Financial markets depend heavily on the concepts of liquidity and marketability. But these two market dynamics no longer function as they once did. Failure to understand the true underlying constraints on liquidity and marketability when it comes to large blocks of assets can lead to serious miscalculations.

During the early post – World War II period, liquidity was understood to encompass readily convertible assets such as cash on hand, holdings of Treasury bills and commercial paper, and open lines of bank credit. But over time, firms and investors came to define liquidity in terms of a corporation’s capacity to borrow. In order to borrow, firms typically issued short-term paper, borrowed short term from banks, and had backup lines of credit.