January 8, 2008 by Nobody Fugazi
Posted in
Yes, I know - and if I didn't, all the instant messages I got in world would have let me know: the Linden Lab blog entry, 'New Policy Regarding In World Banks' has finally arrived - almost 5 months after Ginko Financial closed its doors.
Well, they're on the ball.
I've been working on a contract inworld, and I'm glad to see that Ciaran Laval and Jezebel Bailey have chimed in already. This is a big deal.
I took my time in collecting information and not being reactionary (as so many others are right now). Let's take stock. Sure, Linden Lab is late - but they are finally doing something that they should have done at least a year ago. That they didn't has cost a lot of people a lot of money, but that is water under the bridge - nothing to do about that, really. And there are people who will say that there are no legitimate banks in Second Life - a generalization which can't be proven accurate. This is what Linden Lab is attempting to do, apparently.
I got a lot of information, particularly from Wenden Xeno who had some transcripts and images he sent - but I'm not going to use them because we already know that people are going crazy at the ATMs inworld. I fully expect that the last 2 weeks of banking in world will be plagued with servers not being able to handle the load from Second Life banks who are trying to do the right thing.
Oddly, the WSE seems to have closed its doors before all of this happened - something that does look suspicious, especially in light of how Linden Lab has assisted WSE in the past when they won't help most other residents. Do I think that WSE knew about this? Better, do I put it past WSE and Linden Lab? No, I do not put it past them- but it also does not mean it is so. I will say that WSE has had a rather strange run of luck as it is.
The short term issues are affected by the lack of long view of many people - so let us start with the long view.
The Horizon
The horizon of Second Life isn't particularly clear. I've had mud on my boots which was more transparent in many ways. Still, we have an idea of what is going on based on what they actually do. In this case, they say that they are going to crack down on Second Life banking.
But what does that mean?
According to the entry by Linden Lab:
...We will not apply this policy to companies who submit a registration statement, charter, or other applicable license from a governing regulatory authority, or who are merely conducting marketing or education, but not accepting payments...
In other words, there has to be a governing body involved. That has been the crux of many issues of transparency within Second Life banking and exchanges. In this, I have to agree with Benjamin Duranske's comments on this new policy - it is good, but it is late. Linden Lab is, as usual, as reactive as a [w:noble gas]. There. Brush up on your chemistry.
The Short View
People are, for lack of a better phrase, freaking out. And this freaking out causes the servers and sims that house the banks/atms/exchanges to be laggy and even fail. So this snowballs. Obviously, Linden Lab didn't think about this when they posted their announcement (5 months late), but it is what it is.
So what do you do if you have money in a bank in Second Life? Simple. Go do something else for a while. Stop freaking out and trying to get your money out every 5 seconds. Try less often. In the meantime, do what you would normally do - unless you normally freak out, in which case you may want to consider consulting a medical professional.
Nobody Notes
If you didn't see this coming, you need to start paying more attention. Let's face it: The tax people are coming, some are already here. Banks have been closing, some under suspicious circumstances - others because of misplaced investments under the control of unpredictable and unconscionable business practices of others.
It has been time to pull the plug for some time. Linden Lab could not provide the tools for the community to manage itself for a variety of reasons. First, it may not be technically feasible. Second, it makes them a platform for something which permits poor business ethics and which has, in the past, rewarded negative behavior.
With all that said, it does seem as though Linden Lab woke up around New Year's Eve, scratched itself and said, "Hey. What the heck is going on?" Is this a new Linden Lab? Will they be more reactive in the future? One can hope. The next stop will be landbots and 16m ads - but with those, they can't remove ATMs. It isn't that clearcut. But it is more of a problem than they have been letting on - and since they seem to be awake, maybe they'll do some more before they go back to sleep.
And if I were a betting man (upcoming pun unintended), I would say that this will all be in the Terms of Service right next to 'gambling'.
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[...] or at least acknowledged as inevitable, by observers as diverse as Benjamin Duranske, Prokofy Neva, Nobody Fugazi, Tateru Nino and Dusan Writer; dissenters have been few and in between, easily dismissed as either [...]
Nobody, why should they have done this a long time ago, or ever?
LL has now decided, unilaterally, that some contracts between residents are not valid.
LL, of course, does not help to enforce valid contracts.
They simply tell us that some contracts are wrong and that they will aid RL taxing authorities in tracking down the evildoers who would deprive the king of his ransom.
I am an adult and I do not need to be protected from myself, least of all by the alternately millenarian and enterprising Lindens.
I have no respect left for LL and will pull all of my money out of SL as soon as practicable.
Time to find the next Temporary Autonomous Zone.
Oh, come now.
We all know that it really isn't our world - it is a world that belongs to [w:Linden Lab]. And because it is the property of Linden Lab - I'm using the emphasis for a reason - they have to do what they must to protect their property. Or product, if you will.
And let us also face it - the bad has outweighed the good for some time. Certainly, there are at least good people out, and most certainly they were trying to do good things. But they were outnumbered, especially in a system that rewarded negative behavior. Left unattended as it was, there was simply not enough good to outweigh the bad. The last year in Second Life demonstrated that beyond a shadow of doubt. Uphill battles, SLEC, etc - all valiant attempts, but at the end of the day... they had no teeth. The options were... give the community teeth or sweep the good and bad off the stage.
Giving the community teeth opens up all sorts of problems, including whether a 'fictional currency' is actually fictional - in a legal sense. It also opens up new opportunities for people to do bad things, though we would not like to admit that.
You certainly are an adult, and you do not need protection from yourself. However, when the guillotine is about to fall, you might look for someone to protect your interests. And if the guillotine has fallen, well... begging from the basket is difficult.
That you don't have respect for Linden Lab is understandable given your perspective - and I will not say that your perspective is wrong. However, I offer a different perspective: TANSTAAFL. There is no real TAZ.
TANSTAAFL.
Second Life Consultant
The problem is...
..that in RL, the government says there are invalid contracts, too. But beyond of these confines, valid contracts are enforceable, and the government exists (in part) to enforce them.
LL simply wants to window-dress SL to make it presentable for its corporate clients.
And so we get the negative aspects of government (arbitrary banning of consensual activity) without the positive (enforcement of valid contracts).
It's obvious that their attorneys wrote this policy. If it were up to attorneys, 90% of commercial activity in the US would cease.
This decision will have far-reaching implications that will on balance be very negative for the future of SL.
Well, the TAZ was fun while
Well, the TAZ was fun while it lasted. The positives outweighed the negatives in my opinion. But this kind of zone without rules and regulations tends to always end after awhile.
Land Shepherd
so much for the "snowcrash" scenario
SL as it was posed too much risk for both the US government and the major financial institutions.
This was coming for a while
I was at a governance team meeting a few months ago, not long after they were introduced and it was hinted then that something was going to happen to banks. I know it was not long after the governance meetings started because they didn't have the childish queue for the microphone rule in place and I was still attending them.
Yes it is a good move and for those who are with well managed banks the fallout should be minimal, those who were with banks that were not so well run, that could be painful.
However the move was very much needed and LL have made the right decision and even if the warning had been six months, we'd have seen a run on the banks. Unfortunately as we've seen in the UK with the RL bank Northern Rock, people do panic when banks hit a bit of turbulence and no amount of warnings seems to quell that panic.
I dont think Linden cost
I dont think Linden cost anyone money by being late. I dont really think it was late because this was bound to happen, the bubble was going to burst. It was a matter of time and it could have been worse. LL just prevented a major disaster.
LL warned about this and they didnt want to butt in. But people kept making the same mistakes over and over. It was the same urge as gambling. So many things is wrong about the idea of a virtual stock exchange. An exchange where people IPO to raise 1000USD, an entrepreneur that cant shell out 1k- 2k USD for his business idea is not ready. Another thing an idea cannot be on IPO its gambling. Also a tiny uncertain business should not be public, risks of a start-up is huge thats why only experienced angel inventors venture in that area. Because they have the experience to know what they are doing. Just look at how Luke operated WSE. Using the idea its play money when we know its real money and many people were loosing their money.
Another thing is how will the so called virtual stocks compete with ponzi sl bank accounts paying unreasonable interest rates.
There shouldnt be any need for regulation, really there shouldnt be any exchange or bank at all, it was an idea built on false premises.
I saw that people kept making the same mistakes because of the urge to gamble so nothing anyone said will convince them to stop.
I hope the more honest bank owners will refund their depositors that will put some money back into the economy. Its a tough lesson for those involved but lets learn it was a mistake and move on. Lets play sl for fun, build, script or party.
OK. Let me put it this way.
In the state of Florida, there is an arcane law that I heard of that requires a certain amount of people to die before a traffic light is put up - some number like 5, I think.
Could 4 lives have been saved if that law were changed to 1? Maybe. It isn't a very simple thing.
We all know Linden Lab is late. We also know that banks have cost people lots of money in the interim. That Linden Lab waited 4 months after people lost about $700K+ USD in the first place... I find that a hard position to defend.
Second Life Consultant
Meh
Ok, not to be cold, but anyone who kept playing with the banks (excluding newbies who didn't know better) should not be surprised ... I think there are two reasons for the banks, one is to make a little extra, and the other is like me, if i have it I spend it. I'm just amazed people didn't all pull out all their money after the first 3 or 4 go arounds. I had money in ginko, but pulled it out a month before the crash, it just didn't make sense to trust someone with my money when there are no controls. This will be a significant blow the economy as people loose their lindens ... and let me say, here come the lawsuits.
Arthur Fermi
Fermi Sandbox & University
www.fermidesigns.com
So where does this put exchanges?
I would be interested in your take on the following quote from the FAQ on LL's post about the banks:
/quote
Are any other inworld businesses, such as stock exchanges, covered by this policy?
As of today, this policy is generally focused on objects and schemes that involve real-time transfers of L$ and payment of interest or rates of return. Exchanges may or may not do this, so they may or may not be covered. In addition, we reserve the right to remove any objects and take action against any Residents who are violating U.S. or other laws. If you are unsure whether a business you’re operating abides by applicable laws (e.g., banking, securities laws), you should get a formal legal opinion, from a personal lawyer acting on your behalf.
/end quote
In my opinion, exchanges should still be ok, provided they do not offer interest on uninvested funds, which I believe most will stop immediately.
The exchange in SL has served as good launching pad for many businesses. Many of those businesses have been fraudlent but many are legit and are working on exciting stuff for SL. So if the exchanges are banned, what about the companies that were listed on the exchanges. There will still have to be some instrument for the companies to payoff their investors.
It can be argued that dividends are not interest, however they are a return on investment from profit taking. Is LL lumping interest and dividends together? They seem to with their blanket statement about "rates of return on investment", but it is unclear as most LL statements are when it comes to this sort of thing.
Anyway, I would be interested in your opinion on this. btw, I am not refering to WSE, I am speaking of the legitamate exchanges. :)
Securities
Based on history (LL taking one shot across the bow, and then about three months later lowering the banhammer... see gambling, ageplay, and banks) I'll predict that LL shuts down the stock exchanges April 8, 2008, unless some terrible bit of publicity hits first.
And yeah, "IPOs" in Second Life are pretty clearly covered by existing securities law. See my later comment to this post (I haven't done a full post on this yet). http://virtuallyblind.com/2008/01/05/virtual-firm-hired/
Yes they are securities
Yes they are securities being traded, the stocks promise returns on investment and same laws apply but when will people learn. Some people will want to wait for LL to spell it out for exchanges too.
Hard to say.
You're asking me to interpret the legal doublespeak without a lawyer and form an opinion. :-)
My personal opinion is that its a matter of 6 of one and a half dozen of the other. 'Interest' can be had in many ways, and it is all a matter of how they use the legal razor.
Personally - I'd say exchanges are on very shifty ground with the new Linden Lab policy. Of ours, its sort of like gambling too - isn't it? :-)
Second Life Consultant
Ok
Wow! Commentary from the two leading SL financial and legal experts!
Benjamin, I tend to agree with your prediction, and Nobody I think you may be close to a summary of SL exchanges. However I believe that most exchanges have not crossed the "line" yet. But in light of this new thing with the banks, that line may be narrowed, if that makes any sense. In other words I would move your prediction a couple of months later, maybe June/July time frame?
Arnaud Villota
"When you got nothin' you got nothin' to lose"
Dylan late 60s'
My Reactions
As the old joke goes, the food here is terrible, and the servings are too small. In this case, IMHO, LL came up with a stupid response way to late. I go into details in The Future of the Second Life Economy.
My biggest problems are the apparent inconsistency. I've been told, third hand, that companies that offer dividends in the stock exchanges will be considered in violation, but companies that offer loans, and collect interest on the loans, will not be considered in violation. They expect SL Banks to be registered with appropriate agencies, yet the currency being traded, according to the TOS is 'a limited license right', which I don't think most banking commissions deal with. Nor does it address jurisdictional issues. Can the Nigerian Banking Commission vet banks in SL? How about the trading commissions for tax havens?
No, I believe that LL has come up with a bad approach, way too late.
I see where you're coming from.
I don't know that I agree or disagree with you yet, but it is definitely an interesting read and good points that you have made (as usual).
There's a bit that I am interested in - and is really my focal point for various reasons, some undisclosed. This focal point is that if a virtual world owner becomes responsible for regulating a currency - even with the disclaimer of 'fictional' - that they themselves may be operating as a bank in some ways, or require regulation in some ways. So it may be a twist that keeps government out.
We like to think sometimes that all of these synthetic worlds exist outside of the real world. They do not. They are tied to the real world in socieconomic and geopolitical ways... and so, maybe Linden Lab did something right, maybe they did something wrong, or maybe it was the lesser of two evils? I am not sure, really, and have to think some more about it...
Second Life Consultant
Aldon I agree! There is
Aldon I agree! There is inconsistency in the Linden statement. It almost makes me wonder if that was done purposely or if it was typical Linden misdirection.
Also I would really be interested in the true definition of a security. Are the things that we "trade" in the game really securities by the true definition of the word? I don't know, I am interested if anyone can really call these SL stock thingies securities and if they do by what definition?
I understand that maybe I am going off topic, since the discussion should be around the bank issue, but since others have brought up the exchanges or blurred the line (Maybe that was me in the first place! :) ), I felt that it was fair game.
Nobody, feel free to edit this!
Edit? Bah
I agree on the inconsistency that you and Aldon write of - but having read similar documents over the years, I think I can safely say that it was something written by committee. :-)
Second Life Consultant