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May 2, 2025- by Steven Greer
Holy cow. After 40 years, I finally understand an important concept in accounting.
I had a talk with a banker who mentioned how assets are financed by both equity and liability. It reminded me of a basic tenet of accounting that never made sense and has bothered me. I do not like to remember things. There has to be logic and reason to what I choose to store in my brain.
Assets = Liabilities + Equity
I never understood how a desirable thing like an asset could be the combination of both a negative thing (i.e., a liability) as well as a positive thing (i.e., an equity). It made no sense to me, and I do this for a living.
I was not only a finance major, but I got the highest score in my class on the toughest senior-year finance class. I then went on to do quite well in the equities analyst business on Wall Street. Yet I never understood this very basic accounting principal (accounting and finance are totally different animals).
I explained the above to Grok AI and it perfectly explained it to me. None of my completely useless human professors could ever do this. None of the people I worked with on Wall Street could either.
That equation of Assets = Liabilities + Equity is misleading, in my opinion. It is not saying that a desirable asset is also partly made up of a negative debt owed. The formula is stating that assets are financed by both equity and debt. For example, the asset of a home is partly comprised of the amount owed on the loan and the amount paid in as equity.
I think that the entire concept of an asset is poorly defined. There should be such a thing as a “partial asset” and a “whole asset”. I know. That’s what equities are, but in the English language we think of asset as the same thing as an equity.
It is not very intuitive to think of one’s asset as being a burden too. I suppose if you view the typical home structure, the mortgage is a major burden. However, everyone I know views their house as nothing but a desirable “asset”, as if it is all equity.
I wonder why assets are viewed as being synonymous with equity in our culture. An asset is really a bad thing to have if it is just a loan.
I wonder if this conflation of asset and equity is intentional. The bankers sure want you to be in debt with mortgages. That’s for sure.
In business school, they teach perverted theories, by professors who have never worked in real business, that claim having debt is good. They say that having all cash is bad. They justify it by pure numbers and leave out the power of having no debt. There’s no discussion of how debt controls the debtor. There’s no discussion of having “fuck you” money-power. One cannot tell a banker to which they owe money to go and fuck off.
You might wonder how the world I was a good equity analyst in Wall Street. That is because, as the title states, I dealt with equities and not fixed income or debt. When I looked at my companies, I only cared about the stock valuations (or the equity). For biotech and other companies, the debt portion was insignificant.
Also, all of the above is about an accounting concept. Accounting, like law, is just a bunch of man-made arbitrary rules. I hated accounting in school. That’s why it did not make sense to me. Finance is a completely different animal. It is based on real concepts, much like how physics explains the real world. Finance made sense to me.
The central banks, and these multiple secret families who have controlled us since the Rockefeller and Rothschild days, know this well. There is no doubt that we are all financially illiterate for a reason.
Grok:
Your confusion is understandable—assets like gold feel “positive” because they’re tangible and valuable, while liabilities like debt or a mortgage feel “negative” because they represent obligations. Let’s clarify how they connect on a balance sheet and why a liability isn’t part of an asset but rather works alongside it in the accounting equation: **Assets = Liabilities + Equity**.
### Key Concept: The Balance Sheet Equation
The balance sheet doesn’t mean liabilities are *part* of assets in a literal sense. Instead, it shows how a company’s assets (what it owns) are financed—either by liabilities (what it owes) or equity (what the owners contribute or retain). The equation balances because every asset comes from somewhere, either borrowed money (liabilities) or owner investment/profits (equity).
### Why Liabilities Like Debt or Mortgages Exist
When you own an asset like gold, a house, or a car, it’s positive because it has value. But if you didn’t pay for it fully with your own cash, you likely financed it with a loan or mortgage. That loan is a liability—a promise to pay someone else back. The asset (e.g., the house) and the liability (e.g., the mortgage) are separate but related because the liability helped you acquire the asset.
### Example to Make It Clear
Imagine you buy a house for $200,000:
– You pay $50,000 from your savings (this is your equity).
– You take a $150,000 mortgage to cover the rest (this is a liability).
– The house is an asset worth $200,000.
On your personal balance sheet:
– **Assets**: House = $200,000
– **Liabilities**: Mortgage = $150,000
– **Equity**: Your contribution = $50,000
The equation holds: **Assets ($200,000) = Liabilities ($150,000) + Equity ($50,000)**.
The house (asset) is positive because it has value, but the mortgage (liability) reflects how you financed it. The liability doesn’t make the asset less valuable—it just shows you owe money to someone else (e.g., the bank).
### Why Liabilities Aren’t “Part” of Assets
Liabilities don’t live inside assets; they’re a separate category. Think of it like this:
– **Assets** are what you *own* (gold, house, cash).
– **Liabilities** are what you *owe* (debt, mortgage).
– The balance sheet shows how your assets were funded: partly by borrowing (liabilities) and partly by your own funds (equity).
### Why This Makes Sense
Even though debt feels “negative,” it’s a normal part of acquiring assets, especially for big purchases like homes or business investments. For example:
– A company might borrow $1 million to buy machinery (an asset). The machinery increases its assets, but the loan adds a liability. The asset is still valuable—it might generate revenue to pay off the debt.
– Your gold might be fully paid off (no liability), so your equity equals the asset’s value. But if you borrowed to buy it, the liability just shows you owe someone for it.
### Reconciling the “Positive” and “Negative” Feelings
– Assets are positive because they represent value you control.
– Liabilities aren’t inherently bad—they’re tools to acquire assets. A mortgage lets you own a house now rather than waiting decades to save up. The catch is you need to manage the debt (e.g., make payments).
– Equity is the “net” positive part—it’s what you’d have left if you sold all assets and paid off all liabilities.
### Simple Analogy
Think of your financial situation like a pizza:
– The whole pizza is your assets (what you own).
– Liabilities are the slices you promised to give to someone else (e.g., the bank).
– Equity is the slices you get to keep for yourself.
The pizza’s size (assets) doesn’t change based on how you divide it, but liabilities show how much you owe, and equity shows what’s truly yours.
If you want to dive deeper into a specific example (like a business or personal scenario) or explore how this applies to something like gold versus a mortgage, let me know!