Skip to main content

Curing The Liquidity Solvency Crisis

  • Author:
  • Updated:

We have pointed out a few times that identifying a liquidity crisis and distinguishing it from a solvency crisis is something like an essential precursor to develop and execute a rescue plan (or to adopt "Plan B" if the first rescue plan fails to return the country and its many mistresses to the style to which they have grown accustomed).
Forgive us for nitpicking, but either market actors are so beyond reliable or rational function that they cannot bear price discovery, or solvency and liquidity are in equal measure gummed up all through the works.
"Quietly" injecting $650 billion of cash into the system, as the Fed decided to this week, may delay total chaos and prevent cats and dogs from living together before Easter, but it doesn't solve the basic issue faced by most (heavily leveraged) finance institutions: their liabilities may well significantly exceed their (still deteriorating) assets. As if that's not enough, almost no one knows how long and to what degree insolvency has been sloughing rotten skin off all over the new industrial ply carpet in various regional banks. Hopefully, this will limit the egg-splash to the first two rows around the dohyo, but certainly there is going to be some breakage. Here's hoping one of the wrestlers doesn't teeter over into the spectators.
Fed Pumps Further $630 Billion Into Financial System [Bloomberg]


Bernanke: Financial Crisis Era Execs Should've Been Fitted For Orange Jumpsuits

The former Federal Reserve chairman wouldn't have gotten involved in the handcuffing but he *would* have happily watched from a squad car as, for example, a guy whose name rhymes with Mick Tuld was escorted from his home.

Not a Visium employee but could be. (Getty)

Liquidating Hedge Fund Not The Best Source Of Job Security

Visium Asset Management is preparing to say some tough good-byes.