By Matthew Beller

In a previous article, I conducted a basic analysis of the economy and monetary scheme of Second Life, a three-dimensional virtual world where users can create virtual goods and services and exchange them with one another. I showed that thus far, Linden Lab, Inc., the creator of Second Life, has taken a mostly hands-off approach to its economy, with the notable exception of its fiat currency scheme.

Unfortunately, Linden's aversion to paternalism changed in January with its announcement that it would be banning most interest-paying banks from Second Life. The announcement reads:

"As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in [Linden dollars (L$)] or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We're implementing this policy after reviewing Resident complaints, banking activities, and the law, and we're doing it to protect our Residents and the integrity of our economy."

This policy has strong parallels to the adoption of 19th-century banking regulations in the real world. These regulations were supposed to stop wildcat banking, where ambitious bankers expanded credit through risky loans until defaults led to insolvency and left their depositors empty-handed. Similarly, in Second Life, unregulated banks have offered demand deposits bearing interest rates of 40% or more, at least one of which never actually had any loans underlying its interest-bearing deposits.[1] Cases such as that are almost certainly fraud and should be adjudicated as such, but Linden's adoption of a draconian ban on all interest-paying banks, which had been preceded by a ban on gambling, has established a clear pattern of economic interventionism. This does not bode well for Second Life users, for as Ludwig Von Mises has taught us, middle-of-the-road policy leads to socialism.

By Guardian Market, SLR CFO

 Metaverse Investment Fund (MIF) manager Shaun Altman hopes to bring a “whole new era in virtual world finance.”  The MIF had its first meeting at its headquarters in Theta at 9pm SLT on Friday.

The MIF makes some big promises in a world of investment uncertainty.  Linden Lab’s banking ban brought nothing less than panic to the marketplace, and the SL Capital Exchange’s investigation of the Sky Power Fund (CAPEX:POW) has brought doubt to resident-run funds.  However, the MIF’s website promises complete liquidity within 72 hours if necessary, regardless of amount of money invested.  That challenge, combined with the usual promises of transparency and honesty, give the MIF a lot to live up to in the coming months. 

The MIF functions as an arbitrage fund, although Altman has been tight-lipped about what types of arbitrage investments MIF is participating in.  The website shares some insights as to what can be excluded from MIF’s realm of investments, however: “We don't invest with any banks, stock exchanges or any other financial service offered up by a resident within Second Life.”  And while the fund promises to do its best and hopes for sustained high-yield, it makes no promises about returns to investors, thus shielding it from the banking ban.

Investors are certainly taking notice, as well.  According to the February 1, 2008 Financial Report , the fund is now boasting nearly 630,000 in its first week of operations.  "I'm pleasd to report to you tonight that the community has heard our message LOUD and CLEAR," said Altman during the shareholder meeting, "This is an AMAZING first week for the Metaverse Investment Fund, and we can't thank you enough for your support of our vision!"

With all the recent events that have occurred in the Second Life financial sector, SL Reports brings you another twist. Ever wanted to own a piece of history? Well if so here is your chance.... Ginko Financial is having an auction, you could be the proud owner of a piece of hardware that was once the main server of Ginko. Ginko is holding the auction on ebay. Will the money be used to refund some creditors, or is this Ginko's last way to cash in.....you be the judge.

Posted from Ginko Website: