Is there a reason why I can't, say, sell equity in my car to cover the shortfall? I have a vehicle worth $nK at purchase, so I'm also solvent, just with a liquidity problem.

It just seems like real cash and assets are valued less than financial instruments? Because they're More Future Money That We Expect To Exist compared to Less Now Money Which Actually Exists? I guess that makes sense but is also absolutely insane?

Again, correct me if I'm wrong.

You can - they are called pink slip loans.

The challenge with real assets is they are hard to value, and hard to sell quickly. Therefore the interest and fees charged are higher (also people prone to need short term loans using their car as collateral are also very prone to not pay these loans back).

These financial assets can be calculated, sold, more purchased, etc. in known quantities very close to instantly. Standardized financial assets are very easy to move or use in large quantities for these reasons. A 5 yr US Gov't bond is a known quantity.

I think parent meant at the rates banks get.

Which, arguably, should be a thing, so long as it's elevated in priority to the level of a debt to the IRS (i.e. can put liens on anything you own and garnish wages).

Similarly, if the Fed loans to these banks at a penalty rate -- presumably much more that regular risk-free loans like in e.g. securities a money market fund -- I wish the Fed would let people sign up for these programs so our idle cash could get lent out at that rate.

You car is not a very good asset from the bank point of view, so it's not going to be cheap. But the typical example is to draw on your mortgage, (equity release, i.e. reborrow a little more against your home). That's pretty much as cheaply as a consumer can get liquidity against an illiquid asset (home).

And that's pretty much what banks do with the Fed. They have assets that they get funding for from the Fed with a short term repo transaction. In theory the Fed takes very little risk on the transaction.

With credit cards you are typically getting a 0% borrow rate for ~30days, secures by your credit rating.

True, though it is paid by the high transaction fee paid by the seller.

You could always borrow money for lunch, secured by your car?

The thing about financial instruments is that they scale infinitely better than "real assets".

It's like seeing Amazon, Google etc. spend so much on cloud computing, and then asking if real computers are valued less than virtual ones.

You can in fact take out loans against your ownership of a vehicle, assuming you own it free and clear.

For assets whose ownership is more nebulous than an automobile you typically have to temporarily relinquish ownership of it to use it to secure a temporary loan, ie, pawn it.

> Is there a reason why I can't, say, sell equity in my car to cover the shortfall?

This is what a loan is. Look at the assets and revenue someone has and give them money if you think they can pay it back. You could reconstitute that situation as thinking of it as selling the equity in your assets and future profits and then buying it back in installments.

Companies try as hard as they can to minimize the amount of money just sitting around and not doing anything. They accomplish this with frequent short term loans that smooth out the noise in their cashflow.

You can sell equity on your home with Point (https://point.com/) but I'm not aware of the same thing existing for cars, probably because it's a comparatively small chunk of change, and cars just depreciate in value, whereas homes are supposed to appreciate. Instead you could use your car as collateral for a loan, assuming you owned it.

_Land_ appreciates. "Real property". Many homes are built on land, and either come with the land itself as a package deal (almost all standalone residential property is like this, in the UK it would be "Freehold") or is offered as a long lease with an inherent interest in the land (more common where multiple homes share footprint, in the UK "Leasehold" or the more modern "Commonhold").

The building doesn't appreciate, if you spend $5000 on home improvements or repairs almost invariably an honest agent will tell you the value of the building was only marginally increased by doing this, because it was never the building value that mattered.

Where people just own the building and NOT the land, "mobile homes" or "manufactured homes" depreciation destroys the value of the home relatively quickly, within a lifetime usually.

Primary reason is that property has a stable value as you said.

There is also another reason. In most jurisdictions a mortgage is a super senior claim. It is senior even to the taxman, which is very rarely the case for private debt.

Sufficiently advanced illiquidity is indistinguishable from insolvency.

It's really not. These situations:

1) Imagine you own 10 houses outright. Congratulations, you're worth $5 million dollars! You want to spend some of that on a boat, but it's not liquid fungible money, so you can't, not without some intermediary steps that inject liquidity into your situation. You're basically solvent, no bank owns a claim on you.

2) Now, imagine you "own" 10 houses, only they each have a $500,000 mortgage. You are worth negative $5 million. But it's okay! You rent them out, and generate enough revenue to pay the mortgages. Again, you're solvent.

3) Repeat #2, only without the rent revenue. You're insolvent.

This doesn't mean insolvency & illiquidity can't coexist, but one is not an extreme form, nor does it necessitate, the other. You can be insolvent but very liquid. You can be illiquid but solvent. You can be insolvent and illiquid (which is basically #3 above)

Yes, I understand that it's possible to be illiquid but solvent. I understand the concept of not being able to buy things with the house directly so you have to get a loan. I understand that those terms have different definitions.

My point was that, when the illiquidity is sufficiently advanced -- when you the actual ability to sell is far enough into the future, and the possibility of making a sale is increasingly dubious -- then those judgments of how much it's "worth" become likewise dubious, and the venture is more reasonably characterized as insolvent, because the unwillingness of others to buy means the property doesn't have a value that supports its status as sufficient collateral.

Also, in your example, assuming (which was the thing I was conditionally disputing) that the real estate really is worth the $5 million, you'd be worth $0, not negative $5 million.

It's negative 5 million because you don't own it. It is a debt, and debts don't count in net worth.

If it's a typical mortgage, the asset is normally counted toward your net worth.

You're right, I'm wrong, it's a debt that counts against you, but also an asset that counts for you, cancelling each other out (assuming market value of the home == mortgage amount)