Dictionary Definition
hypothecate
Verb
1 pledge without delivery or title of
possession
2 to believe especially on uncertain or tentative
grounds; "Scientists supposed that large dinosaurs lived in swamps"
[syn: speculate,
theorize, theorise, conjecture, hypothesize, hypothesise, suppose]
User Contributed Dictionary
Translations
the performing of hypothecation
- Icelandic: veðsetja
Usage notes
Often wrongly used in lieu of the word hypothesize.Extensive Definition
The original use of the word hypothecation was
for a pledge of property as collateral
for a debt without transfer
of possession to the party making the loan. The arrangement is
common with modern mortgages - the borrower
retains legal ownership of the property but provides the lender
with a lien over the
property until the debt is paid off.
Rehypothecation is when a broker pledges
hypothecated client-owned securities in a margin account to secure
a bank loan. Hypothecation is usually used for mortgages; other
securities typically use collateral.
A more recent use of the word is as a contraction
of "hypothetical dedication", as in a "dedicated tax" to be
collected for a specific purpose. (This may be a spurious origin of
the word, since the original definition of hypothecation as a
pledging of assets could also be applied: the expected revenue from
the tax in question being pledged to a particular cause). Dedicated
taxes are often subject to unexpected shortfalls and surpluses.
This may create political pressure to adjust the tax, to budget
non-dedicated revenues for the purpose in question, or to
reallocate surplus funds to other purposes.
Examples
Examples of hypothecation in the latter sense include the gasoline tax in the United States, which is dedicated to the funding of transportation infrastructure. A common example in many European countries is a television licence. Here, all owners of televisions are obliged to pay the government an annual fee to use their televisions. The proceeds of the fee are then used to fund public broadcasting. Another example is a dedicated tax on the private trading of securities (for example, 0.3 cents per dollar traded) used to fund public infrastructure programs directly (such as the building of a water treatment plant) or to pay the finance costs of such programs.See also
References
- Hypothecation Defined & Explained at lectlaw.com
- hypothecate at insurance.cch.com