A strong caution to anyone considering buying Pirate obligations

[JoelKatz]

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.

[imsaguy]

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.

[Oinsane1]

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

[JoelKatz]

Completely ignoring that the counter-party might have a long, well established identity that doesn't match anything to do with pirate.

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.

Seriously, thanks for the PSA, but let's not spread paranoia.

You're welcome.

[bitcoinBull]

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.

I have no special insider information.  I handle all my financial transactions with clarity of mind by performing a non-reactive analytical inspection of all available facts.  I have no doubt these transactions will prove fruitful for me.

[imsaguy]

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.

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.

[JoelKatz]

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.

[CoinDiver]

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.

[Gyrsur]

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.

[gene]

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.

[bitcoinBull]

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.

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

[bitcoinBull]

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.

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

[JoelKatz]

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

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.

[EuSouBitcoin]

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.

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

[JoelKatz]

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.

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

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.

[Gyrsur]

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.

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

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!

[SgtSpike]

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.

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

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!

[Gyrsur]

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.

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

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.

[conspirosphere.tk]

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!

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.

[SgtSpike]

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.

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

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.

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