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That is not what insolvent means though. There is a difference in not being able to pay back depositors bc you gambled it away on magic beans vs it’s tied up in safe bonds. In both situations you can’t satisfy depositors immediately, but they’re otherwise very different.

For one thing, people buy companies that are insolvent, eg svb, they don’t buy magic bean farms, eg ftx.

The money is not tied up in bonds. Because those bonds are liquid and can be sold on the market in exchange for dollars. And when depositors ask for their money the bank is forced to sell those bonds at a big loss to get dollars. That results in assets < liabilities. Which is insolvency.

All the small banks are going to face this problem.

If you're willing to close your account with payment in bonds that mature in 8 years sure, if you're looking to withdraw cash, no.

There is that economic adage attributed to Keynes: In the long run we're all dead.

If you need money but your current assets in whatever form can't furnish that fund for you, I am afraid you're broke.

So you're saying having zero money is equivalent to having future money that can be borrowed against in the present?

Obviously the latter is not as good as just having money. But it's clearly better than the former.

Therein lies the difference between solvency and liquidity problems.

Not at all, my point is to avoid fancy words like "solvency" and "liquidity", they blind you to the basic fact that if you need cash today and you can't get it then you're broke.

Whether you have assets that *you* believe you could draw on in the future doesn't matter when your need is immediate.

You say blindingly fancy words. I say important difference.

You say basic fact. I say oversimplification.

We can argue about the semantics of the word "broke", but the difference here is between losing all your money vs. having to take out a loan now that you're pretty much guaranteed to be able to repay when your bonds mature and only losing the interest payments on that loan.

But here's the the bugger: Folk don't give you loans when you're insolvent.

That's why it's so much better to be illiquid! :)

No, it's absolutely a solvency issue.

A 2023 USD is not the same thing as a 2043 USD; those are difference currencies with an exchange rate. (That'd be nice, but we've collectively agreed a little inflation is good.)

Liquidity is a logistical issue.

Solvency is a value issue.

You cannot with a straight face say "It's just a liquidity issue......that lasts many years."