Initial Condition:  
You own 200 BTC.

Last exchange of USD for BTC was $4 per BTC.

You wish to borrow $400 from the network, so you post 200 BTC collateral.

New Condition:
You own 200 BTC (locked)
You owe $400 USD  (but have $400 in paper USD)

Next step:  You have a 2nd account with ANOTHER 200 BTC in it and sell those 200 BTC for $400 USD (clearing out all the bids).  

New Condition:
Account A)  You own 200 BTC (locked)
Account A) You owe $400 USD   ( but have $400 in paper USD)
Account B) You own $400 USD

Now all of a sudden SOMEONE has 2000 BTC they are suddenly willing to sell for $1??? I guess that SOMEONE is you as well.

So now you use $400 in account B to buy 400 BTC from yourself?   To profit from this someone else would have to be willing to sell their BTC at 1 dollar simply because you cleaned out the bid?  

Something doesn't add up with your contrived example.  It could be me, so I would appreciate clarification.