Quote from: JoelKatz on November 14, 2012, 01:53:14 AM

This is not a case of a bank making bad investments while its depositors had a reasonable expectation that it would make good investments. This is a case where both Patrick and those who invested with him made precisely the same mistake -- given his business model, there's nothing Patrick did wrong (until the Kraken fiasco). He just picked a lousy business model to invest in, just as his investors did. I don't know what else I can say other than to keep repeating myself because these are points I've already responded to. (You are, of course, welcome to respond to my responses.)

Patrick and those who lent money to him belived that Patrick would have sufficient funds in his loan portfolio to cover deposits in the event of a Pirate default. But he did not. This was not through any particular fault of Patrick's that wasn't shared with those who loaned him money.

Aug 10 08:06:31 listen i actually wanted to talk to you.
Aug 10 08:06:38 hi
Aug 10 08:06:54 hey. your deposits still bs&t free ?
Aug 10 08:07:21 I run a slightly complicated business, but most of the deposit accounts I run are BS&T free
Aug 10 08:07:39 that's what the market wanted
Aug 10 08:07:58 you deem yourself able to repay your depositors in the event bs&t goes bankrupt, and nothing is recovered ?
Aug 10 08:08:00 back in a couple of minutes - grabbing a glass of wine - friday evening here
Aug 10 08:09:57 back
Aug 10 08:10:17 in the event BS&T goes bust, I have more than enough assets to cover that
Aug 10 08:10:41 mainly because the 15,500 coins I hold on deposit are not invest in BS&T
Aug 10 08:10:56 well that works. i'd like to put 500 bitcoins with you

Patrick is arguing that because of his business model, he would have sufficient assets to cover his borrowed funds even if Pirate defaults. Those who loaned him money agreed with this assessment. Whether it was inevitable given his business model or Patrick just suffered bad luck or what have you, Patrick and those who loaned him money agreed on a set of circumstances which formed the basis for the loan, a key one of which happened to be incorrect, without which neither party would have entered into the agreement.

I don't know how it could be clearer: "well that works. i'd like to put 500 bitcoins with you".

And I'm challenging that it could be seen as an investment based on how it was defined and promoted. It was deposits and Patrick acted as a bank. Depositors were not investing in the business, just agreeing to use patrick's financial service who's offer was basically working the same way as a bank.

You've now added that people loaned him money and Patrick was the borrower which also points to a depositor/bank situation. That the fact he was wrong when he said he had sufficient funds to cover deposits in the case of a Pirate default is somehow just as much the depositors' fault because they heard that statement and then proceeded to extend funds to Patrick?

In that case, if someone tells you to loan him money for expanding his mining farm and claims to have enough current mining power already to pay it back later, if he ends up being wrong, someone the lender is at fault and should accept that risk was somehow shared because it was some joint venture? It was a loan. Extended money, not an investment in a company. If it was an investment with shared risk, Patrick would not be offering a fixed rate on deposits. The rate would be proportional to profit or loss because you own part of the business. His offer was to take deposits and pay interest on it, just like a bank. The business was his own only and all profit from the deposits/lending difference in rate went to him. Not "investors". The bank now voided deposits without going bankrupt.

You repeat that risks are shared among co-investors with example situations demonstrating it and that profit is shared just as much as loss is. But you bring no argument why it should be considered as a co-venture. I claim that it cannot be considered an investment in Patrick's operation because there's no ownership of Patrick's operation for depositors and profit is not shared either, neither should loss. Patrick acted as a bank, as a financial service provider, offering a fixed rate on funds entrusted to him and requiring an higher rate when then lending said money, keeping 100% of the bank's profit. Had it been a co-venture/investment like in your examples, the margin between deposits rates and loans rates would be shared among the investors.

I agree that profit and loss is shared when we're dealing with an investment. I want to know how you arrive at the conclusion that it was an investment when the operation's profits (the difference between deposits rates vs loans rates) is not shared among the investors. But somehow, losses should? Depositors were not investing in Patrick's operation. They were depositing funds in exchange of interests. Deposit accounts are similar to loaning money to a bank, which has the responsibility to keep the deposits safe and also offers a small percentage interest in exchange for the loan.