After all, no-one has yet suggested a better scheme (that is legal to implement) - and you cannot crowd fund something that would need $6-$7M upfront.
This is incorrect on a number of counts.
First, the Foundation could have accepted donations more than sufficient to fund the development and first-batch manufacturing without any Foundation members having to put their properties up as collateral beyond whatever was needed to get the original USB "stick" demonstrated starting in May 2011. To keep it legal, there wouldn't be any guarantee that a donor would necessarily receive a board, but, if any were produced, they would have first rights to them, in the order of donation.
Early external donors are traditionally rewarded for their prescience and faith, if only to have their names in lights, receive token tchotchkes (e.g., a defective early Pi board), etc. Once the actual production (not pre-production beta) boards had been completely debugged (e.g., the Ethernet connector fiasco), then serial production could have begun with deliveries to donors in order of donation, perhaps paying the difference between actual cost and their initial donation, if the donation was insufficient to cover the cost.
It is completely legal to accept payment for products as long as they are shipped within 30 days of payment (in most countries). Once series production is under way, that's plenty of time, and the buyer generally has the option of cancelling their order for a refund or continuing to wait for shipment if there is a delay beyond 30 days. There are projects similar to the Pi which people paid for well over a year ago where they are still voluntarily waiting for delivery.
Crowdfunding has been raising seven-figure amounts for a number of projects, including:
blur advertising in the UK ($5 million) -http://www.prweb.com/releases/.....223380.htm
Pebble smart watch in Canada ($3.4 million so far) -http://www.gmanetwork.com/news.....ed-funding
Double Fine Productions' Adventure game in the U.S. ($3.3 million) -http://www.bbc.com/news/techno.....y-17531736
Wasteland 2 video game ($2.9 million) -
Elevation Dock for iPhone ($1.5 million) -
"The Order of the Stick" web comic ($1.3 million) -
Kickstarter.com alone has attracted pledges for a total of over $175 million for projects so far, with many thousands of other projects funded by IndieGoGo.com, Quirky.com, Peerbackers.com, and, in the UK, WeFund.com, etc.