I’m no financial expert, but the way I understand it, when a lender accepts collateral as part of a loan deal, and the borrower defaults on the loan, the lender takes the collateral.
Right? So evaluation of the collateral is an important aspect of the loan deal. The lender has to know that the collateral will make it whole should the borrower default.
So why do I get the feeling from Stockton’s bankruptcy trial that Franklin, the last of the city’s ornery creditors, did not do its due diligence when evaluating the collateral put up by the city of Stockton: two money-losing golf courses, a community center and the recreational facilities in Oak Park, including a money-losing ice rink?
Whatever the value of the collateral, it is clear it is not enough for Franklin. But whose fault is that?