Insolvency

Understanding fraud, and bad economic theory

Someone is insolvent if they don’t have enough assets to pay all of their liabilities.

It means that, as things stand, someone else won’t be receiving what they’ve been promised, and their true raw net worth is therefore lower than they believe. They will have to write off the debt without getting anything in exchange.

An insolvent debtor’s debts aren’t what they appear to be.

Insolvency is at the heart of many frauds, such as Ponzi schemes. And theories of economics which ignore insolvency will come to wrong conclusions. We’ll explore all of this in upcoming articles.