4 ms·

> if you could have valued their government bonds at face value rather than market value, they had plenty of money that is not technical definition of insolven

> if you could have valued their government bonds at face value rather than market value, they had plenty of money that is not technical definition of insolvency. if you can cover your debts but need time to do so, thats the definition of being illiquid, not insolvent. my understanding of their books is that they could not cover their debts. the change in market conditions drove down their bond portfolio to the point of insolvency.

carnitine 4y ago
Under your definition they can just hold the bonds to maturity to be solvent.
- itsoktocry 4y ago
  But you can't "just hold to maturity"; you are obligated to pay back deposits on demand.
  - carnitine 4y ago
    Obviously not in reality, but their (wrong) definition refers to ‘time to do so’.
    - kryogen1c 4y ago
      >> time to do so, thats the definition of being illiquid, not insolvent. i said time is about liquidity, not solvency. i never said gaining money in the future makes you solvent in the past.
taeric 4y ago
There is, of course, a complication here. If they had the option to take loans against their bonds at face value, there is an argument they would still exist. And that option is now on the table for everyone that didn't get shutdown. Per the news over the weekend. Granted, I think there is also a strong argument that shutting them was as much to stop the ability for the run to continue? Such that even with that loan option (that, again, didn't exist last week), something had to stop the run.
jjeaff 4y ago
Are you sure about the technical definition of insolvent? Any definition I can find defines insolvent as the inability to pay debts as they come due. Insolvent is when your current liabilities exceed the current market value of your assets. Otherwise, one could remain forever solvent by simply putting $100 into a total market index. Sure, I owe $1m right now, but in 1,000 years, my $100 will be worth more than enough to pay off the debt.
- labster 4y ago
  Under this definition, every non-central bank would become insolvent if subjected to the same conditions as SVB. If you take away $42B in one day in withdrawals, every single bank no longer pay its debts to depositors. Which is fine but not all that useful. We know bank runs make banks fail.
  - AnimalMuppet 4y ago
    jeaff said: > Insolvent is when your current liabilities exceed the current market value of your assets. If I have a bank, and it's solvent (by jeaff's definition), and then it faces $42 billion in withdrawals in one day, then it's still solvent by jeaff's definition. It may be illiquid (unable to come up with $42 billion in cash in 24 hours), but the assets still exceed the liabilities. (Or, they might not even have been illiquid, if they could sell the assets at full price within a day.) So, no, your argument does not disprove jeaff's definition.

carnitine 4y ago

Under your definition they can just hold the bonds to maturity to be solvent.

itsoktocry 4y ago
But you can't "just hold to maturity"; you are obligated to pay back deposits on demand.
- carnitine 4y ago
  Obviously not in reality, but their (wrong) definition refers to ‘time to do so’.
  - kryogen1c 4y ago
    >> time to do so, thats the definition of being illiquid, not insolvent. i said time is about liquidity, not solvency. i never said gaining money in the future makes you solvent in the past.

taeric 4y ago

There is, of course, a complication here. If they had the option to take loans against their bonds at face value, there is an argument they would still exist. And that option is now on the table for everyone that didn't get shutdown. Per the news over the weekend. Granted, I think there is also a strong argument that shutting them was as much to stop the ability for the run to continue? Such that even with that loan option (that, again, didn't exist last week), something had to stop the run.

jjeaff 4y ago

Are you sure about the technical definition of insolvent? Any definition I can find defines insolvent as the inability to pay debts as they come due. Insolvent is when your current liabilities exceed the current market value of your assets. Otherwise, one could remain forever solvent by simply putting $100 into a total market index. Sure, I owe $1m right now, but in 1,000 years, my $100 will be worth more than enough to pay off the debt.

labster 4y ago
Under this definition, every non-central bank would become insolvent if subjected to the same conditions as SVB. If you take away $42B in one day in withdrawals, every single bank no longer pay its debts to depositors. Which is fine but not all that useful. We know bank runs make banks fail.
- AnimalMuppet 4y ago
  jeaff said: > Insolvent is when your current liabilities exceed the current market value of your assets. If I have a bank, and it's solvent (by jeaff's definition), and then it faces $42 billion in withdrawals in one day, then it's still solvent by jeaff's definition. It may be illiquid (unable to come up with $42 billion in cash in 24 hours), but the assets still exceed the liabilities. (Or, they might not even have been illiquid, if they could sell the assets at full price within a day.) So, no, your argument does not disprove jeaff's definition.