A Run On Ginko Financial May Accelerate
In October of 2006, I interviewed Ginko Financial's CEO, Nicholas Portocarrero. At that time, Ginko Financial was accused of being a ponzi scheme by Anshe Chung and others.
Now the whole situation has popped up again, with Benjamin Duranske speculating that Ginko is either a fraud or mismanaged. He's got some interesting facts put together. And with the present withdrawal limit of 5,000 Linden dollars a day, there is room to speculate a lot. When Arbitrage Wise sent me an IM Thursday evening about withdrawal issues at Ginko - I checked (I have some money stashed away in Ginko) and was able to withdraw money that evening. Today, however, I have verified that the 5,000 Linden dollar withdrawal limit is real.
But then - if it were a fraud, wouldn't Nicholas have packed up and disappeared like some of the businesses that made IPO at WSE Live? Runs on banks are not anything new. Most countries have laws about banks having enough funds on hand, a float, to deal with runs. In Second Life, banks are unregulated and are considered high risk investment. Consider what happened to Second Life Investment Bank - but then, remember, Lindsay Druart built on those ashes.
There are issues with Ginko Financial's lack of transparency - there always has been a lack of transparency - but despite controversy and the lack of transparency, Ginko Financial is still around. It is difficult to say what the future holds with Ginko Financial; I am not quick to damn a bank which is probably the longest lived in Second Life. On the other hand, the facts that Benjamin Duranske points out do require some thought and attention - especially by the people behind Ginko Financial.
With the rumor mill working over time and a general lack of communication, it is likely that the run on Ginko Financial will accelerate because of the recent round of criticism compounded with very small withdrawal amounts. But, if this were indeed a fraud, Ginko would probably have disappeared altogether. It's time to wait and see.
As for me - I have money in Ginko Financial. And for now, it will stay there. Why? It's a risk, but it is one that I am willing to take based on the fact that it didn't just disappear. I will revise that opinion as necessary, but that is my responsibility. Your money is your responsibility.
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Just a speculation ..
I haven't been covering much SL media lately, well, because I've been hunted down by nearly every news agency.
To the point, and I remind you all this is just speculation, but this could very well be a protection move for Ginko to let the financial markets settle in SecondLife, hoping that allowing users to withdraw will give them some confidence, yet protecting the bank from going under. If I ran a bank in SecondLife, I probably would have reacted in the same fashion. With all that said, it's still possible something bad could happen.
In closing, I hope everything gets back to normal soon. This has been one crazy week.
Disclosure Request and Question
Sarah and Mystik, would you mind telling readers if you have money with Ginko? It's not a bad thing, but I think readers have a right to know if you do, like they do regarding Nobody Fugazi's piece above, since you both seem at least somewhat inclined to trust Ginko. For the record, I don't have money with them.
Either way, here's my question: do you think that Ginko Financial is being completely honest with depositors?
Because I don't think so. I think that they recorded about 4 million Linden in loans as "deposits," just today, artificially inflating their "total deposit" number and in so doing, making people think they have more money on hand than they do. I think they've been doing this for a long time. I've been tracking the numbers pretty closely this past day, and that's sure what it looks like what is happening. Read my piece, and tell me if you don't think that's what happened too.
http://virtuallyblind.com/2007/07/28/commentary-ginko-financial-is-a-fra...
And if that happened, do you agree with me that they're not telling the truth about how much money they have?
These are honest questions, and I'm not trying to pick a fight over them at all. I've got a lot of respect for both of you, and what you've done in Second Life. I just wonder, given the facts at hand, if you could be giving Ginko too much credit right now.
Think about it this way, if a RL bank that claimed to have three-quarters of a million US dollars deposited and offered 60% annual interest told depositors for days on end that they could only withdraw $19 per 24 hours, wouldn't you think something fishy was going on?
Especially if the bank's president said he needed to get *loans* to cover withdrawals, rather than just sell one of the bank's assets that was bought with the giant pile of money that has been deposited?
Me, I'd start to wonder if that money was really "invested" in a house in Maui, or bunch of cars, or a lot of beer.
So that's the question. Knowing what you know, reading everything that's out there, do you think Ginko is being completely honest with depositors right now?
And hey, if you've got money on deposit, I really do wish you good luck getting it back. I know it's an ugly time for people who have cash with Ginko right now, and I'm not very happy that this is the story that I'm mainly covering right now.
Ben
Not currently.
Before Mystik Designs went public, I had deposited 300,000L into Ginko. I withdrew the full balance the following day. My reply to this thread was just speculation on how they could possibly be trying to protect their system from going under, nothing else.
I don't hold funds in _any_ financial institution, with the exception of WSE and AVIX. I only hold a rough 70,000L in WSE and 50,000L in AVIX. My WSE assets are frozen.
I haven't been able to read much of the Media surrounding Ginko due to my own situation. I'll read up and post a speculation as soon as I get in the loop.
Not answering for Sarah or Mystik
What I will say is that you make good points (I even said so!) - but when I make these judgements within Second Life, I consider the peers of the business in question as well as their track records.
That Ginko is not transparent is not a mortal sin. Linden Lab is not transparent, either. The abuse reporting system, among other things, lends itself to a level of inconsistency which a lack of transparency is necessary for.
That some businesses claim transparency is all well and good - but at the end of the day, we only have their word. Take WSE, as an example: While things may appear above board, there's no way that anyone can say that insider trading is not involved. Let's look at other banks. One, which I will not name, supports itself by ad spam extortion. Others speculate on venture capital within Second Life, as well as land speculation. But anyone who has dealt with land in Second Life knows deep down that the market is implicitly flawed.
To put Ginko on trial, we really need to put everyone on trial. A jury of peers in banking would probably not even blink at Ginko's actions.
And, as far as Ponzi schemes - a hard look at the real estate market would be interesting to consider, especially in light of Linden Lab proclaiming itself as a service provider in the context of Bragg. Land reselling in Second Life is de facto reselling of a service which has a service charge, thus making all land resellers affiliates in what could be considered a scheme. Think about it.
Where Ginko has been right is in being there through all the scandals and not screwing it up. I think you may be right, poor management decisions were made - but then, let's talk about doing an upgrade of a service and not giving people access to any of their money for 5 days. That's what the WSE recently did. At least Ginko is allowing withdrawals.
Good Points
All really good points, Nobody. I'm not so concerned about transparency (though that's a big red flag) or what Ginko's banking peers might say though as I am with the possibility that Ginko's total asset computation, one of the only things they actually do provide to the potential investing public, is actually based on financial falsehoods: e.g., calling a secured loan a deposit.
So that's why the question, and I suppose I actually do still wonder about the answer. Do you -- or does anybody -- feel comfortable saying that they are being completely honest with investors and/or themselves about their assets? I haven't seen anyone say that they are, directly, though lots of people say, let's wait and see, given the the benefit of the doubt, etc., all of which I think are pretty fair points.
But do you think, based on everything you know, that they are being honest with investors and/or themselves about their assets?
Yeah.
You know, for a while when the IPOs were zinging out of WSE like an induced diarrhea, I was considering an IPO for Your2ndPlace.com. Seriously. Such an IPO would have made my real life much easier for the time and energy invested in the site. So I was looking at my assets, and in redoing a business plan for the site I realized that the fast money was a short term benefit and that I did want a little privacy.
But then, I'm one of those honest fools running around.
I think Ginko Financial is hiding something. I honestly do. But the way in which they are handling it - that they even acknowledged a problem in the first place - is exemplary. That they are working towards a solution, as strange as that solution might seem, is also good. They could have easily absconded with the funds - anyone can.
What is worse - and the really big elephant in the middle of the table which no one speaks of - is that the lack of transparency into Linden Lab's abuse report system is one of the largest risks of Second Life. A person who holds accounts with many people can be arbitrarily banned with NO visible precedent and by the Terms of Service this can be done at any time. That is one of the more interesting issues that Bragg has helped the metaverse with.
So what no one is saying is that Linden Lab itself is the greatest risk to business within Second Life. In the grand scheme of things, if Linden Lab doesn't practice transparency - can we really expect anyone else to convincingly do so?
I'm going to agree with you.
I'm going to agree with you. Everytime the site closes or pauses there is a panic. I think this may be a protection move as well. My personal Ginko experience has been great. They have been around for ages and that counts for something. I remember being really excited as a newb to get the 50L sign up bonus. I have faith that it will be good to go again soon.