Patrick's methodology wasn't a secret. Outsiders realized that his belief that there was little correlated risk couldn't be true.
Outsiders to Bitcoin in general - such as yourself - make all sorts of basically stupid but otherwise wild claims. The fact that they make them rends them no particular validity.
The "that works" in that quote works as follows:
PH: Hi, I would like to paint your house for a fee.
MP: Are you able to paint houses without doing them damage? Specifically, set them on fire?
PH: That doesn't matter because if I damage your house to any degree I will pay for it, up to the extent of the house's full value.
MP: That works, go ahead.
"That works" means that the respondent offered something substantially different from what was sought that is considered nevertheless to satisfy the original point. In this case, MP's concerns about PH's loans were put at ease by PH's universal and unconditional undertaking to repay (personally) in any event.
This is what "the business model wasn't part of the agreement" quote of mine before means: it was not, because what had originally started as a discussion of that was averted by Patrick's reply.
I'm curious about which jurisdiction you think this contract exists in, because you're sure as shit not going to get an award of punitive/exemplary damages under NZ law. Nor are you going to get an award for full costs (typically, only about 60-70% of actual costs are covered in a judgement where costs are awarded in Australia and NZ).
I don't agree with Joel's reasoning, but you're dreaming if you think that a NZ court would award you the amount you're trying to claim you're owed.
Our position is that this contract exists in BTC world. We're obviously (all of us) still working out how BTC world contracts work. The demand is obviously nonsense, nobody has the authority to award damages in BTC world, so the point is factually moot.
However, since JoelKatz's delusions reached the point of setting numeric percentages (randomly 40%, later randomly 50%, all this of course fully backed by the imaginary legions of "everyone" surrounding him in his mind) I figured it can't hurt anything to set a counterclaim, as an example. It's not to be taken out of the context of talking to that lunatic, and it's not intended as anything else than illustrative for that context.