Bailout 1: Liquidity vs. Solvency

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Review of balance sheets. Difference between illiquidity and insolvency.
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[@JSGuitar80]

I love the internet! I can get an education for $0.00. Thank you Sal!

[@PunmasterSTP]

More than a decade later, those are my thoughts exactly!

[@rogerssteve7946]

Absolutely right brother

[@chrisumbel3132]

LOLed at "There's no good reason for me to continue living this existence."

[@StijnHmrAwesome]

"As long as you're breathing, these's no reason for you not to continue breathing." -Salman Khan, 2008

[@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.

[@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.

[@poiuwnwang7109]

I have wathed the entire bailout series, it's great! Sal teaches by story telling, which makes it 1) more fun to learn the stuff, 2) more realistic, and 3) it gives some degree of intuition

[@PunmasterSTP]

Liquidity? More like "This has got to be"...one of the best videos on the topic. Thanks again Sal!

[@dagmarsudikova2772]

Love you! You saved my sanity because of terrible bachelor thesis. Finally understand liquidity.

[@theprutsert]

Had a two-hour lecture on this, didn't have a clue afterwards. Watched Sal's 11-minute video and I get it!

[@PunmasterSTP]

Hey I just came across your comment and was curious. How'd the rest of the class go?

[@theprutsert]

@@PunmasterSTP passed it! I have actually graduated in the meantime

[@PunmasterSTP]

@@theprutsert I'm really glad to hear that! If I might ask, what have you been up to since graduating?

[@evanstafford55]

Great way to learn basic economics.

[@madhu8786]

Excellent video

[@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.

[@CatalinEremia01]

You should review your definitions of assets and liabilities. Your house is not an asset. Your car is not an asset. They are liabilities.

[@Sankofa00]

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

[@dwijesh009]

thank you so much

[@NasVideo]

Brilliant video

[@rainniwkw]

Thank you very much for your video

[@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

[@PoweredMinecart]

good video

[@pittsfield5726]

A sudden $5k payment on a student loan would never occur unless you defaulted. A more realistic scenario I think would be an ambulance. Something really bad happens and you, or a loved one, winds up in hospital with a $5k medical bill. The logic would still work with the numbers provided, it would just be something that can actually happen.

[@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.

[@Pskawt]

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

[@thesindit]

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

[@IronEdDo]

your awesome.

[@ThePeterDislikeShow]

@cataeremia do you read Rich Dad Poor Dad?

[@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.

[@ivanzayas1945]

great video like always! specially the "your dad" part LMFAO

[@jching3868]

Sir, I learn a lot from you, May I ask what your name so I can address you properly. Thank you very much! Please keep doing what you are doing. Thank you!

[@ihofaerefa]

damn, this guy is smart...

[@elbi2347]

According to Robert Kiyosaki all that you mention in the assets list are liability, but to a bank yes they are assets.

[@VickiBee]

It's fancy for me. I don't understand most of it and it's almost definitely b/c I haven't owned most of it. I never owned my car; First National Bank did and I paid the bill monthly. I think it was the bank that owned it. They're the ones I made the financial plan through.

[@convexity4787]

Is a wife an asset or a liability?

[@hacker010010101]

both depending on the time

[@samymohamed6617]

liability because it takes some money from your pocket to keep her

[@serviosilver9440]

Parry Hotter it's a pleasure because you spending and does not hold value.

[@Ed-sz3wq]

That seems like an easy question. But you actually have to realize that a wife consists of multiple assets and liabilities. It's like a bank. The problem is you loaned all your money and assets to this bank. Sure you might get some nice returns in the mean time. But when times get rough not many of them are going to pay you back all your money. You can sue them but women and banks never lose lawsuits. The worst part is that with a wife, you sign a legally binding contract to use only her for the rest of your life. Good luck getting out of that contract. In the long run, it's definitely a liability. TL:DR: Don't get married.

[@broadeningwedge]

What's her IG?

[@masterchief9064]

how can you determine an asset mix from looking at a companys balance sheet?

[@ArmandoBlue]

Tony Di assests would be property and buildings

[@troylegacy7156]

im here because of SVB and Signature bank bailouts😄

[@Nandine2]

wow just wow

[@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 ?

[@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.

[@ananiasacts]

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

[@MottyRuttner]

do you read comments here?!

[@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.

[@CatalinEremia01]

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"

[@CatalinEremia01]

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.

[@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?

[@texasray5237]

The house is not an asset. Your equity in the house is an asset. But if you bought during a bubble and the present potential selling price is lower than what you owe you really have no equity.

[@CatalinEremia01]

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...

[@orvipandey6706]

That's insolvency vs illiquidity not solvency vs liquidity

[@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.

[@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

[@Lelandbaptist]

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

[@dexterlecter7289]

Way too complicated for me :)

[@dejabu24]

I thought that Cars and houses were liabilities not assets

[@glssmrbl]

they depreciate over time so they can sometimes be referred to as liabilities. but anything that holds value is an asset.

[@Ed-sz3wq]

A car an asset. The loan you use to pay off the car is a liability.

[@ioanalexandrucucu1324]

This definition of insolvency doesn't make much sense to me. You could have negative equity, but if your return on assets is LARGER than the interest you have to pay on your liabilities then you could still pay off your debt and eventually reach a state where your equity is positive.

[@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.

[@imkaneforever]

someone read Rich Dad Poor Dad... you're not supposed to take everything literally.

[@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.

[@jjreilly2]

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

[@49fiori]

I am so illiquid I make fish thirsty

[@texasray5237]

No. Assets are not equal to the sum of Liabilities plus Equity. Assets are equal to the difference between Liabilities and Equity. The operation must be a subtraction, not an addition.

[@andrewcbuensalida]

Texas Ray wrong

[@sadudas11]

A=L+E E=A-L