J. D. Swampfox

America's Banks: Are They Really Insolvent?

An organization is insolvent when it cannot meet its obligations AS THEY BECOME DUE...NOT when its "assets are insufficient to cover its liabilities". The author points this out: "This means that strictly speaking having fewer assets than liabilities is not necessarily insolvency" As banks get to the point where obligations cannot be met as they become due, as is increasingly likely, with cash inflows declining as a result of defaults and impairments, the Gov't can step in and make up the difference as needed. The problem is the uncertainty --- how much will ultimately have to be contributed, over how long a time? I choose take the full write down now, even if it overshoots the amount ultimately needed. The other way means much less economic activity over the time needed to finally count the "last bean"...