| > the value of that asset is at least the amount you borrowed That assumption just isn't true: Loans are made based on risk and the expected ability to repay. Collateral is an optional and sometimes partial of reducing the lenders' risk, it bears no firm relationship to the amount being sought. To illustrate, imagine a Debtor borrows $5,000 and offers up one of their child's crayon drawings as collateral. For private reasons we cannot see, the Lender accepts this deal. Do you truly believe the crayon-drawing has been proven to be "worth at least $5,000"? Would you joyfully jump at the chance to buy that crayon-drawing for a mere $1,250, confident that you could resell it for an easy $3,750 profit? Probably not, and that's assuming everyone is acting ethically, we haven't even started to talk about how the Debtor and Lender could collude to game the system. > So just use that amount. At this point, you're probably thinking: "Very funny Terr_, but we both know the crayon-drawing obviously wasn't covering the full $5,000 loan here." Yeah, but how did you reach that conclusion, what mathematical steps did you use? I'm pretty sure you applied an independent judgement of what a likely crayon-drawing "should" fetch in some hypothetical future. That's quite reasonable, but the fact that you had to do it shows that the loan-basics are not sufficient to solve the problem. |