Bitcoin Forum

Please take this caution seriously. I don't know for a fact that this is happening, but there's a very serious risk associated with buying Pirate debt that is not obvious. The debt you are buying may not actually exist even if you confirmed it.

1) John Smith comes to you and says, "Pirate owes me 10,000 BTC. Would you like to buy this obligation for 5,400 BTC?"

2) You confirm that this obligation exists with Pirate.

3) You think Pirate might pay back, and it seems like a reasonably good risk, so you buy it.

4) But John Smith may actually *be* Pirate and the 10,000 BTC may never have been deposited at all.

5) Pirate just got 5,400 BTC for an obligation that never actually existed and that he never intends to pay back.

I would strongly urge people *not* to buy any Pirate obligations. It's not just that Pirate might default, it's that selling the obligations may be an engineered part of a default. As I've argued elsewhere, this is one of the best explanations for why Pirate would have bought himself a week or so to make payouts. This is all time he can sell non-existing obligations for real money.

Completely ignoring that the counter-party might have a long, well established identity that doesn't match anything to do with pirate.  Seriously, thanks for the PSA, but let's not spread paranoia.

there are lots o money making opportunities if you are the man on the switch  of a closing venture...

In that case, you would know that this isn't an issue in that specific transaction. But you might still be basing the going rate on the market's estimation of a Pirate default, an estimation that could be contaminated by bogus transactions.

You're welcome.

The only thing dumber than this is buying insurance or default bets (other than against MNW, who does not request that you deposit first).

Oh look, we have a winner. Rarity buying BitcoinMax exposure for his/her "spiritual group". I don't know whether to laugh or cry.

Using what other people are doing as to their debt sales is rather idiotic.  This market has already proven (long before btcst) that it doesn't always act rationally/logically.

I agree. That's why I'm warning people to exercise extreme caution if they do that. There is not just the risk of irrational actors but in this case, there's a risk of rational actors who acquired the asset for free and know that it is worthless.

Why not buy someones debt, then bet the same amount you paid against Matthew? Worst case, you get your money back. Best case, Pirate pays. Can't lose.

if MNW will pay out, yes.

Indeed. He seems a bit... unwell.

There's no difference in any of the cases. From the beginning, pirate was a rational actor peddling a 7%/wk generating "asset" that he knew was worthless. All the GLBSE bonds are created for free by the sellers. etc etc

And you can't win either, because if the hedges are equal then you're neutral. so why bother.

I disagree. The possibility that Pirate might be *selling* Pirate obligations is very, very different from every other case. Only Pirate (or someone conspiring with him) could sell an obligation that he acquired at zero cost and knew for sure was worthless.

http://en.wikipedia.org/wiki/Counter_party_risk#Counterparty_risk

You can if you can pay less than 50% for Pirate debt. Say you buy 100 BTC of pirate debt for 40 BTC. You place a 40 BTC with Matthew:

1) Pirate defaults. Matthew pays you 40 BTC. You paid 40 BTC for the debt. You break even.

2) Pirate pays you 100 BTC. You pay Matthew 40 BTC. You paid 40 BTC for the debt. You made 20 BTC.

Apparently, some Pirate debt is going for less than 50% of face. So either nobody's doing this or the difference between 50% and the going rate is the chance Matthew will default.

where is the hedge for "MNW will not pay if he has to pay"?

EDIT: or should I open a thread/bet for this? at the end someone has to pay the bill in every case!

Go for it - I'll bet that he pays if he has to pay!

was hypothetical and should show that at the end of the chain must be the fool.

EDIT: your offer was not serious? or was it? we should NOT invite credit default swaps into bitcoin world! this is what I'm trying to say.

LOL! I bet that someone will do it soon. This castle of bets reminds me of the Quadrillion Derivatives Death Star.

BTW: in the examples above you do not consider cumulating interests, which will surpass 21 millions if we continue like this for a while.

My offer is 100% serious, as I am 100% certain Matthew will pay out if required.

Its hard to see a distinction. Whether its pirate selling pirate obligations, goat selling goat obligations, or MNW selling anti-pirate obligations, only the obligor knows the true value of his obligation.



The possibility that MNW might default is one reason for a rational actor to sell pirate debt at less than 50%. If MNW supply is limited (it is), then for someone that knows *for sure* that pirate debt is worthless, it is rational to sell it at less than 50%. So the difference between 50% and the going rate is the chance that MNW defaults multiplied by excess pirate supply. If pirate debt is 0% of face, then either pirate supply is unlimited, or the market is certain that MNW and pirate will both default.

I'll take your offer. Anyone 100% certain that MNW will pay if he has to can bet against me 99:1 (I'm 1% certain that he won't pay).

guess you have information which i not have!

I will do a 1:1 bet, not interested in anything else.

Then you are not 100% certain.

Seems to me that if Pirate actually intended to pay back lenders that he would be buying up all of these below face value debts.

For example, lets say you have 10,000 BTC of pirate debt that you are willing sell for 6,000 BTC.  If I was pirate, I would buy that debt for 6,000 BTC and make a 4,000 BTC "profit" instantly since that is 4,000 BTC that I no longer have to pay back.

The fact that he isn't buying up all these below face value debts himself tells me that either he is not interested in making free money (unlikely) or he has no intention to pay back.

+1

Not true.  Matthew imposed per-person limits and also conditions on the people involved.  Those can conspire to push the price below 50% because it's not a fully free market - people who cannot "hedge" with Matthew have to hit the bid if they want out.

Or I just don't like making bets that aren't 1:1.

@Fray - Or he doesn't want to be that big of a scumbag.  Because, let's face it, that'd be a pretty low-down move, a lot lower than simply making everyone wait a week to receive their funds (if that happens).

What would stop pirate from doing this if he intends to pay back? (I understand he wouldn't use his identity for that because some would probably object but it's doable)

Nothing as far as I can tell.  Like I said, the fact that he isn't doing this (as far as I can see) seems to me like a strong indication that he won't be paying back.  \

Should be as simple as creating an anonymous account on glbse.com and buying up all the various pirate pass-thru bonds/shares that are selling below face value.

No, because that's not a very serious risk. Nobody has a large incentive to put a cougar under my bed. But if they did, then it would be something I'd be worried about.

Name-calling is not a substitute for an argument. Do you agree with me that it's in Pirate's self-interest to do this?

We are used to people basically being honest because we have built a society in which deception is generally punished. When you're in a situation where deception would clearly be extremely profitable, it's unreasonable not to seriously consider the possibility that you are being deceived. That's not FUD, it's just the way the world really is.

The fact is that Pirate personally comes off much better if he doesn't pay back his obligations and sells his own debt. The only reasons for him not to do that are personal honestly, fear of reprisals, and the value of his reputation. It's not FUD to say those factors should be weighed against the profit he stands to make.

It's also not FUD to point out non-obvious risk factors. Prior to my pointing it out, I'm not aware of anyone who pointed out that it's in Pirate's financial interest to *sell* Pirate debt.