Quote from: Stephen Gornick on November 14, 2012, 04:32:57 AM

Quote from: JoelKatz on November 14, 2012, 04:03:26 AM

It's just as much the depositor's fault because they drew substantially the same conclusion with substantially the same information.

Where do you come up with this?

If I am speeding down the freeway, behind another car that is speeding down the freeway, I am not at fault if that driver gets in an accident due to driving at an excessive speed. That driver is not at fault if I get in an accident due to driving at an excessive speed.

Of course, but that's not even remotely analogous because there's no agreement between the two drivers.

Let me try it one more time: Say two people each, through equal fault, believe there's 1,500 pounds of cherries in a truck. They each have no doubt this is true, even though there is actually 1,200 pounds of cherries in the truck. In this context, there is no difference to them between "the cherries in the truck" and "the 1,500 pounds of cherries in the truck", because they both believe there are 1,500 pounds of cherries in the truck. Now, say one agrees to sell the [1,500 pounds of] cherries in the truck to the other for $3,000. Then, they discover there isn't really 1,500 pounds of cherries in the truck. What do you do?

One can argue that the contract said $3,000 for the cherries in the truck, so he's still owed $3,000. The other can argue that there should be 1,500 pounds of cherries in the truck, as agreed, as the other guy should add cherries to the truck.

This is a case of common mistake -- a contract premised on a shared mistaken belief without which neither party would have entered into the agreement and which is central to the agreement. In this case, you can't enforce the contract as agreed because the contract "as agreed" requires there to be 1,500 pounds of cherries in the truck.

This contract was about Patrick's loan portfolio and the characteristics of that portfolio were central to the contract. We now know that this portfolio did not exist in the form the parties believed it did. It's just like the truck not having 1,500 pounds of cherries in it.

Both parties believed Patrick's loan portfolio was largely free of Pirate exposure and free of correlated risk. The parties entered into an agreement premised on that mistaken belief without which neither of them would have entered into the agreement. The contract simply could not have said what should happen if it turns out there's significant correlated risk because neither party believed that was possible.

Here it is as plain as day, mistaken assessment and agreement with that mistaken assessment:

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

This is, of course, invalid reasoning. There's indirect Pirate risk even if funds are not invested in BS&T. This is a mistake both parties equally made. Note that they never went on to discuss what would happen in case they were both incorrect and that somehow a Pirate default did cause his equity to drop too low to cover the loans. They wouldn't have because neither thought this would happen. And this wasn't due to fraud or deceit, both parties were simply mistaken.