Bailout 1: Liquidity vs. Solvency

. . . . . . . . $ 80,000 from the bank. Another, worth $ 5,000. I don't directly own it. Your obligations. In the next video series, I'll try my best My best to clarify Global crisis and rescue So I will try to explain more different concepts Out of the way. I hope I can communicate the idea. But the big picture is actually that there are a lot of technical terms The flowery is present in this frame but the concept is folded Underneath it is actually evident. So to start, we start with an idea Balance sheet And you can see some of the old videos that I made Ahead, all the money issues off the balance sheet are all It gives you a good introduction, but review it here Do not harm us.

The balance sheet is a glimpse of what is yours And what is on you and the difference between them, The difference between them can be expressed in your wealth. If you create a personal balance sheet, I can write my possessions It means what you think it means. These are things that will benefit you in the future. Let's say I have 1,000 dollars in cash. And I have a house worth 100,000 dollars. Let's say I have a $ 10,000 car. Let us call everything else under another name, Furniture, TV and everything This will be my property.

So what is my total possessions? It will be 101,000, 111,000 and 116,000. Well, it would be great if we lived in a world of who Property only. Unfortunately, let's say Ali Responsibilities too. So responsibilities. A responsibility or obligation is what you think it means. It means that something for which you give interest Future economical. That is, as if you are hung up on it. And let's say that my responsibilities and obligations are $ 20,000 Study loan. Let's say that unfortunately home Let's say I have to mortgage the house at a value $ 80,000, so basically I borrowed Let's put some credit card debt here. Let's bring it closer to the reality that many of us live in Families, let's say it's 5,000 dollars Of credit card debt, although in some households today, The debt is more than that and the mortgage is much bigger. But anyway, I will not make any social comment. This is just to explain what a balance sheet is. So what's left for me? What is the outcome of my property minus my responsibilities and obligations? Let's calculate our total responsibilities.

That's the total property. I'm going to use a colon. What is my total liability? 20 plus 80 plus 5 equals $ 105,000. 105,000 total liabilities. The difference between these two, my property is minus My obligations, it is my total wealth. If I liquidate everything tomorrow, if I sell All this and paid for all this, then that's all What will be left for me. This is my total owed. Or you can see that as my class You often hear the word share in the context of homes. In the context of talking about homes are the property of the home Minus the responsibilities but i'm talking about context in My own balance sheet, not meaningful That these are real numbers. I don't want to reveal much about my personal life, not now. But anyway, what is the number here? My share, and I'll do it green with what That is a positive sign and a good number. My stake is $ 116,000 minus $ 105,000. What is that? Equal to 11,000 dollars.

This is my share. There are a few things to think about here. You will meet people who own homes that are worth $ 100,000 or $ 1 million They say they owe a million dollars. But in fact, your dues are not a million dollars Except in the event that you own the house directly You can actually sell the house for a million dollars. It is not what I paid for. It is what the market intends to pay you for. But your actual receivables are your possessions minus each In this case, your total owed is in fact 11,000, not $ 116,000. This is another important thing that you have to think about. Property equals liabilities plus cash. This comes from the definition of the stake. The stake is the property minus the liabilities. If I took a mortgage, they'd write it to look As a mathematical equation, but it is the statement that property equals obligations Plus the quota But it approximates the definition It will be true. What can we do with this? How does this help us? Well, there are many ways to think about this. First, what happens if I become my liabilities More than my property? If I owe the world more than the world owes me? Well, that number would be negative.

And if this number is negative, there is no reason Really good for keeping records My account, but despite that, if we take it out Out of the equation, there wouldn't be any reason for me to complete Life. If my obligations are more than my possessions, let's think about This situation. Let's say my house is only worth $ 100,000, however For some reason, he owes the bank $ 120,000. Let's say I originally bought the house Without a down payment of $ 120,000 And now I'm being true to myself. As if the value had fallen off. It is worth $ 100,000 now. You're in a position you can say it's turned upside down In my mortgage. Well one, I have no motive To continue the payment process for this home. And even more so, if you look at my balance sheet, What will be my obligations now? My liabilities will be 145,000 dollars. My share will be my property minus my liabilities. So 116,000 dollars minus 45,000 dollars, is that what? Negative $ 29,000. I'll do it in red. This is a bad number for your share.

In this situation, I have no reason To continue living the way I live, at least financially. As long as you are breathing, there is no reason To keep breathing. But you won't want to go on living like that any longer. There is no objection to looking for bankruptcy protection And bankruptcy protection is an acknowledgment of inability to pay, Which means there's no way I can Solve all my obligations. The courts protect me. My city will not be able to pursue me.

Everything will be erased. They will take all my possessions and all my obligations And they will take it and they will share it People to whom I owe. This is bankruptcy. This is the inability to fulfill. And I want to focus on the word (inability to fulfill) because it is A word we will use when talking about The credit crunch. It is the opposite of liquidity So what is liquidity? Being unable to fulfill means you have no reason to continue With this kind of financial situation. You are broke. I get bankruptcy protection. This is the inability to fulfill. Liquidity is a different position. Liquidity says no, I say In fact, I have a positive share. So let me go back to the original conditions. It was actually a $ 80,000 mortgage on the house.

So my liabilities were only $ 105,000. And I have a positive stake of 11,000 dollars. So this is no longer an inability to fulfill. I will explain what liquidity means to you. Or me, in this case because This is my balance sheet. Let's say my wife came to me and said we need To pay for our children's lessons. It is about 5,000 dollars for next year. I have to pay $ 5,000 tuition fees. In fact, let me take a better position because it is If you talk about tuition fees it will appear on the side Obligations. Let's say I have to pay $ 5,000 down payment. For my study loan. I have a strange student loan, so that's where you come $ 5,000 all of a sudden.

I have to pay $ 5,000 for my student loan. Let me do it in red. Paying $ 5,000. It could be anything, but let's say it covers Part of these obligations. If you look at my lot, if I look at my property, minus My obligations, I'll get 11,000 dollars. My dues are $ 11,000. And if I managed to monetize my property Overnight, all of my obligations will be left with $ 11,000 in cash and so I'll pay $ 5,000. In fact, during the course of that process I'll pay The 5,000 dollars.

But in these circumstances, if you look at my situation, Let's say that the student's loan payment is due tomorrow. And I have 1,000 dollars in cash. I only have $ 1,000 in an account Checks So I can't pay the 5,000 dollars with the cash I have. So I look at everything else, and I'm the boy that I can Getting rid of one of these properties overnight? Well, home, of course not. There is no way to be able From getting rid of my house tomorrow. Maybe someone will buy it for 50,000 dollars Tomorrow, but that won't help me. My share will be negative again. This will not help. I can sell my car overnight.

I might sell it very cheaply, like $ 4,000. Just to be able to pay the installment owed, but I don't want to To do it too. The same is the furniture you will have to take to Craigslist is taking pictures of him. You cannot do that. So this is a place where You have a shrinkage crisis. You have liquidity, but you are not unable to fulfill.

You have a positive gross receivable, assuming you are Don't lie about what's going on in your budget. This is another matter. How can you overcome such a liquidity crisis? Well, someone can give you – we call that Bridge loan because they give you a financial bridge From here to wherever you want to go. Or they give you a bridge And basically they buy your time. Let's say your dad said okay I'll give you $ 5,000 in a two-month loan. During these two months I expect you to find Another source of material income. Maybe sell your car, buy a cheaper car, sell some of the Furniture or something.

This is a loan to prevent the liquidity crisis. This loan wouldn't be a bad idea because This person isn't lying about their balance sheet, or I don't lie about my balance sheet So the money is good for me. With the other hand, the loan would be a bad idea if I had it Inability to fulfill it would be a throw Bad money. I can't pay current loans, and you give me Another loan that I cannot pay off Anyway, I'm out of time See you in the next video.

test attribution text

Add Comment