Sadville bans usury
Virtual money-lenders must go
Is nothing sacred? The global financial crisis has encroached on that escapist Garden of the Id, Second Life.
Linden Labs is to ban virtual banks from the virtual playground, the operator said in a statement yesterday. The problem is that the virtual money-lenders operate rather too much like their real world counterparts.
"Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world 'banks' defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized," wrote Ken D., yesterday.
"Linden Lab isn’t, and can’t start acting as, a banking regulator," he added.
Linden Labs' CEO Philip Rosedale once compared Ginko Financial (surely a name you can trust) to the Nobel Prize-winning microcredit bank Grameen.
Ginko Financial was one of around 30 virtual finance houses operating in Sadville. Ginko offered a 44 per cent yield rate - but even this improbable promise didn't deter Sad investors - until a run on the bank. Investors lost around $700,000 in real dollars in the crash.
Linden Labs has requested that the virtual banks settle up with investors by January 22, honoring withdrawals. That should be interesting.
Lenders with a real-world license may continue to practice their usurious trade in Sadville.
The collapse of virtual banks in Second Life has led participants to label them as Ponzi schemes. But then the entire operation is a Ponzi scheme, as Shaun Rolph pointed out here a year ago, drawing attention to a little-noticed disclaimer from the operator:
"Linden Dollars are not money, they are neither funds nor credit for funds. Linden Dollars represent a limited license right to use a feature of the simulated environment. Linden Lab does not offer any right of redemption for any sum of money, or any other guarantee of monetary value, for Linden Dollars." ®