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By Xavier Mohr
SLReports.net With the recent ban on Second Life banking by Linden Lab, a lot of friends and just bystanders in general have asked me about my shock level in response to this move. While my stance may be a bit unpopular, I have to tell the truth on this one. I cannot say that I am surprised by the policy in itself, given the long track record of financial disasters we've seen in Second Life. To name just a few... Virtual Commerce Exchange (VCE) / Sal Ackland (Kyle Van Leuven)
Disappeared with investor funds. Some refunds were made, though many investors report not receiving the full amounts they entrusted to Mr. Ackland. Ginko Financial Group / Nicholas Portocarrero (Andre Sanchez)
Declared itself insolvent after the Linden Lab gambling ban. After failed attempts to raise additional capital, balances were converted to bonds. After bond payments ceased, bondholders received shares of the World Stock Exchange dumping-ground stock known as WTF.
The Bank / Jasper Tizzy (Frank Corsi)
Disappeared amid speculation that low land prices had significantly impacted the solvency of the bank. Tizzy came to his own defense later in SLReports.net comments citing his long-standing bank disclaimer that the business was a game. No evidence of public refunds to date. Allenvest Financial / Investor Allen (Kyle Van Leuven again)
Declared itself insolvent following the sale of AVIX and emergence of the 'bank-only' allenvestfinancial.com. Depositor refunds underway via Bogart Beck, disseminating Allen's portfolio to depositors on behalf of the SL Capital Exchange. SmartVest / Blazed Miles (Real Name Unknown)
Disappeared from the grid after allegations were confirmed that the CEO was actually a 15-year-old student in Pennsylvania. Information supports the fact that most depositors were probably refunded as well as could have been expected. Midas Bank / Midas Commons (Real Name Not Available)
Declared insolvent by the World Stock Exchange. Midas Bank was heavily invested in shady Second Life securities, most notably the Hope Capital Bond, whose failure to provide a schedule bond payment spelled ultimate disaster for the institution. Refund status unknown.
If you go by the liberal figures tossed around in each of these circumstances by self-proclaimed Second Life market analysts, we see with just these few instances losses equating to more than a million U.S. dollars. I hate to say it, but if you never once thought Linden Lab would step in with regard to in-world banking, you've been covering your ears shouting, "Na-na-na-na." I can only imagine how many abuse reports Linden Lab received against each of these players and their businesses. The inevitability of this move, though, really started bearing itself to me in October. I was approached on the condition of anonymity by a former Ginko and The Bank depositor, who was interested in circulating a petition asking Linden Lab to ban in-world banking. Of course, I could not participate. I thanked the user for trusting my opinion, but informed him it would be a massive conflict of interest to get involved in such an effort. It was shortly after that, as I was researching a possible story lead, that I came across hard evidence of a pro-bono legal services group that was "investigating microfinance related to online gaming." I shared this with a few close confidants and virtual bankers, all of whom basically laughed it off as something that would not get off the ground, or something that was unrelated to their businesses. There were other signs, too. In real life, I received a telephone call from someone claiming to be investigating virtual banks. Whether or not this was legitimate or just a prankster with nothing better to do is something I am not certain of even to this day. Others more well-placed in these matters than I am have also seen the signs. I've heard rumors of virtual bankers being told to "get out while they can." Everyone, basically, has heard rumors as well of Linden Lab refunding depositors of smaller, failed banks that have disappeared. Of course, rumors are just rumors... the truth of which is always hidden in the first link of what is often an endless human chain of embellishment and misunderstanding. Whether or not any of that means anything is up for debate. Of course, the 'gist' of it all spelled out clearly what would be Linden Lab's final, and only word in this matter – a ban of in-world banking. To an extent, I understand the move. I understand how easy it is for account holders to illegally hide real-life earnings via virtual banks. I understand that the overall reality argument of the Linden Dollar made the banks themselves susceptible to real-life regulation. I understand that arguably unsustainable interest rates at opaque institutions paint a picture that can easily be portrayed as a Ponzi Scheme. I do not, however, understand the logic of a "two-week notice." We have hundreds of thousands, if not well over a million, U.S. Dollars at stake in the closure of Second Life's largest virtual banks. In Second Life, just like the real world, banks do not keep all of their Linden Dollars on-hand as a reserve. Banks must invest depositor funds in order to pay interest. Anyone who believes a legitimate bank has the ability to fully pay back depositors within a day, or days, needs to study up a bit more on the world of finance. Simply put, most of the money on deposit at all Second Life banks is not readily available... it's in the form of loans, collecting returns from real-world accounts, invested in virtual exchanges, and so on. Liquidation of assets, for most banks, would take far longer than two weeks... assuming the virtual banker rightfully wants to preserve the principal investment. However, the cut-and-run policy by Linden Lab is not a surprise given their track record of inept community governance. We have seen virtually no statement on in-world finance in the past, and the few times I have attempted to get information from Linden Lab about virtual finance, they have reacted in horror like I brought up the one subject that they weren't supposed to talk about. Any corporation concerned about their users would have handled the banking ban differently. A 90-day timeline, while very short in itself, would have been a better route. Or, better yet... how about staggered regulation? For instance, all in-world banks must submit articles of incorporation and evidence of solvency by February 1. By April 1, all in-world banks must be compliant with the Patriot Act and other U.S. laws affecting account holders of financial institutions. By August 1, all in-world banks must submit a registration statement or bank charter. I think, if this would have been done properly, it could have worked well for the Second Life economy. The legitimate banks would have had time to get their real lives situated in a manner that would allow them to continue their virtual businesses. The fraudulent businesses would have disappeared quickly. The implementation of this policy, however, was truly dictatorial and careless. Much like the gambling ban, Linden Lab stayed quiet as they no doubt held meeting after meeting on the subject internally. No warnings, no care for the business owners or depositors, just a quick and dirty, "You can't do that anymore." Second Life, in my opinion, is becoming less and less, "Your world, your imagination," and more, "Phil's World, serving Phil's interests." I would not at all be surprised to see a real-world bank pop up in Second Life within the next few months, doing much the same as was JT Financial or L&L Bank and Trust. In fact, I would not even doubt that the plans were already in place when this policy was implemented. To me, Second Life has just in general become too boring, and too commercial. Gone are the days of vibrant user-owned businesses and variety in commerce. Instead, we're seeing the big dogs slowly spread their tentacles into areas once controlled by small business. In short, Second Life is just becoming another bland social network, another faceless, regulated extension of the traditional Internet. I gesture to say that if you think Linden Lab will stop their reign of power at a banking ban, you are wrong. Second Life business owners should be diligent in making sure that their service does not compete with some real-world corporation that can afford to enter a financial partnership with Linden Lab and sway their policies. Capitalism and a free market will soon be things of the past here in Second Life, as regulation from Linden Lab trickles down to ensure that only real-world businesses can establish themselves as service providers here. Sorry Charlie, no sale... I prefer to do business with the faceless corporations through my web browser. Where do we go from here? Good question. Only time will tell.
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