Pretend banks, real economic collapse
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As financial markets around the globe fought panic this month, banks in the virtual world likewise struggled to prevent a meltdown.
According to a front-page story this week in the Wall Street Journal, Linden Lab, the company that runs Second Life, shut down about a dozen banks in the make-believe world. The banks, pretend though they may be, were funded by real money.
Second Life banks let players use credit cards or eBay's PayPal service to convert U.S. currency into Linden dollars (the Second Life currency), which can be deposited into virtual banks.
This week one U.S. dollar traded for 269 Linden dollars. That might not seem like much but it adds up. Many of the Second Live banks were offering interest rates of as much as 60 percent.
Some banks reneged on their promises to pay the high rates of return, and used the money instead for Second Life land deals and gambling.
This month Linden Lab imposed new banking rules. According to the official Second Life blog: 'As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in Linden dollars or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We're implementing this policy after reviewing Resident complaints, banking activities, and the law, and we're doing it to protect our Residents and the integrity of our economy.'
As a result, some players who had deposited Linden dollars can no longer make withdrawals from the Second Life ATMs'and they are losing real money. BCX, a Second Life bank, owes its depositors $20,000, according to the Journal article.
When Linden Lab announced the new rules on Jan. 8, avatars swarmed to the virtual banks to withdraw their deposits.
I've never experienced a run on a bank in real life thus far, but avatars in Second Life have. This week when they went to some of the Second Life ATMs to withdraw money, a sign said, 'We have temporarily disabled the withdraw (sic) feature on ATMs until further notice.'
Virtual worlds sound like they could host all the wonderful things missing from the real world: elves, rainbows and sunshine every day. Unfortunately, it's times like this when you realize how much Second Life mimics first life, both loaded with greed, gambling and financial mayhem.
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