to at least the 60s. – FumbleFingers May 23 '15 at 18:01
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    moderngent.com says that shaving history takes us way back to the Stone Age, around 100,000BC, when Neanderthal Man started first pulling hair from his body, so it's not like the ancient Romans were the first to think of it. – FumbleFingers May 23 '15 at 18:10
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    @FumbleFingers - I think that the "Roman" haircut cited by etynomline actually refers to a proper, stylish cut of one's hair, (similar to what we mean today) not simply cutting one's hair, something, which obviously as you pointed out, men have done since the dawn of time. – user66974 May 23 '15 at 23:06
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    shave is frequently used metaphorically to mean removing small amounts of something. It seems pretty natural to extend this to haircut for larger amounts. Good luck finding the origin of common metaphors like this, they generally arise organically. – Barmar May 24 '15 at 11:08
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+100

According to the following article by William Safire of The New York Times:

  • The metaphor, (is) probably based on the weakening effect of the biblical Delilah’s shearing of Samson’s invigorating mane.

The earliest reference he could find was in 1955:

  • J. Sinclair Armstrong, chairman of the Securities and Exchange Commission, told the Dallas Security Dealers Association on Nov. 1, 1955, about rules to “provide more stringent standards in valuing the broker’s assets. . . . These are the so-called ‘haircut’ provisions” . . .
  • Safire attributes this information to Ben Zimmer of www.visualthesaurus.com. Zimmer tweets that this attribution is correct, but the link to his research is dead.
  • I wonder where Safire gets that idea from. Conversely it's easy to see "haircut" as meaning "a little off the top", and to extend that to "a lot off the top", a euphemism for beheading. A "70% haircut" as quoted in the question would refer to cutting off everything above about the knees. – Chris H Jun 3 '15 at 10:01
  • @ChrisH - I think it is an interesting assumption, here the issue is a cut (a reduction of the length or of the size of something) and hair has a 'symbolic' meaning derived from somewhere IMO. I don't think it has much to do with beheading. – user66974 Jun 3 '15 at 11:13
  • @Josh61, I don't think it has much to do with beheading either. But I don't find a metaphor based on a furtive act by someone with no power to weaken someone strong particularly relevant to the case of a government or other strong body openly exercising power to remove property from someone with less power. This is why I think something equivalent to "top-slicing" is more likely. There's something recurrent in this type of metaphor though -- we also have scalping. – Chris H Jun 3 '15 at 11:20
  • @ChrisH - actually haircut is something that creditors usually have to accept ( as in the case of Greece) , not something imposed by power on a weaker subject. In most cases it is an unavoidable consequence, like making real numbers reflect reality. (Having your long "powerful hair" cut against your will is where the metaphor fits) – user66974 Jun 3 '15 at 11:26
  • @Josh61"Have to"=="Imposed" in my reading, and someone has to do the imposing. There are often other possibilities that have been ruled out or exercised before the haircut is imposed anyway -- refinancing at a lower interest rate/longer term in which the creditor still has a hope of recovering the principle; the creditor taking ownership of (assets of) the debtor, etc. Saying "make real numbers match reality" means you are accepting "reality" as defined by (in the Greek case) the more powerful creditors -- and their "reality" is politically-defined. – Chris H Jun 3 '15 at 12:06
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Hair inflates the appearance of the body, especially if it is dressed (hairspray, teasing, brushing). Hair makes the body more appealing and lends itself to vanity.

Envisioning a (significant) haircut, one is confronted with the loss of substance, body, and appeal.

Although I cannot identify the original usage, I believe this is why usage of "haircut" in financial speak remains.

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