Overcollateralization - OC

Categories: Credit

We don’t ask for much, but we sure would like to buy a vacation home in Vermont. It doesn’t have to be fancy; we’re pretty sure we can find what we want for under $300,000. Our lender doesn’t seem as enamored with the idea as we are, so to sweeten the deal, we put up our $10,000,000 spread in San Diego as loan collateral. No way we don’t get that $300,000 loan now.

This is what’s known as “overcollateralization:” we offered up as loan collateral an asset that is worth way, way more than the loan we’re trying to secure. Generally speaking, collateral is usually worth about 10-20% more than the loan amount, not 33 times more, like our house in San Diego.

But hey, the more the collateral is worth, the less risk our lender has to take on, which means we’re a lot more likely to get the loan we want, even if our credit is less than perfect. Loos like we’ll be on our way to the Green Mountain State in no time.

Related or Semi-related Video

Finance: What is collateral?98 Views

00:00

Karl Marx was a fiercely bearded German economist and philosopher.

00:07

seriously look at beard .fierce. with the help of his equally bushy pal Friedrich [Marx pictured]

00:12

angles Marx wrote a little book that would have enormous influence on the

00:16

Russian revolutionaries of the early 20th century. that book of course was

00:21

called Little House on the Prairie. it's just making sure you're with us. it

00:26

was actually called the communist manifesto. so let's break it down .the

00:30

world according to Marx suffers because of social classes. well in the Western

00:34

world we started with feudalism as the class system .if you were a king life was

00:39

groovy. if you were a serf and not so much. feudalism crashed and burned and

00:45

capitalism rolled in with its booze huazi and proletariat classes. well

00:49

according to the Communist Manifesto capitalism was much much much worse than

00:54

feudalism. why ?because the booze huazi or owners are the means of production who [communist manifesto pictured]

00:59

embraced capitalism would do anything to make a dollar.

01:02

this included dehumanizing abusing and manipulating the proletariat or worker

01:07

class who toiled on their behalf. so Marx and Engels believed that capitalism

01:12

caused enormous suffering and hardship in the modern world. furthermore it

01:16

caused corruption because the government was essentially in cahoots with the

01:19

bourgeoisie. thanks to the unfairness inherent in capitalism Marxism states

01:24

that the proletariat and bourgeoisie will forever be butting heads .more

01:28

importantly that tension will eventually result in a revolution of the masses. and

01:33

just what would that revolution look like? well Marx and Engels had a few

01:37

ideas .there would be no private ownership of land. there would be no

01:42

inheritance rights. the state would control the means of communication and

01:46

transport .and instead of laboring in factories kids would go to school where

01:50

they'd get a free education. the communist manifesto posits that Marxism

01:55

would succeed where other forms of socialism had failed because communists

01:59

would always put the proletariat first. furthermore other forms of socialism

02:04

were nothing more than programs for small reforms .if the ship of the worker [different ships with different forms of government written on sails]

02:08

was going to be set right full-blown an all-out revolution was needed.

02:13

and that's what Marxism was all about. Marx and Engels like to think that

02:17

Germany would be ground zero for the proletariat takeover.

02:20

they probably rolled over in their graves when Hitler came to power, but

02:24

never fear the Communist Manifesto was a home run for one group. da the Russians.

02:29

at the turn of the 20th century there were two divisions of the Russian social

02:34

democratic Labour Party .the Bolsheviks and the Mensheviks many of whom had been

02:39

kicked out of Russia for being naughty revolutionaries spent about a decade

02:42

meeting in pubs in London. over a nice warm pint they'd argue about whose

02:47

interpretation of Marxism was correct and what the best method for taking over

02:52

Russia was .well frankly we would have picked somewhere tropical for our

02:55

communist revolution but well to each his own. while the Mensheviks and [Castro pictured]

02:58

Bolsheviks both wanted Russia to ditch capitalism and the Czar their

03:02

medium-term goals were quite different. well the Mensheviks wanted to work with

03:06

Russian officials already in office to build a kind of democratic system that

03:11

would make Russia a better place for everyone. Bolsheviks wanted to burn it

03:15

all down. well if you're wondering where Vladimir Lenin is and all this wonder no

03:19

more it was at the head of the Bolsheviks. he thought the Mensheviks

03:22

were wusses and that Russia's communist government would need to be small and

03:27

tightly controlled so that the masses wouldn't rebel. anywho after all those

03:32

years of plotting abroad the Mensheviks and Bolsheviks finally saw an

03:35

opportunity to get things going in 1917. and viva la revolucion. but that's for [mob of Russians protest]

03:41

another video. what, you thought we'd give you all the fun stuff right now?

Find other enlightening terms in Shmoop Finance Genius Bar(f)