1. 1 Secured Transactions Assignment 40 Why Secured Credit?

2. 2 The Puzzle of Secured Debt

3. 3 Is secured debt “efficient?” Do the gains from it’s existence exceed the losses?

4. 4 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates.

5. 5 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.

6. 6 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates. Does secured credit do something good that lowers total system costs?

7. 7 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates. Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.)

8. 8 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates. Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.) Monitoring

9. 9 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates. Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.) Monitoring Relieving secured party of need to monitor

10. 10 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates. Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.) Monitoring Relieving secured party of need to monitor Does it do something bad that raises total system costs?

11. 11 The Puzzle of Secured Debt Is secured debt “efficient?” Do the gains from it’s existence exceed the losses? 1.Secured debt helps secured creditors collect more. Lowers interest rates. 2.But doesn’t that cause the unsecured creditors to collect less? Raises interest rates. Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.) Monitoring Relieving secured party of need to monitor Does it do something bad that raises total system costs? Incentives to incur debt that will never be paid

12. 12 Legal Structure Shareholders Directors Officers Legal rules make legal structures possible Example: A corporation law makes corporations possible

13. 13 Legal Structure Legal rules make legal structures possible Example: A corporation law makes corporations possible A rule that a corporation can own stock...

14. 14 Legal Structure Legal rules make legal structures possible Example: A corporation law makes corporations possible A rule that a corporation can own stock makes corporate groups possible Corporation A Corporation B Corporation DCorporation E Corporation C

15. 15 Legal Structure Legal rules make legal structures possible Example: A corporation law makes corporations possible A rule that a corporation can own stock makes corporate groups possible A rule may lead to entirely unexpected structures

16. 16 Legal Structure Legal rules make legal structures possible Example: A corporation law makes corporations possible A rule that a corporation can own stock makes corporate groups possible A rule may lead to entirely unexpected structures Example: Deed plus option to repurchase creates mortgage / security interest

17. 17 Legal Structure Legal rules make legal structures possible Example: A corporation law makes corporations possible A rule that a corporation can own stock makes corporate groups possible A rule may lead to entirely unexpected structures Example: Deed plus option to repurchase creates mortgage / security interest Example: Security interest plus Chapter 11 modification makes a judgment-proof business

18. 18 Judgment Proofing Strategy: Secured Debt All assets Protective SI This is a judgment-proof structure.

19. 19 Judgment Proofing Strategy: Secured Debt All assets Protective SI Lien This is a judgment-proof structure. If someone obtains a lien....

20. 20 Judgment Proofing Strategy: Secured Debt All assets Protective SI This is a judgment-proof structure. If someone obtains a lien and forecloses it....

21. 21 Judgment Proofing Strategy: Secured Debt All assets Protective SI This is a judgment-proof structure. If someone obtains a lien and forecloses it, they don’t get anything.

22. 22 Judgment Proofing Strategy: Secured Debt All assets Protective SI This is a judgment-proof structure. If someone obtains a lien and forecloses it, they don’t get anything. If the debtor is entitled to an exemption, the lien does not even attach and the creditor cannot force a sale. Exemption

23. 23 Judgment Proofing Strategy: Secured Debt All assets Protective SI Lien Unsecured debts, judgments, and liens can be a nuisance.

24. 24 Judgment Proofing Strategy: Secured Debt Before bankruptcy All assets Protective SI Lien A Chapter 11 bankruptcy wipes out the unsecured debt (without payment)....

25. 25 Judgment Proofing Strategy: Secured Debt After bankruptcyBefore bankruptcy All assets Protective SI Lien A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place.

26. 26 Judgment Proofing Strategy: Secured Debt After bankruptcyBefore bankruptcy All assets Protective SI Lien A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers?

27. 27 Judgment Proofing Strategy: Secured Debt After bankruptcyBefore bankruptcy All assets Protective SI Lien A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers? The shareholders can “buy” the business from the bankruptcy court by contributing “new value” to the corporation. New value

28. 28 Judgment Proofing Strategy: Secured Debt After bankruptcyBefore bankruptcy All assets Protective SI Lien A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers? The shareholders can “buy” the business from the bankruptcy court by contributing “new value” to the corporation. The business can continue to operate.

29. 29 Judgment Proofing Strategy: Secured Debt After bankruptcyBefore bankruptcy All assets Protective SI Lien A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers? The shareholders can “buy” the business from the bankruptcy court by contributing “new value” to the corporation. The business can continue to operate. And do it again! Lien

30. 30 Problem 40.1, page 664 The “partnership:” V

31. 31 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits V

32. 32 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. V

33. 33 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. V

34. 34 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? V

35. 35 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss V

36. 36 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss V What do you recommend to Harley?

37. 37 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss Product One Inc. Product Three Inc. Product Two Inc. Steady Hand Alvin Steady Lending Investors V

38. 38 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss Product One Inc. Product Three Inc. Product Two Inc. Steady Hand Alvin Steady Lending Investors Now what is the total expected value of business? V

39. 39 Judgment Proofing Strategy: Parent Subsidiary

40. 40 Assets Sub stock 0 Plant lease 0 Total Liabilities None 0 Equity Total Corporation Judgment Proofing Strategy: Parent Subsidiary

41. 41 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Parent Corporation Judgment Proofing Strategy: Parent Subsidiary Subsidiary Corporation

42. 42 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Parent Corporation Judgment Proofing Strategy: Parent Subsidiary Subsidiary Corporation Sub owns all group assets

43. 43 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Parent Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets

44. 44 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Parent Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts

45. 45 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Parent Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities

46. 46 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Operating Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities

47. 47 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities None 0 Equity 0 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Operating Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment

48. 48 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities Tort Cred 80 Equity -80 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Operating Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment

49. 49 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities Tort Cred 80 Equity -80 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Operating Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment Forecloses on stock

50. 50 Assets Sub stock 0 Plant lease 0 Total 0 Liabilities Tort Cred 80 Equity -80 Total 0 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Equity 0 Total 100 Operating Corporation Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment Forecloses on stock

51. 51 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Tort Equity Total 100 Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment Forecloses on stock

52. 52 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Tort Equity Total 100 Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment Forecloses on stock Liquidates Subsidiary Corp.

53. 53 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Tort Equity Total 100 Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment Forecloses on stock Liquidates Subsidiary Corp. Recovers zero

54. 54 Assets Plant 60 Accounts 40 Total 100 Liabilities Bank 100 Tort Equity Total 100 Judgment Proofing Strategy: Parent Subsidiary Owning Corporation Sub owns all group assets Sub owes preferred debts Parent leases plant, conducts all business, employs all employees, incurs all liabilities Tort creditor of Parent obtains judgment Forecloses on stock Liquidates Subsidiary Corp. Recovers zero Owning Corporation accomplishes the same thing as a security interest in favor of the bank – but cheaper.

55. 55 Problem 40.1 The “partnership:” V

56. 56 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits V

57. 57 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. V

58. 58 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. V

59. 59 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? V

60. 60 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss V

61. 61 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss V What do you recommend to Harley?

62. 62 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss Product One Inc. Product Three Inc. Product Two Inc. Steady Hand Alvin Steady Lending Investors V

63. 63 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss Product One Inc. Product Three Inc. Product Two Inc. Steady Hand Alvin Steady Lending Investors Now what is the total expected value of business? V

64. 64 Problem 40.1 The “partnership:” Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities. What is the expected value of this business? $1 billion loss Product One Inc. Product Three Inc. Product Two Inc. Steady Hand Alvin Steady Lending Investors Now what is the total expected value of business? $2 billion less up to 1/3 of $4 million V

65. 65 Problem 40.1 Product One Mfg Inc. Steady Hand Alvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mkt Inc. Product Three Mfg Inc. V

66. 66 Problem 40.1 Product One Mfg Inc. Steady Hand Alvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mkt Inc. Product Three Mfg Inc. V Now what is the total expected value of business?

67. 67 Problem 40.1 Product One Mfg Inc. Steady Hand Alvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mkt Inc. Product Three Mfg Inc. V Now what is the total expected value of business? $2.5 billion, less up to 1/6 of $4 million

68. 68 Problem 40.1 Product One Mfg Inc. Steady Hand Alvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mkt Inc. Product Three Mfg Inc. V We can make these companies public companies without changing Alvin’s or Steady’s return

69. 69 Problem 40.1 Product One Mfg Inc. InvestorsAlvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mfg Inc. Contint’l Magna- tech, Inc Steady Underwriters V We can make these companies public companies without changing Alvin’s or Steady’s return

70. 70 Problem 40.1 Product One Mfg Inc. InvestorsAlvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mfg Inc. Contint’l Magna- tech, Inc Steady Underwriters V We can make these companies public companies without changing Alvin’s or Steady’s return Now veil piercing is impossible.

71. 71 Problem 40.2 Product One Mfg Inc. InvestorsAlvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mfg Inc. Contint’l Magna- tech, Inc Steady Underwriters Cash Plant IP rights Steady Lending (SI) Trade creditors Person injury claims Continental Magnatech V

72. 72 Problem 40.2 Product One Mfg Inc. InvestorsAlvin Steady Lending Investors Product One Mkt Inc. Product Two Mkt Inc. Product Two Mfg Inc. Product Three Mfg Inc. Contint’l Magna- tech, Inc Steady Underwriters Cash Plant IP rights Steady Lending (SI) Trade creditors Person injury claims Continental Magnatech V You represent Alicia Card, tort victim. What do you do? Alicia

73. 73 Problem 40.3 Our law firm is an unsecured creditor of Sigment, $40K

74. 74 Problem 40.3 Our law firm is an unsecured creditor of Sigment, $40K Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable”

75. 75 Problem 40.3 Our law firm is an unsecured creditor of Sigment, $40K Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable” Where do we stand?

76. 76 Problem 40.3 Our law firm is an unsecured creditor of Sigment, $40K Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable” Where do we stand? What should we do?

77. 77 Problem 40.3 Our law firm is an unsecured creditor of Sigment, $40K Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable” Where do we stand? What should we do? Should we be doing UCC searches to monitor all of our clients?

78. 78 Problem 40.4 National Secured Credit Review Commission asks what should be done about Article 9 security interests. a.Keep Article 9 as is. b.Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors c.Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors d.Adopt b. through uniform state law e.Adopt c. through uniform state law

79. 79 Problem 40.4 National Secured Credit Review Commission asks what should be done about Article 9 security interests. a.Keep Article 9 as is. b.Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors c.Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors d.Adopt b. through uniform state law e.Adopt c. through uniform state law

80. 80 Problem 40.4 National Secured Credit Review Commission asks what should be done about Article 9 security interests. a.Keep Article 9 as is. b.Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors c.Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors d.Adopt b. through uniform state law e.Adopt c. through uniform state law

81. 81 Problem 40.4 National Secured Credit Review Commission asks what should be done about Article 9 security interests. a.Keep Article 9 as is. b.Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors c.Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors d.Adopt b. through uniform state law e.Adopt c. through uniform state law

82. 82 Problem 40.4 National Secured Credit Review Commission asks what should be done about Article 9 security interests. a.Keep Article 9 as is. b.Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors c.Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors d.Adopt b. through uniform state law e.Adopt c. through uniform state law

83. 83 Problem 40.4 National Secured Credit Review Commission asks what should be done about Article 9 security interests. a.Keep Article 9 as is. b.Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors c.Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors d.Adopt b. through uniform state law e.Adopt c. through uniform state law

84. 84 LoPucki on Secured Credit

85. 85 LoPucki on Secured Credit System gives secured parties certainty by making others uncertain

86. 86 LoPucki on Secured Credit System gives secured parties certainty by making others uncertain 1. Unsecureds don’t know what they can collect. (Carol Dearing problems).

87. 87 LoPucki on Secured Credit System gives secured parties certainty by making others uncertain 1. Unsecureds don’t know what they can collect. (Carol Dearing problems). 2. Even at the Mall, buyers are not safe. (Alica Card problems.)

88. 88 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant

89. 89 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing”

90. 90 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching

91. 91 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching Most Americans don’t know these things exist.

92. 92 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching Most Americans don’t know these things exist. 3. Byzantine filing system favors repeat users

93. 93 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching Most Americans don’t know these things exist. 3. Byzantine filing system favors repeat users Thousands of offices

94. 94 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching Most Americans don’t know these things exist. 3. Byzantine filing system favors repeat users Thousands of offices Refined legal distinctions control place of filing

95. 95 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching Most Americans don’t know these things exist. 3. Byzantine filing system favors repeat users Thousands of offices Refined legal distinctions control place of filing Information costs money – on Web most people won’t pay

96. 96 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 1.Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller “An agreement between A and B that C get nothing” 2. System rewards security agreements, filing, and searching Most Americans don’t know these things exist. 3. Byzantine filing system favors repeat users Thousands of offices Refined legal distinctions control place of filing Information costs money – on Web most people won’t pay Technical rules that invalidate 13% to 30% of all filings.

97. 97 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant

98. 98 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 4. Threatens to destroy the liability system

99. 99 LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 4. Threatens to destroy the liability system Respondeat superior: liability reaches those in control Corporation (Assets) EmployeeTort victim Control Tort Respondeat superior

100. 100 Control LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 4. Threatens to destroy the liability system Respondeat superior: liability reaches those in control Security: Puts the value beyond reach of creditors Corporation (Assets) EmployeeTort victim Tort Secured party (Value) No respondeat superior

101. 101 Control LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 4. Threatens to destroy the liability system Respondeat superior: liability reaches those in control Security: Puts the value beyond reach of creditors Corporation (Assets) EmployeeTort victim Tort Secured party (Value) No respondeat superior Moral of the story: 1.Be secured

102. 102 Control LoPucki on Secured Credit Favors the powerful/knowledgeable over the weak/ignorant 4. Threatens to destroy the liability system Respondeat superior: liability reaches those in control Security: Puts the value beyond reach of creditors Corporation (Assets) EmployeeTort victim Tort Secured party (Value) No respondeat superior Moral of the story: 1.Be secured 2.Don’t take a second

103. McCall on Secured Credit It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010) 103

104. McCall on Secured Credit It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010) Lopucki’s criticisms are accurate but 104

105. McCall on Secured Credit It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010) Lopucki’s criticisms are accurate but Harris and Mooney’s argumetn about property rights is irrefutable. 105

106. McCall on Secured Credit It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010) The problem is not with secured credit but with consumer credit combined with secured credit and with the type of obligations secured in business finance. In short, the problem is with our theory of credit generally. 106