They were liquid. They could sell the $80 bill or so of bonds they had quickly and at fair value. Their problem was selling forced them to face the reality that they'd lost $12 or $13 bill on a wrong way interest rate bet.
Under that interpretation nearly everything is liquid.
If you’re going to take a loss by selling an asset prematurely, it is illiquid. Otherwise you’d have to say things like the houses people own are liquid because the person could sell it in a day if they were willing to do so for 80 cents on the dollar.
That is not the financial world’s definition of “liquid”
Things one can sell at fair value in a few mins are liquid, and things one has to sell slowly or take 80 cents on the dollar to get rid of it fast (like a house in your example) are illiquid. It's a function of buyers and process, not my accounting treatment or tax treatment or whatever other treatment might make me not like the idea of selling right now.
What's next? The FX markets aren't liquid because I don't feel like realizing a gain from a tax perspective?
>> That is not the financial world’s definition of “liquid”
Taking 80 cents on the dollar == illiquid is exactly the point I was making. Selling quickly is a necessary but not sufficient condition to meet the definition of liquid. That 80 bil in bonds isn't liquid if they had it on the books as hold-to-maturity and took a haircut to sell it early.
>Yeah, it is, to us in the financial world.
I get the feeling we're talking around each other, your response indicates that we (probably) agree, and I'll assume it was my own communication failure, so I won't otherwise remark on this snarky & somewhat inaccurate (in its implications) comment.
I said nothing about profit. I can sell my house today, yet houses are one of the prototypical examples of something that is illiquid. The ability to sell something fast is not the definition of liquid. Liquidity is specifically the ease (or difficulty) with which you can sell something without taking a haircut.
