If I understand correctly, Tricolor “pledged” the loan portfolio to multiple banks. I think this is like selling the loan at a discount for the cash now. If that’s the case, then the loan is collectable by the new owner, the multiple banks. All of the banks would need to agree not to pursue loan collection. We all know how wonderful and humane bank loan departments are...
Of course, a judge could order them not to collect, but this part of the case would need to be brought to a court, and I don’t see how that would happen. Banks have lawyers. This level of car buyer does not.
Sounds like the previous subprime loan catastrophe, where mortgages were “bundled” and sold as securities.
“If I understand correctly, Tricolor “pledged” the loan portfolio to multiple banks. I think this is like selling the loan at a discount for the cash now.”
Nope. The pledged the loans as collateral.
“If I understand correctly, Tricolor “pledged” the loan portfolio to multiple banks.”
If I understand correctly this is called fractional reserve banking /s
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Perhaps you’re familiar with the term hypothecation. Perhaps not. Or perhaps you’ve heard it but aren’t quite sure what it is.
As a precious metals investor, you need to understand it.
The Bottom Line
Hypothecation, generally, is when an asset is used as collateral for a loan.
If you take out a margin loan against your stock investments, for example, or an equity loan using your gold, you’ve “hypothecated” that asset. Which means you now own a legal claim in an asset but that you do not own that asset outright.
For example, if you have a mortgage, you have the title to the property, but if you do not pay your mortgage, the bank, as actual owner of the property through hypothecation, can take it away.
Rehypothecation is when the institution with whom you’re storing your gold (the gold that you supposedly own outright) lends out that gold, sometimes to more than one borrower at a time, often in exchange for a smaller or no storage fee.
This is an important distinction and a serious risk most gold investors should avoid.
This threat played out during the 2008 financial crisis, when banks who were engaged in gold rehypothecation failed, resulting in a nightmare for those with hypothecation claims on that gold.