Wedding Carlson and Schwartz: Understanding Secured Credit as a Fuzzy System

Abstract

As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.-Albert Einstein 1 INTRODUCrION U SING economic analysis, legal academics have challenged themselves to posit a rational explanation for a debtor's willingness to issue secured debt. These academics have questioned why a debtor would grant a creditor a security interest in collateral, given that the debtor's unsecured creditors, recognizing that "the pool of assets available to satisfy their claims has shrunk," will increase the price of credit they provide by an amount that precisely corresponds to the secured creditor's reduction in price. 2 Economic theorists contend that, because the debtor's overall position is not obviously improved by the issuance of secured debt, the existence of secured debt is a puzzle. 3