First, your last sentence is factually untrue. They did not have to rely on Patrick's promise. They could have asked for any evidence they wanted. Second, it wasn't a "promise". It was Patrick's statement of his belief. Lastly, this smacks of the same "due diligence" argument rightly ridiculed regularly in this forum. You can't fault someone for not doing the impossible.

Exactly. In this case, the loans that formed the basis of the contract turned out not to be what both sides thought they were through a failure shared equally by both sides.

Explaining that the failure that resulted in the loans going bad was due to a mistake made jointly by both parties and thus not equitably allocatable entirely to one of them. Patrick is as much a victim here as those who loaned him money -- assuming he eventually makes some kind of reasonable settlement for a portion of the principle.

There's nothing wrong with blaming the victim when the victim is in fact at fault. The error in blaming the victim is when you attempt to use blame for the victim to excuse or reduce the culpability of the perpetrator.

If you walk through the worst neighborhood on a dark night with $100 bills sticking out of your pockets and get robbed, you're an idiot who deserves some blame for the robbery. However, the robber certainly can't use this to reduce his culpability. There's no "he was asking for it" defense to robbery.

Nope. I never said that.

Well, I don't because my checking account is insured by the government. If it wasn't, banks would likely make provisions to cover runs in their deposit agreements.

No, there are other ways to secure deposits. It's kind of complicated to discuss in the thread, but so long as there's sufficient equity, you can protect against a liquidity crunch. It's hard to protect against an equity crunch though -- if a large number of loans go bad, then lenders will lose money. So far as I know, there's no fix for this other than specifically buying insurance. Even then though, of course, if things get bad enough, the insurer can go broke, as happened during the recent global economic collapse. If don't know how to fix that.

That's correct. That was Patrick's mistake. And I agree that gives him partial culpability for the loans going bad. However, those who loaned Patrick money also believed that his loans had little Pirate exposure and not because Patrick said so, but because Patrick explained his business model.

Because when there's a common mistake, the contract is about something that doesn't actually exist. For example, if both the buyer and seller believe there's 5,000 pounds of cherries in a truck and agree to sell the 5,000 pounds of cherries in the truck for $10,000, the contract is void. There's no way to enforce it because its subject doesn't actually exist.

The issue is not that one side can't live up to the agreement. This issue is that the agreement was about a loan portfolio that both sides believed had particular attributes it didn't actually have. The agreement was about something that both sides believed to exist but that did not actually exist.

That's correct. However, don't forget that this assumption was shared by those who loaned money to him. Read the transcript.

Somehow, I think we're talking past each other. Please re-read what I wrote. If you don't understand it, perhaps I can find a way to make it clearer. Your response reflects a complete misunderstanding of the clear meaning of my words. My whole point is that both sides believed there was no significant Pirate exposure in the loans, and had either side believed otherwise, the agreement would not have happened. I think you agree with me on this, right?

Nope, I'm just against idiocy. Lending at usurious interest rates using contracts that can't be enforced in a court of law with people who have no ability to repay the loan other than from the expected profits of an implausible business is idiocy. Without that idiocy, none of these fiascos would have happened.

Did you read the thread you are responding to? The agreement by which he was supposed to have paid back some Bitcoins is not enforceable as agreed due to common mistake.

Of course they do. Otherwise the agreement would be void because of the usurious interest rate.

I think you're missing the point. The point is that in the minds of both parties, the agreement was an agreement about what to do with 5,000 pounds of cherries. If 5,000 pounds of cherries don't actually exist, there is no actual agreement.

Suppose the contract isn't written, but there was a mutual understanding that the truck contained 5,000 pounds of cherries. Does the buyer have to make the truck contain 5,000 pounds of cherries? Or does the seller have to settle for however many pounds of cherries are in the truck? You *can't* enforce the contract as agreed because the agreement is based on a false premise -- that the truck contains 5,000 pounds of cherries.

Why didn't the seller sell 5,000 pounds of cherries, not 4,500?

The problem is that in cases like this, it's impossible to do that. The words of the contract refer to things that don't actually exist. The "cherries" spoken of in my example contract don't actually exist. Whether the contract said "5,000 pounds of cherries" or not, if that's what "cherries" meant, then it's speaking about a non-existent thing. There's no way to enforce it as written. (Unless it had some kind of clause that addressed this case.)

This case is similar. The loans the agreement was premised on turned out not to exist in the form both parties believed they did.

By the way, I now have looked at the amounts outstanding and the repayments, and I think it's inevitable that Patrick will default by any equitable standard, if he hasn't already. Even with absurdly generous terms (like repaying 40% of premiums, with no past or future interest, over three years) I don't think Patrick and his wife will make the lifestyle sacrifices they would need to in order to pay back debts that are likely not enforceable in any court of law. If he's not presently willing to negotiate, and stick to, some kind of reasonable repayment terms and schedule, he deserves a scammer tag now.

I never said they had exactly the same information, I said they had substantially the same information. I even explained what information they both had.

Part of my argument is that Patrick in fact made that mistake. To respond by saying Patrick made that mistake doesn't make sense. I agree that both sides believed that Patrick's loan portfolio had no, or minimal, Pirate exposure and for substantially the same reasons.

So the agreement still would have happened even if Patrick said "Yes, I have significant Pirate exposure"? Bullshit.

Somehow we must have some kind of a disconnect somewhere. Of course both knew Pirate was at least very likely to be a scam. That's the whole reason this agreement was constructed the way it was -- to protect against Pirate exposure. The common mistake was the belief that Patrick's loan portfolio didn't have significant Pirate exposure when it actually did.

Both parties willfully ignored the obvious gaping holes in Patrick's business model, despite being repeatedly told what they were. Honestly, I'm somewhat disgusted at the righteous indignation of the usurious lenders who refuse to accept any responsibility for their significant role in this fiasco.

What information did Patrick have that others didn't have that would have changed the conclusion they drew?

It might or might not be equally on both sides of the contract, that would depend on the example. But if it was in fact equally on both sides of the contract, then it would be inequitable to enforce the contract as agreed. (I gave two examples that clearly show this. You are welcome to address them. But you can't just create an example where there isn't a common mistake, show that there's no common mistake in your example, and then try to argue that has some relevance to a contract that does have a common mistake.)

The problem is that the contract doesn't cover the case where the loans have correlated risk.

Both Patrick and those who loaned him money understood his business model and the rates he charged. They both equally understood that he asked people whether they were investing in Pirate and made clear that this was unacceptable. It's not like Patrick had evidence of correlated risk that he had from his investors, at least not the we know of.

Right, but the agreement was predicated on a mutual understanding that the loans didn't have significant correlated risk.

As for your quote from another thread, I can't quite understand the relevance. Are you saying you were aware that there was a high probability that Patrick's loans had significant correlated risk due to exposure to Pirate?

I very strongly dislike Patrick. If he was willing to pay me to shill, I'd happily take his money, but he has not yet made such an offer.

I've expressed no opinion on whether his repayment schedule is adequate or not. Roughly speaking, if he's on track for 50% within a year, that'd be reasonable in my view. As I said, I'd really like to see him committing to an amount and a schedule and sticking to that commitment.

A 50% refund would certainly be one equitable resolution of the mistake. It's not the only one.

Patrick claims he has been making reasonable payments on all his outstanding debt. I have no idea how much debt he has outstanding or what kinds of payments he has been making.

I agree that a scammer tag would be completely appropriate if Patrick has been making unreasonably small payments on any of his outstanding debts, hasn't been open about his repayment schedule, hasn't been keeping his repayment schedule, or has proposed an unreasonable repayment schedule.

It's entirely possible that Patrick can't, or won't, cover his fair share of these losses. Whether that's due to intentional fraud or just lack of resources despite his best efforts, I absolutely agree it would justify a scammer tag.

It absolutely does matter when both parties to a contract assume a particular state of affairs and that neither party would have entered into the contract had they known that their common belief was incorrect. This principle is a very narrow one, but one required by equity. Quoting Lord Acton, "A mistake will not affect assent unless it is a mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be." This is exactly what we have here, a mistake that affects assent because it is a mistake of both parties and it is as to the existence of some quality that makes the thing different from what it was believed to be.

His agreement to pay back the loan at a certain rate for a certain period of time was clearly dependent on the shared belief that his loans were independent of Pirate exposure. Both parties discussed this common belief and relied on it when they entered into the agreement. It is absolutely inequitable to make one party to an agreement bear the full cost of a shared mistake made equally by both parties.

That's not helpful. The challenge is figuring out what "his debt" is. See my example of the payment for partial interest in a car. Sure, the buyer is responsible for "his debt", but the question is whether he in fact owes the payment. That's the same problem we have here. When a promise to pay is predicated on a belief shared by both parties and without which neither party would have entered into the agreement, figuring out how much is owed is not simple. You can't just look to the contract.

Here's a trivial example: Both parties to an agreement believe a truck contains 5,000 pounds of cherries and both believe that $2/pound is a fair price. They agree to sell the cherries for $10,000, based on their common correct belief that cherries are worth $2/pound and their common mistake belief that the truck contains 5,000 pounds of cherries. If it turns out the scale was broken and the cherries actually weigh 4,500 pounds, how much is "his debt"?

The argument would be that you can't look to the contract because the contract doesn't say what happens if the cherries weigh 4,500 pounds. Everything written in the contract is based on the assumption that the cherries weigh 5,000 pounds. (Unless it contains some clause about the weight, of course.) Here, it is clearly unjust to enforce the contract as agreed because the agreement was predicated on the shared belief.

The problem with simple rules is that sometimes you don't have simple cases.

If they both made a mistake, and that mistake caused a loss, then they should split the loss.

No, that's not so. If the creditor makes a mistake, the creditor is responsible for the harm that mistake caused the debtor.

It depends who makes the mistake.

If both you and the entity you borrowed from made a common mistake that caused the loss, then you should split the mistake. It doesn't matter if it's student debt or not.

They're not "assumptions that Patrick made". They're beliefs that both parties to the contract had, without which neither of them would have entered into the agreement. And I never said he could "back out of his contract scot-free".

Right, because that's not a common mistake. That's a mistake made by only one party. I'm talking about a common mistake. (Please see my example of the contract to purchase a partial interest in a car.)

That's ridiculous. Those lending to Patrick made precisely the same failure with precisely the same consequences.

The contract couldn't have had such a clause because neither side believed that situation was possible. The contract simply doesn't say what happens in that case. There is no equitable reason Patrick should take the entire hit. It is only equitable to split it. Both parties are equally culpable, both parties made the same mistake. The contract doesn't say who bears the costs because neither party thought that would happen.

If there's evidence that either Patrick or his lenders believed this outcome was reasonably possible, then my argument doesn't work -- it's not a common mistake. But it's quite clear that Patrick would not have loaned money if he believed this was possible. It's idiotic -- he'd just invest in Pirate himself. And similarly, his lenders would not have lent to him if they believed this was possible -- they'd just have invested in Pirate themselves. Both parties were victims of dishonest borrowers.

It wasn't a lie. It was a mistake. It was a mistake made by both participants in this deal. Each side had substantially the same information and made substantially the same mistake.

Patrick made a genuine attempt to vet those who borrowed from him to ensure they weren't just borrowing from him to invest in Pirate. Unfortunately, they lied to him. In retrospect, this is 100% predictable.

But if you think for just a second, it's quite clear that if Patrick had any suspicion that this would have happened, he wouldn't have lent money to them. Think about it, it would have made no sense. Patrick would have just lent to Pirate himself and would have made a greater interest rate. (And, in fact, I was arguing with Patrick and those who lent money to him at the time that it made no sense.)

This was a common mistake underlying the contract, made with equal fault on both sides, and it makes it inequitable to enforce it as agreed.

He thought he did know, as did the people who lent money to him. This wasn't a mistake that he alone made. This was a mistake made equally by both him and those who lent money to him.

The difference is that the others paying back slowly and labeled scammers, like Hashking, are in default. Patrick is not. He would only be in default if it was equitable to enforce his contracts as agreed. It is equitable to enforce Hashking's contract as agreed because his deliberately misrepresented his Pirate exposure. There is no evidence Patrick did so.

In any event, if we were to try to do that, we'd have to figure out how much of the loss equitably belongs to Patrick and how much belongs to the lenders, so we can decide when he has paid back everything he is responsible for. That's a remarkably subtle judgment for the community to make and would take effort collecting evidence and making subjective judgment calls. A scammer tag is way too coarse a mechanism for such a subtle process. It's for fraud, theft, lies, and stealing -- not for complex deals gone bad due to outside facts with all sides acting in good faith to make good.

Those who loaned money to Patrick at usurious interest rates are just as responsible for this collapse as Patrick is. There is nothing more foreseeable than the inability for a business to consistently produce outrageously unrealistic profits. Yes, Patrick was an idiot. But so were the people who loaned money to him. I have yet to see a single such person take even one shred of responsibility.

If there were a Pirate recovery, the PPT operators would have to pay that recovery to their customers, whether they got the funds from Pirate or not.

They would pay their investors out of their own funds. I'm not sure how you know they wouldn't. This actually would have been a really, *really* good bet. And you could cut your losses at any time by passing funds to Pirate. It's actually a very sensible business model.

Meaning that person is a scammer and you shouldn't borrow money from them. (See the post above me for one way they could abuse this, but there are many others.)

I don't agree. If Patrick's portfolio had consisted of deposits from people with scammer tags, people might not have so easily underestimated the risk.

It's not clear why that would be stupidity. He might want to borrow funds to finance his debts better. There's no evidence he would mislead people about the circumstances. He has no history of doing so. If he wants to borrow money so he can settle his debts with those he had to force terms on and instead owe money to people he freely negotiated terms with, why should that be discouraged? (But that's the best argument I've heard so far. If that's the reasoning, I wouldn't consider it particularly unfair or unreasonable -- just a bad idea.)

Nobody has yet admitted publicly that they relied on those ratings. If anyone does, we can try to figure out whether we should laugh or cry.

The only significant difference between a Romney presidency and an Obama presidency will be precisely what legislation they fail to push through. Otherwise it's all "I say your three cent titanium tax goes too far" and "And I say your three cent titanium tax doesn't go too far enough".

How do the asset issuers know that the list doesn't just contain email addresses controlled by Nefario? What happens if an asset holder claims to hold shares of an asset but his email address isn't on that list? It's not nearly that simple.

(And these are not impossible problems to solve. For example, if the list is signed by a public key known to be used to sign these lists, the asset issuers can prove a particular email address is or isn't on the list. With proper design, an asset issuer can prove a particular email address is or isn't on the list without revealing the others. It takes effort to design a proper redemption scheme.)

It's not clear he's a debtor in default. He's a debtor in default if it's equitable to enforce the contract as agreed. But because the contract was based on a common mistake -- that Patrick's loan portfolio did not have significant Pirate exposure -- it's inequitable to enforce the contract as agreed.

Say you and I both believe that you have part ownership a particular car. I agree to pay you $5,000 and you agree to transfer to me your ownership interest in the car. If it turns out that you don't own the car at all, it's inequitable to insist that I still pay you the $5,000 in exchange for your zero ownership interest in the car. I wouldn't be a "scammer" because I broke the agreement, even if it technically appeared to say that all you had to do was transfer to me whatever interest you had, even if that was none at all.

Here there was a common mistake underlying the contract. It's inequitable to enforce the contract as agreed.

By the way, I doubt there are any courts that would enforce a contract of this sort. The usurious interest rates pretty much assure that the contract can only be kept by fraud or coercion and virtually assures this kind of outcome. Blame for that goes equally to both sides, IMO. Anyone who is legitimate and likely to pay back won't borrow at such high interest rates. The only people willing to pay such ridiculous rates are people who don't expect to have to pay back out of their own money.

Both sides deserve equal blame for this outcome, and I see no logic to applying a scammer tag to a transaction where both sides are at equally at fault.

I'd be open to an argument that Patrick is imposing an unfair portion of the default costs on his lenders. They should be shared.

Ahh, okay.

So you are arguing both Patrick and Mircea should get scammer tags?

He's not a debtor in default. He's one party to a contract partially invalidated by a common mistake. A scammer tag would be for someone who uses fraud or deception, not for someone who makes a mistake where the other parties to his agreements equally make mistakes.

I am not arguing that. You are. You are the one who said, "Any idiot could see that these arrangements were scams from the outset."

I disagree. I don't think either party realized that there was significant Pirate exposure. The premise on which this agreement was made was false due to no greater fault on either side. The parties mutually should bear the cost of their common mistake. Patrick is making partial payments as he is on other similar debt he has.

There's no evidence this was ever a scam. There's no evidence of any fraud or deception. Patrick has admitted this mistake and is attempting to rectify it as best he can.

Enforcing a contract as agreed, when that contract is based on a common mistake, is inequitable. If the mistake is not due to one party's fault more than the other, then both parties should bear the costs of their mistake.

There's no evidence this was a scam. In fact, everything I can see suggests that it was simply a common mistake. As the transcript shows, the agreement was based on the common understanding that he had no or limited Pirate exposure.

This turned out to be incorrect. It's not clear that this is Patrick's fault. This fault is equally on both sides of the agreement. At the time, the only evidence that Patrick had significant Pirate exposure was the common sense realization that it was likely that people were borrowing from him to invest in Pirate and lying to him about it.


Here we see both parties making the same mistake. Both parties had substantially the same information and made substantially the same mistake. Why is this Patrick's fault? Patrick has stated in another thread that he is paying this debt back the same way he is paying back similar debts. He is taking responsibility for his share of the common mistake and his lenders should do the same.