What is a Lame Duck?

Lame duck is an out-of-use British term used with reference to a trader who had defaulted on their obligations or gone bankrupt due to an inability to cover trading losses.

Key Takeaways

  • Lame duck was a British term used to describe members of the London Stock Exchange who were unable to meet their claims on settlement day.
  • Such traders were described as lame ducks because they waddled out of the exchange alley.
  • A lame duck could not trade again until all their debts had been settled and paid.

Understanding Lame Duck

The phrase "lame duck" can be traced to the London Stock Exchange. A member who was unable to meet their claims on settlement day was described as a "lame duck" and would lose their membership on the exchange.

One of the earliest recorded uses of "lame duck" appears in A Classical Dictionary of the Vulgar Tongue, published in 1788. It describes a "lame duck" as an "Exchange-alley phrase for a flock jobber, who either cannot or will not pay his losses, or differences, in which case he is said to waddle out of the alley, as he cannot appear there again till his debts are settled and paid; should he attempt it, he would be hustled out by the fraternity."

The image of a financially injured trader waddling away from the exchange helps to illustrate how this colorful phrase came into usage. The terms bull and bear date from the same period.

The term "lame ducks" often appeared in newspaper accounts from the time, particularly when the market suffered losses. For example, this account recorded on July 19, 1787:

The Stock Exchange has not exhibited for these many years, such a scene as took place there this day, on the settling of accounts: there were no less than twenty-nine lame Ducks waddled out of the Alley! Their deficiencies amount to two hundred and fifty thousand pounds. 

Eventually, "lame duck" found its way to the United States, where it first became a descriptor of an underfinanced business scheme. It has also described a politician who is ineffective, has chosen not to seek re-election, is ineligible to run for office again or has lost an election but is still in office until the election winner takes control of the office.