mark wrote:OK, I'll ask.
What's the difference between insolvent and illiquid?
My guess is insolvent is, you are broke; illiquid is you are not broke, but nobody wants to trade with you because there is not anything you can exchange that is mutually possible.
These would be my definitions as they apply through the ages. I would guess lawyers or regulators might have different definitions depending on the entity involved. In my estimation, when the FDIC is talking about unsound banks, they are talking about banks that are not well enough capitalized according to regulations.
If an entity is illiquid, it means all their assets and liabilities have been marked to market and the entity has a positive net worth but, at the same time, it has no liquid assets to provide on demand.
If an entity is insolvent, it means all their assets and liabilities have been marked to market and the entity has negative net worth. It could still be liquid.
Your questions was what I had in mind when saying that fewer than 1 in 100 could properly define solvency. I'm sure some can parrot what they read in the news, but if everyone went to work tomorrow and was told to take out a sheet of paper and write on it the difference between a bank that is insolvent and one that is illiquid, few could.
So given that only a few could do that, it's a great leap for the average person to come to the conclusion that the banking system is insolvent at the moment when the average person can't even define what that means. Plus, as anyone who has read the news knows, a lot of these assets aren't being marked to market and can't because there is no market for them. So I don't know how the degree of insolvency could really be determined before somehow unbundling all this derivative crap and putting it into a form where it can be sold off.
One more thing, they talk about too big to fail. If something is too big to fail, then in my opinion it was too big to exist to begin with. And if that's the case, it needs to be chopped up and sold off for whatever the market will bear.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.