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Comment by kryogen1c | Hacker News Reader

> People keep talking about how 'this is a solvency crisis because if SVB had to sell everything today, they wouldn't cover liabilities'

This is not accurate, and the inaccuracy is the difference between solvency and liquidity.

If svb had longer (ie weeks), they still wouldn't be able to cover their debts. Its not a matter of needing time to arrange buyers for their assets; their inability to pay isn't related to liquidity today or tomorrow, it's related to their asset's value. If they snapped their fingers and marked to market all their assets, they would be in debt because they're insolvent.

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> to pay isn't related to liquidity today or tomorrow, it's related to their asset's value

How do you calculate that precisely? That seems like a fuzzy distinction, considering that the value of things change over time.

> seems like a fuzzy distinction

Not really. Insolvency is by definition time independent. If you owe more than you have, you're insolvent. It doesn't really matter if you might make enough to cover the difference in the future.

In practice, you might get away with it if no one forces the issue upon you, but that doesn't change the math of whether or not you could pay your debts.

Liquidity is different. It is time dependent by definition. Some things take time to structure, deal, and sell. You can also get away with this in practice.

They can both have similar effects when they happen, but their causes are sharply different. I have a house I can sell to cover my mortgage, but couldn't sell it in less than a couple weeks or maybe even months. Illiquid but solvent.

Insolvency is a state of financial distress in which a business or person is unable to pay their bills.

If you think it is anything else you are just being an apologist.

> Insolvency is a state of financial distress in which a business or person is unable to pay their bills.

This isn't true. If you eat at a restaurant but forget your wallet, you can't pay your bill but you're still solvent. You have assets to cover your debts. "Can't pay your bill" is too broad a statement to be meaningful. There are many complicated financial instruments and needing time to make a payment doesn't automatically make you insolvent.

However, if SVB had EVEN longer, say, 10-15 years, they would have been fine, right?

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