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We cleaned up the hack and 404 the page. To this day, there are still over 100k links that Google says is out there.
The nice part is, there is no indication of any negative action taken by Google.
You didn't do your research. Your domain had a spam history. Also, a simple backlink analysis from any SEO would have turned up these issues and then you could have promptly disavowed them and be done with it. It's not Google's fault that you didn't dot you i's and cross your t's as a webmaster.
It is Google's fault that their pagerank algorithm isn't sophisticated enough to handle understanding that internet domain ownership isn't static, and for not understanding that spam sites pointing to 404s on another site are a prime indication that a change has happened.
Nothing about their algorithm cares about domain ownership -- and why should it? Ownership can be gamed. If your domain has a bad reputation other reputation based services like SiteAdvisor are going to affect your domain as well.
Granted, a large chunk of spammers know exactly what they are doing when they blast 1000s of links into a site, but what about the average webmaster? Or the small business owner who knows nothing about SEO and relies on a cheap "SEO firm"? Or somebody who isn't an SEO expert buying a new domain name?
I've worked on a number of link cleanups in the past and you are basically flipping a coin with Google even if you get all of the links removed. A lot of their search quality team is outsourced nowadays [1] and they provide very limited communication to webmasters who have been penalized outside of "You have violated Google's Webmaster Guidelines." Those who are very much in the public eye like RapGenius or JCPenney can easily recover through PR efforts (RG is ranking highly again for all [justin beiber lyrics] keywords [2]), but there are tons of people out there that are being run out of business by Google and have no idea what is even happening because they don't know SEO.
Low quality links used to only be discounted but since the first Penguin update they can now actively hurt a website. People who follow marketing/SEO closely are aware of all of this, but I don't think your average website owner has any idea.
1: https://twitter.com/screamingfrog/status/420165509296844800 2: http://www.seobook.com/spam-big-or-die
And you can see the 50% drop in traffic here http://feinternational.com/website-penalty-indicator/?url=sp...
Site isn't loading for me.
http://webcache.googleusercontent.com/search?q=cache:MnfiX2B...
One thing I don't see anyone mentioning is why Google ignores the 404 and still applies the penalty. PageRank is fully automated, and probably probes pages very frequently. If you let a 404 remove a penalty, people could probably occasionally 404 Google's crawler and see if it helps their rank to automatically remove poorly performing backlinks.