Can somebody translate this for me? It sounds like sophistry and hand-waving to me. If my main problem is that I can't sell my stuff at a decent price, yeah I guess by one definiion that's a "liquidity problem", but if my stuff is in fact worthless, then I am in fact insolvent.
Let's say you needed to sell your house. If you absolutely had to find a buyer TODAY, it's likely you would need to offer a deep discount in price over what you might get if you could afford to wait 6 months for a buyer to come along.
Similarly with some of these mortgage securities that these places are holding: if they sell over a period of months, the market is more likely to accumulate buyers willing to absorb them, than if they have to unload a huge number this week