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After FTX: Explaining the Difference Between Liquidity and Insolvency

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To be fair, it is not just crypto companies that say they are merely suffering from a “liquidity crisis” when they are actually insolvent. Traditional financial institutions are just as likely to say everything will be fine if only someone will lend them some more money. For example, RBS, the British bank whose disastrous collapse in October 2008 nearly took down the U.K.’s payments system, insisted it just needed more funding. But it eventually needed a U.K. government bailout costing some 46 billion British pounds (that’s $56.58 billion at today’s exchange rate, but the GBP/USD exchange rate was much higher in October 2008, so the USD equivalent then was about $69 billion).

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