you added an adjective to the term :-) Yes you can call them insolvent if you want to, but it doesn't mean anything if they can still pay their debts. If the number keeps going down it is certainly a problem, but if it heading back up it is fine.
The housing crisis is a perfect example of this. It only became a problem for people who bought more house than they could afford with hopes of selling at a moments notice. My house was as much as 50k underwater (going based on foreclosure sales of identical townhouses) during the crisis. Fortunately, I didn't buy more house than I could afford. I could easily continue to pay my mortgage each month and was never anywhere near bankrupt. I sold the house recently for closer to 10k loss. Was I insolvent when the house was down 50k? No.
[1]Cash flow insolvency involves a lack of liquidity to pay debts as they fall due. Balance sheet insolvency involves having negative net assets—where liabilities exceed assets. Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency.
> If your assets are worth less than your liabilities, you're technically insolvent.
Which you disagreed with. It's a literal, factual statement though.
> Yes you can call them insolvent if you want to, but it doesn't mean anything if they can still pay their debts.
It actually does mean something in corporate finance.
> Was I insolvent when the house was down 50k? No.
Stop comparing corporate finance to personal finance, they aren't remotely similar. The only reason that the phrase "Technical Insolvency" exists is because there are consequences if companies breach that threshold.
From the Title 11 of the US Bankruptcy Code[1]:
The term “insolvent” means—
(A) with reference to an entity other than a partnership and a
municipality, financial condition such that the sum of such
entity’s debts is greater than all of such entity’s property,
at a fair valuation
This isn't just parsing terms for fun, contract law relies on US Federal code, which has definite consequences for insolvency. All commercial loans come with a plethora of 'loan covenants' that mandate certain actions based on a company's health. Common covenants include coverage ratios, debt/equity ratios, times-interest earned ratios, etc. Technical insolvency would've breached many, many covenants.
If a loan covenant is breached, the debt-holder can demand additional collateral and in some cases, they can demand full repayment of their outstanding debt. At the time, GE had ~$90B in cash/investments and over $300B in current debt. A fire-sale on those assets to pay off that debt load would have killed GE.
The housing crisis is a perfect example of this. It only became a problem for people who bought more house than they could afford with hopes of selling at a moments notice. My house was as much as 50k underwater (going based on foreclosure sales of identical townhouses) during the crisis. Fortunately, I didn't buy more house than I could afford. I could easily continue to pay my mortgage each month and was never anywhere near bankrupt. I sold the house recently for closer to 10k loss. Was I insolvent when the house was down 50k? No.
[1]Cash flow insolvency involves a lack of liquidity to pay debts as they fall due. Balance sheet insolvency involves having negative net assets—where liabilities exceed assets. Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency.
[1] http://en.wikipedia.org/wiki/Insolvency