In the United States, at least, the reverse is true. You can use hobby losses to offset hobby profits. Of course, you can't just deduct hobby losses. Otherwise, my hobby would be driving expensive cars and eating expensive food and every car I bought or meal I ate at a nice restaurant would be tax deductible.

For example, if you raise prize cows as a hobby, and then you sell one of those cows for $8,000, that is a hobby profit. It is taxable. However, if you spent $4,500 on feed and supplies to raise the cow, you can deduct those hobby losses against the hobby profit.

If you mine Bitcoins as a hobby, you can file your hobby losses so that if you do make a profit when you sell those Bitcoins, you can offset some of those profits with carried over losses.

It's common sense. You can't fault a party for failing to do something impossible.

And others equally failed to realize that it was impossible. I agree that he bears fault for that, that's why it's a common mistake.

I agree that was the deal. The question is what shared beliefs was the deal premised on because those are part of the deal. (Unless the deal specifically addresses them.)

The deal was premised on the shared mistaken belief that the business model was fundamentally sound and that the loans were free from significant correlated risk. Read the transcript. An agreement predicated on a shared mistaken belief is actually no agreement at all if it turns out that shared mistaken belief is false.

In this case, there was a shared mistaken belief on which the agreement was based, without which neither party would have entered into the agreement. The question is how to allocate the harm that flows from that shared mistaken belief.

I made it quite clear that 40% over three years was something I felt people could agree was a *minimum*. And I said that 50% if the default position when a harm appears to be equally caused by both sides. And I also argued that the 50% default position could be adjusted if one side expected to get a greater share of the profits because it's reasonable to make it bear a greater share of the harm.

But you're clearly much more interested in turning this into an insulting match or questioning my integrity than in ever facing the possibility that maybe, just maybe, some of this is your fault.

No, I don't.

Kraken came much later. This loan was August 10. Kraken was September 30. In between those two dates, Pirate defaulted.

The rest of your post simply repeats the claims you've made elsewhere -- that Patrick's at fault for failing to do the impossible and somehow making a fundamentally unsound business model work.

The Kraken fund may be a slam dunk case of fraud. The Kraken fund began operations after it was quite clear that Pirate was in massive default and very unlikely to ever pay back another penny. Yet the Kraken fund bought Pirate debt, and Patrick was clear about it being guaranteed by him personally. (All of this was known to the investors too, but the fault in this case is not equal. In this case, the investors mistake really was to rely on Patrick's promise. There was nothing Patrick didn't know at the time.)

It is relevant because both participants believed at the time that it was. And there is no evidence that one party was more at fault in this belief than the other. Neither party would have entered into the agreement had they known this. So this is a common mistake.

Well then you've made the first part of my case for me. If they both believed it was sound, yet it wasn't, then that's a common mistake.

When you have a common mistake such that neither participant to a contract would have entered into the contract but for the mistake, unless there's substantially greater fault for the mistake on one side than the other, the parties should split the harm that flowed from the shared mistake. So long as one party isn't significantly at greater fault than the other, it's inequitable to enforce the contract as agreed.

Common mistake doesn't require the mistake to be negligent or culpable. It just requires both parties to be wrong about something critical to the agreement.

Once you agree that both parties had a false belief and that neither party would have entered into the contract without that false belief, the next issue is whether the belief is at the core to the contract. My position is that the discussions that formed the agreement make it clear that the belief is at the core of the agreement -- the contract was premised on the soundness of Patrick's business model and his lack of significant correlated Pirate exposure. Generally, showing that neither party would have entered into the agreement but for the mistaken belief is sufficient to show that it's at the core of the contract. And then the next step is to figure out how to equitably split the damages.

The common sense version of the doctrine is this: A contract states what happens under various conditions. But if neither party believed that a particular condition could happen, then their agreement couldn't have covered what should happen under that condition. (Unless it has specific "catch all" terms of some kind.) Thus, you can't follow the contract to decide what to do in that condition, you have to judge what's fair.

You're cutting out the context which was me arguing that Patrick's business model is fundamentally unsound even just considering uncorrelated risk. I was arguing that there's no way for investors to assess risk and come to any conclusion other than that the risk must be extraordinarily high. Here's what immediately follows the part you quoted:

"Fundamentally, it's this simple: If the fund operator is not making decent money, there's no good explanation for why they'd go to all this trouble and risk other than that it's a scam. If the fund operator is making decent money and not exposing their investors to extreme risk, the first thing they'd do with the money they're making, if they're not an idiot, is pay down all their ultra-high-interest debt."

In other words, Patrick's business model fundamentally makes no sense, the risks would have to be enormous. That's the same thing I'm arguing here.

Do you think Patrick's business model was fundamentally sound? Be honest.

Your argument is that Patrick's business method was sound, he just couldn't quite figure out how to get it right. Perhaps he used the wrong magic words. Perhaps there was one little thing he forgot to do. If he had just asked one more question, checked one more reference, it all would have worked. You have learned absolutely nothing from this fiasco. I hope you are in the minority.

True but how would that have made any difference?

MP could not verify them even if she knew who they were. What would she have done other than ask them? You think they would lie to PH but tell the truth to MP? PH knew Patrick's methodology. If it was unsound or insufficient, that was a common mistake.

And Patrick did assess the credibility of his customers. It's not like his method was a secret.

There was nothing PH knew that would have changed MP's view. They agreed on the common set of facts and they both drew the same incorrect conclusion from those facts.

If everyone was rational, this would be quite correct. But when it comes to greed, people have a rather bizarre ability to compartmentalize and isolate their knowledge. With subtly different senes of knowing, all of these were true. It's just like how every gambler knows that the odds are against them and many gamblers believe they will be the exception.

It just shows what we all know, that a lot of people gamble stupidly. Everyone who invested in Pirate knew that what he was saying was too good to be true, yet in a sense those investors believed it.

Your key false assumption is that all people are fully rational and only hold logically consistent beliefs.

Was Patrick's business model sound or not, in your view? Why do you think his business collapsed?

They take huge risks, and they know it. And they have the force of law to go after people who don't pay them.

It's clear that you are absolutely determined not to learn anything from this fiasco. I hope others are not so stubborn. Your complaint is that Patrick did not do the impossible and you fail to take any responsibility for failing to realize that this is what you were expecting him to do.

My core contention is that both parties are equally at fault for their mistaken belief that Patrick's business model, fully understood by both parties, was fundamentally sound.

There's no evidence Patrick ever misrepresented his assets. Both sides knew what they were -- high interest Bitcoin loans to people who swore they weren't borrowing money to loan to Pirate. That was sufficient information to realize there was likely to be huge correlated risk, yet neither party did. Outsiders realized this.

MP didn't believe PH's assertion. MP reached the same conclusion from substantially the same information.

Aug 10 08:10:56 <mircea_popescu>   well that works. i'd like to put 500 bitcoins with you

Patrick's methodology wasn't a secret. Outsiders realized that his belief that there was little correlated risk couldn't be true.

You are saying that Patrick's mistake is that he didn't do the impossible. I am saying Patrick's mistake was that he believed the impossible.

I would never suggest taking the outputs of your delusions as the inputs of any process attempting to produce a fair result. GIGO and all that.

No. If it turns out there aren't 1,500 pounds of cherries on the truck, then some equitable way has to be found to split the damages among the parties. If the money hasn't already changed hands and the cherries are still intact, it might make sense to just void the contract. But if some of the cherries have already been consumed or the parties have taken irreversible actions relying on the contract, then the harm done by the common mistake has to be divided fairly between the parties.

That's what I'm suggesting should happen here. Both parties made the same mistake which directly led to the harm and had the mistake not been made by both parties the contract wouldn't have existed,  so the harm should be divided fairly between the parties. I'm not proposing any specific division as fair, but 50/50 would be my default presumption. (Actually, if Patrick expected to get a greater share of the profits than those he borrowed from, it might be just to make him bear a greater share of the losses.)

That's an incoherent position for cases where the contract was based on a shared false belief.

Two people both believe that there are 1,500 pounds of cherries in a truck. They agree to exchange the 1,500 pounds of cherries in the truck for $5,000. It turns out, through equal fault, that they were mistaken and there are only 1,200 pounds of cherries in the truck. How can the contract be executed entirely as it is? Does the seller have to put 300 pounds more cherries in the truck? Or does the buyer have to take 1,200 pounds of cherries even though he agreed to take 1,500? Or what?

If a contract is based on a shared false belief, without which neither party would have entered into the contract, it's not possible to execute the contract as it is.

The business model, the interest rate, and the existence of Pirate. That was all that was necessary.

The business model was fundamentally broken. The only people who will borrow money at such absurdly high rates are those that are taking, or are, absurdly high risks. The existence of Pirate and the greater interest rate he was paying is sufficient information to conclude that people would borrow from Patrick to loan to Pirate and lie about it. The lack of enforceability in any court of law is sufficient to conclude that if the things people did with the loans went bad, they wouldn't be willing to take their own money to cover the losses. (As Patrick appears to be unwilling to do.)

Yes. It's has nothing to do with PH's reputation. It has nothing to do with what he did or didn't do. It has to do with the simple fact that he was saying "X follows from A, B, and C" when it simply did not follow.

Search the forums. You'll see lots of people saying this. It is obvious. It was obvious.

I am saying that he, like all the people who loaned money to him or Pirate, had objectively unreasonable beliefs. They were deluded.

They both should have known. Neither knew.

They both drew the same incorrect conclusion. So did everyone who loaned money to Pirate. This was a case of common mistake from equal fault.

Why are you so resistant to holding people accountable for mistakes that cause harm?

Because Pirate committed fraud and his customers did not. Otherwise, you would be absolutely right and the blame, and hence the damages, should split between Pirate and his customers.

In this case, both parties had sufficient knowledge to conclude that Patrick had significant Pirate exposure. Total outsiders reached this same conclusion. It was obvious. And there's no evidence of greater fault on either side.

Your other examples are inapplicable. This contract was predicated on a mutual agreement to something that was false due to equal fault on both sides. None of your examples have that characteristic.

He claims that a lot of people borrowed from him to invest in Pirate, despite having sworn otherwise. When Pirate defaulted, they were unwilling to dip into their personal finances to settle a debt that likely wouldn't be enforceable in any court of law. There is no way to verify this, but it is precisely what lots of people warned would happen. It's also possible Patrick significantly exaggerated the extent to which this happened and walked off with a bunch of money. We don't know.

If not, she's even more delusional than I thought.