Bailout 1: Liquidity vs. Solvency

[londonpie72]

Brilliant love your teaching style

[MrPEDOCTOR]

They spend it before the value of our dollar drops, that's the real reason your loaf of bread now almost costs $2.00.

[henoktg]

Thanks khan!!

[handsjumpman89]

assuming your not lying over your financial statement/balance sheet lol

[NasserMan]

Brilliant video

[teknashend]

BUT, if you were illiquid, and then say your debts were floating rate debts which increased rapidly due to rising interest rates, then you'd be doubly fucked cuz you'd find it hard to pay your debts, because you can't convert your assets to cash to pay off your creditors.

so therefore, liquidity isn't the same as solvency, but they are highly correlated. If you are solvent, then you must be liquid beacuse you have to have enough (cash) to pay shit off, but if u are illuquid, u can b solvent

[teknashend]

so this is the crux of MY argument: and please someone clarify and correct me:

so basically if you are very insolvent, you have more debts than you have assets, and you have negative equity, and you CAN"t pay your bills. BUT If you were somehow given LIQUIDITY, i.e. a bunch of cash, then you could pay your debts and theoretically become solvent again.

But just because you are illiquid isn't bad ( or as bad as insolvency, per se) cuz it just means u have way more hard-to-sell assets.

[49fiori]

I am so illiquid I make fish thirsty

[vickiormindyb]

Ryan, this guy who works w/ my friend, would scoff at a 10k car. He had an Aston Martin, yes...HAD. They lost it, I have no idea how, but I never heard of it until he casually mentioned that he had one and asked if I know what that is.

I said 'Well who DOESN'T know what one is.' Then after I was done talking to him I looked it up.

He's a jerk IMO. A not so humble opinion, but you don't know what limericks he tried to tell me.

[buzzz121]

Wow you are a typical broke ass American like the rest of us.

[vickiormindyb]

You got a hearty laugh from my friend who works w/ finances.

It was the phrase "There's a lot of fancy terms being thrown around, but the underlying concepts really aren't that fancy."

He loves that.

But then he's a native of New York City; never lived anywhere else tho, he's visited several other places.

New Yorkers like the direct approach. He sure does anyway.

[LandlessPeasantFuck]

Why dont they get this guy on mainstream media to explain this "financial crisis" withought using the technical jargon used to confuse the brainwashed public?

[MrMaveri]

@LandlessPeasantFuck I found this video good. The problem is that each industry uses it's own language. I don't think it's because they really want to confuse people but rather that the financial industry has it's own terms. Medical has their own terms, engineering has theirs, each branch of science has their own terms etc etc etc. Creating a universal language is a lot more difficult than people realise. What we need is more videos like this to help people understand the various industry speak

[LandlessPeasantFuck]

@MrMaveri yeah..I agree..i'm a little wiser since I wrote that last comment.

[Indutrial321]

Can you do a presentation on why all politicians are ass holes Sal?

[sonyse2t5]

I live in London, the government owns 1.4 trillion dollors! The country is illiquid.....

[EBDevilDog85]

It's not even our wealth, it's money that hasn't even been printed. It's just "POOF" there. They spend it before the value of our dollar drops, that's the real reason your loaf of bread now almost costs $2.00.

[Pskawt]

$2, I wish bread was $2. A loaf of whole wheat is like $3.85 where I live.

[alienmoonbase]

Obama is transferring the wealth of the working class to the banks.

They are now calling our homes "toxic assets"

If the banks can sell your house for 50% of its value to the federal reserve, why can't they offer you the same deal?

[JSGuitar80]

I love the internet!

I can get an education for $0.00.

Thank you Sal!

[lovecanadianmusic]

Actually the cost of internet access is nowhere near zero. computer + electricity + rent + internet access

Unfortunately most of the people who have zero money are probably not watching these great videos. Unless they're school is showing them or they are at a library or something.

[JSGuitar80]

Okay Mr.Stickler! heh

I can get a decent education for $23.00 a month. It's still a great and inexpensive resource once you learn to use it pragmatically.

[efh0888]

yes but what credentials does this give you? None. Hence, this is good for basic personal knowledge but nothing else.

[JSGuitar80]

True, but it's not really about the credentials for me. I already have a job I'm very pleased with (doesn't pay well, but ya know... c'est la vie).

This is just for me and it's good to have this stuff explained by a guy who's not such an obscurantist.

[kirtokosseamrica]

U.S. lack of manufacturing, military defeats, an expensive streched out military empire, too much debt by u.s. government and citizens, and wasteful consumerism lifestyle is not sustainable.

phony manufactured bubles can creat phony wealth, only for so long.

U.S. you have to give up your empire, and start making REAL things again that the world needs or wants.

OR GET READY FOR THE LOST DECADE

[acidkill]

well if we go out we're going out fighting, so where ever the hell YOU live, get ready for some nuclear fallout

[Capt777harris]

Quite possibly, but not entirely likely. It depends on whether Iran wants to challenge us in the Persian Gulf, or if some union of other countries see weakness in the US.

It's going to be interesting (perhaps deadly) to see.

[shaggydaplaya]

i have a question: if you become insolvent why must you declare bankruptcy? If we assume you are working so there is income coming in you can therefore pay off your loans in lets say 1yr, so for a while you can be insolvent but why file for bankruptcy when you can fix this problem in about a few months? also, what if the value of the house goes back up and you filed for bankruptcy? then you would be losing on that opportunity.

[missmitalik]

my dear, a comany files for bankruotcy when it can obviously see no recovery even for years to come with the current revenue streams. use a little common sense.

[taek4ma]

can i buy cars, houses...etc and change the ownership to someone else... then file a bankruptcy? ;)

[Telaco]

your awesome.

[hjfjhfgf4hjdfsjdfhd]

your the man sal

[shodan78]

cataeremia, you are right the house cost money therefore it is a liability and not an asset and that is probably why there is a sub prime crisis, people count a house as an asset therefore al the leveraging.

[ElecGem]

May i ask what software are you using to scribble on the screen? I appreciate it, thanks for your videos!!!

[ChamchaVideo]

go d damnit I m dead I calculate mine, it is minus (insolvency). Need fill bkrpcy as soon as possible. LOLZ No wonder

[bobzebulider]

WHO RATED LESS THAN 5!?!??!!??!?!?!

[vickiormindyb]

I'm sure your house is more than $100,000.

My friend's husband went to MIT, and he finished a 4-year course in three years. Then he got a Master's Degree in Computer Technology.

He makes a ridiculously large amount of money (of course I'm jealous), and his house is way more than 100,000 grand.

He's a nice guy too, like you.

[cataeremia]

You should review your definitions of assets and liabilities.

Your house is not an asset.

Your car is not an asset.

They are liabilities.

[khanacademy]

Wikipedia: In business and accounting, assets are everything owned by a person or company (all tangible and intangible property) that can be converted into cash.

[thesindit]

@khanacademy that's ok, but I will not completely use the definition given by wikipedia. What Benjamin Graham said about assets?

[MsSensitive123]

@khanacademy Ok, so Insolvency is when liabilities significantly outweigh assets. Illiquidity occurs when one has a positive Asset to Liability ratio, but an immediate outstanding debt can not be paid because the assets in question can not be liquidated with the expediency required?

[combuzz]

@MsSensitive123 I think illiquidity means that Current Assets are less than Current Liabilities but their total assets are more than total liabilities. Current assets would be assets convertible into cash within 1 year, this would include cash and securities which can be converted to cash within a year. Current Liabilities would be debt payable within 1 year, like a bonds face value is about to mature within the year or interest on bonds and other debt.

[lsyzygyl]

I own my car, it IS an asset.

[rockysimon2005]

It's a pretty cruddy asset. It loses value every year and in around 5 years, it'll be about a quarter of what it is right now if it's new.

[mongobobo]

The house is an asset, the mortgage is a liability, the taxes on it are a liability, the gardner fees are a liability, etc., etc.

What is hard for you to understand?

[cataeremia]

I just look in my pockets:

- assets put money in

- liabilities take money from

If you have a house, it is possible not to have a mortgage (not probable), or a gardener, but how about taxes?

Can you avoid taxes? Legally. :)

Very simple. My house (which I own) takes money from my account periodically (taxes, repairs etc.)

It's not wrong to own a house. But don't be fooled by what your banker says: "Your house is an asset". He's right. It's an asset for him, if you apply for a mortgage...

[mongobobo]

It is entirely possible and definitely probable to have a house without a mortgage. What are you talking about? I know people who put 50% down on a house and in 15 years will own it outright.

[cataeremia]

it's not impossible to own a house. i own the house where i'm living. the issue was about if you consider your house an asset or a liability ... and i can feel my house eating from my pockets :). that's why i consider it a liability.

[jjreilly2]

I'll make you a deal... since your house is a liability, I'll take it off your hands free of charge!

[cataeremia]

10x for the offer. i prefer to live in it.

i'm nor saying: "don't own liabilities".

i'm saying "be aware of what is and what is not a liability" and put into your balance sheet accordingly.

anyway ... "happy recession" and "good buy"

[flinagin]

@cataeremia Are you trolling...or do you really just have no idea what you're talking about?

[FortNikitaBullion]

@cataeremia do you read Rich Dad Poor Dad?

[andreamirelez]

I love these videos. Very informative. LOL The color green is a positive color lol

[benzlzhang]

Sal is a legend.

But the sad thing is, as now this video received only 1199 veiws, out of 300 million Americans! Its true, the hardest thing for the average ppl to do is to learn and think.

The poor and middle class in American is going to suffer big time, and their hard earned money is going to get squeezed out of them and TRANSFERED to the rich, bankers and wallstreet. Sad

[Nandine2]

wow just wow

[foolmotley]

Good work Khan, I have understand so much by not paying a single cent. How I wish I can keep these videos for my children. Please make sure these videos is around for the next twenty year. Thank you so much

[Sankofa00]

thank you1 i needed to understand this crisis in a more fundametal way and who better to teach it than you!

[tomwhiteoc]

Thank You for your explanation of this financial mess. I've been searching for something comprehensive like this for the last several days and this was just what I was looking for. Thanks so much for taking the time to do this, it helped immensely.

[imorerobot]

THANK YOU!

[pongman]

Thank you Dr. Sal. My daughter has to write a paper for American history regarding this mess Wall Street has put us through. Your insight and excellent explanation on this whole regard will make it easier to write this paper which is due next week. A thousand times thank you for your generous time and altruism. I wish your videos existed twenty years ago.

[rdulaney]

Can somebody PLEASE make all house republicans watch all of these video's so they can have a CLUE about what is going on!!!!!

Great work! I hope more voters educate themselves on this.

[YuriVolteHyuga]

It is sad to see, but the Republican party has turned into a cabal of fanboys led by inflammatory trolls. They will not see anything but what they want to see; they are brainwashed clowns.

[ananiasacts]

I wonder what part of this video inspired your comment.  What makes you see the author or information presented as democratic or republican?

[Ohm51]

Wow Khan, I only watched the CDO and this one so far and I just have to commend you for making this stuff intelligible.

You have explained stuff much better than anything that I have seen coming out of the MSM and that includes the print media.

Very Very Well Done my Friend.

[shiv86]

Insolvency occurs when liabilities is greater then the assets. iliquidity occurs when an entity cannot repay a portion of their liability which is due for payment because of inssufficent funds ?