You are correct Vertical1 - things that have a deep market ( lots of buyers) and can be converted into cash quickly at or near their prevailing value are considered liquidOriginally Posted by vertical1
This covers assets like gold, stocks and bonds sold on major exchanges, money market funds etc. The latter being considered one of the most liquid as it can be sold at face value almost always.
However, in a serious meltdown such as 2018, only cash in hand can truly be considered liquid in the sense that it is worth its face value and you do not need a market as you already hold it. Other, normally liquid assets, most probably will have a ready market still, but at a very expensive discount. Note even assets that hold up in this environment, may be sold first, thus driving their discount up, in the panic to raise cash.
Markets(people) can become quite irrational given enough fear. ( and greed going the other way)
Here is an example of one of the most liquid of investments becoming illiquid in the right circumstances.
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Anatomy of a Meltdown
The Reserve, a New York-based fund manager specializing in money markets, held $64.8 billion in assets in the Reserve Primary Fund. The fund had a $785 million allocation to short-term loans issued by Lehman Brothers. These loans, known as commercial paper, became worthless when Lehman filed for bankruptcy, causing the NAV of the Reserve Fund to fall below $1.
Although the Lehman paper represented only a small portion of the Reserve Fund's assets (less than 1.5%), investors were concerned about the value of the fund's other holdings. Fearing for the value of their investments, worried investors pulled their money out of the fund, which saw its asset decline by nearly two-thirds in about 24 hours. Unable to meet redemption requests, the Reserve Fund froze redemptions for up to seven days. When even that wasn't enough, the fund was forced to suspend operations and commence liquidation.
It was a startling ending for a storied fund, and a sobering wake-up call to investors and the financial services industry. It focused attention on the credit markets, where a full-scale credit meltdown was in progress, with commercial paper sitting at the epicenter of the debacle.
Commercial paper had become a common component of money market funds as they evolved from holding only government bonds—once a mainstay of money market fund holdings—in an effort to boost yields. While government bonds are backed by the full faith and credit of the U.S. government, commercial paper is not.
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