"If you think about a security that is bought on margin," Summers explained during a speech early last year, "when its price goes down there are margin calls which force liquidations, and more of it is sold.
In America, during the savings-and-loan meltdown of the 1980s, the Resolution Trust Corporation recovered as much as possible by forced liquidation.
For the firm to recommend that its customers sell would have forced liquidation of funds that owned mostly illiquid assets, making things that much worse.
Distressed or forced liquidation sales are not orderly transactions, and thus the fact that a transaction is distressed or forced should be considered when weighing the available evidence.
Nick Reilly, the president of G.M.'s European operations, said that the move was not a bankruptcy or forced liquidation, so he expected Saab to pay its debts, including those of suppliers.
Companies get less value from equipment than real estate because, unlike real estate, equipment depreciates over time, and lenders tend to value it at what is known as forced liquidation value, a lowball price based on what it would fetch at auction.
Stocks staged an unimpressive rebound yesterday from their recent pummeling, giving up much of hefty early gains in a session marked by more warnings of profit disappointments, continued forced liquidation of shares bought on credit and year-end maneuvers to cut tax bills.
For example, forced liquidation might occur if mark-to-market impairment is greater than 50%.
All this suggests that forced liquidation was a factor in the market's demise but that the worst may be over sooner rather than later.
Maybe, this letter is the real reason Wall Street had the discretion to value hard-to-value structured finance products in Level 3 of their balance sheets if the consequences were effectively a forced liquidation or a distress sale.
