What does Eugene Fama mean "the amount of debt that's financed with equity isn't put aside"?
Fama's idea is to look at the level of equity that would have been necessary in the last crisis and multiply by 1.1 and call that a starting point for a level of equity that makes the company safer from insolvency. He phrased it as adding 10 percent.
In Fama's view there will still be risk of insolvency. &quot;You have to watch them because they are very clever at getting around these things.&quot;
The actual quote from the other person is &quot;locking up that kind of money...&quot;.
Then Fama talks about the balance sheet but he's just making the point that even with regulation the assets as a whole still bear investment risk.  I would add, although he does not say it explicitly, &quot;because they are very clever&quot; he is suggesting it is not practical to consider assets as being locked up, frozen, or set aside.