Secured vs Unsecured Debt - Supplemental Commentary to David Giller

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David Giller, a member of the LinkedIn responded to a question posed on the distinction between secured and unsecured debt. He correctly explained the fundamental principle. His explanation can be found at: http://linkd.in/bZOLSz.

This explanation requires some clarification, although it is correct as far as it goes. It is important for lenders and borrowers to understand the mechanics of the creation of secured vs. unsecured loans, and the important considerations in deciding which loan form makes sense.

Think it doesn't matter? Think again. Failure of lenders and policy makers to understand point 3(a) is the underlying cause of the current (as of this writing) mortgage mess and consequent financial crises. Failure of lenders to understand point 3(c) was the underlying cause of the last major banking crises in the late 1980s. Failure of borrowers to understand point 3(b) is a major contributing factor to consumer over-leverage.

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