Play Money, Real Fraud

So, say you decide you want to make a bank in Second Life. I mean, hey, people have money, right? And, well, what do people do with money in RL? They put it in a bank! So, there you go. Simple enough. Make some ATM machine models, a sleek building, promises of wild 100% interest compounded annually, and you’re good to go.

Until, you know, people decide they want to pull their money back out of the “bank”. Whoops.

After considerable thought, we have concluded that the only way forward from this is to convert, compulsorily, all customer deposits into a tradeable debt security called Ginko Perpetual Bonds. These bonds, listed on the World Stock Exchange (, will allow Ginko Financial to recover from recent events by removing all pressure from our cash reserves while providing accountholders with a way to cash out on an open market.

World Stock Exchange being… um… another wholly virtual and fairly troubled entity within Second Life. There’s lots of adjectives that could be used here for this whole thing, but what probably comes the closest: Ponzi scheme.

Linden Lab’s traditional response to all of this is that they don’t regulate anything, and no one should treat these “banks” and “stock exchanges” as anything other than mini-games, on the order of your office’s fantasy baseball pool. Well, assuming the guy who took your money lived in Sao Paulo, Brazil. Philip Rosedale, Linden’s CEO, was actually asked about this in a recent online chat:

[14:19] Jay S.: lol, is there any new policy concerning the Ginko scandle, Ie it looks more like a ponzi scam
[14:19] Philip Linden: jay we haven’t created any policy thusfar on bank, etc.
[14:19] Philip Linden: we try very hard not to make rules we do not need to.
[14:20] Philip Linden: We haven’t made any about banks
[14:20] Jay S.: ok
[14:20] Philip Linden: I would note that there is a lot of transparency around projects like Ginko
[14:20] Philip Linden: moreso that in the real world

As Nobody Fugazi commented,

Phil says Ginko Financial is transparent. Meanwhile, a two fingered sloth in Suriname is awaiting powdered goat milk. One of these statements is true – pick one.

For more on this, check out Nobody Fugazi’s blog, and especially Virtually Blind’s complete coverage (written by Benjamin Duranske, attorney and SL commentator). He’s been writing about this strangeness from the start, and most notably got Ginko’s elusive owner in an interview (the one linked above). Matt Mihaly has his own commentary up here.

Prokofy Neva also has a few articles on this, which as best as I can tell alternate betwen laughing at people foolish enough to invest in Ginko and furious that something might actually be done about it.

Putting your money into a pixelated online object hooked up to an anonymous avatar is about as risky as putting it in under a park bench in Central Park — it could be gone by morning. And yet…it has worked better than people thought, in this “fastest growing economy of the world” precisely because of the fast rate of growth and the incredible volume of Lindens. There *are* usually enough Lindens to pay withdrawals, offer high interest — and keep it going for years! People like Benjamin Duranske quick to scream “Ponzi” are completely — witlessly — neglecting to notice that the RL original Charles Ponzi started and tanked and was in jail in a mere six months from December 1920 to the summer of 1921, even in a world without the Internet. Ginkos, however, has lasted for more than 3 years. That simply has to be *explained* and not merely screamed at witlessly.

No, actually, when someone takes your money and doesn’t give it back, yes, screaming witlessly is a valid option.(I’d say more, but I’m still mad I didn’t make his enemies list.)

Oh, and can it get worse? Yes, it can get worse.

As more and more people sell their L$ on the LindeX, Linden might choose to maintain its L$270=US$1 peg for some amount of time, but operating under the assumption that it has not maintained 100% US$ reserves, it will eventually run out of US$ or decide to stop selling them, and the L$ will depreciate rapidly. In either outcome, residents will discover that they possess less wealth than they perceived they had during the time leading up to the crash.

To summarize, it appears very likely that Second Life will experience at least some form of economic recession.

See, no one ever demands that Blizzard puts the Azeroth GP on the gold standard.