Friday, November 18, 2011

Isn't It A Solvency Crisis?

FLG doesn't understand why people are referring to the issues in Europe as a liquidity crisis. Seems to FLG that this is focusing on the trees, not the forest. Yes, the proximate issue is liquidity, but isn't the more fundamental issue that banks are at risk of taking haircuts on sovereign debt? Therefore, the value of their capital is in question. That is a solvency, not a liquidity issue.

1 comment:

Anonymous said...

Liquidity is the road down which the can gets kicked.

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