Banter on the Banking Ban

It's been a rough few days for the Second Life financial markets. Linden Labs announced that banking, at least in the guaranteed interest form, is illegal in Second Life. The resounding response from my SL circle of contacts has been "What about stock markets?" to which no answer has been readily given. The supposition is that the stock markets will be kosher with Linden Labs, but this has yet to be confirmed through official, exact, announcement.

There have been many comments trying to reassure investors to not panic, but I can't really blame them for panicking. If the FDIC suddenly said my bank was no longer legal, I think I'd go drive up to the local branch and withdraw some money. I use the FDIC as an example because Linden Labs is the closest thing to a true insurance corporation (apologies to The Rock) that your Joe Average Investor has in Second Life. Take that last safety net away (not that there was much of one to begin with, but they did help out LLBT), and you have nothing. Panic is a natural reaction.

The expected outcomes came quickly: stock price crashes, insolvency of banks, outrage, denial, etc. However, now we must look ahead. Owners must reassure their investors or liquidate and distribute final payments. Exchanges must find some way to remain compliant, although I feel this action by Linden Labs was a warning shot for the stock exchanges. Cry foul all you want, I think the day is coming where stock exchanges will be no more for one reason or another. I just don't know when that day is.

So what is a financier to do now? I see a few options:

• Go private: Instead of being able to invest through an ATM, all transactions would need to take place avatar-to-avatar. This would also allow for some extra legal scrutiny, like First Life promissory notes by peer-to-peer lending sites.
• Eliminate the Lindens: Keep things exactly as they are, but run them in First Life currencies through PayPal. I personally don't like this idea because it screams "regulate me!"
• Survival of the Fittest: Try to satisfy the Lindens, law enforcement, stockholders, and make a profit good enough to justify the massive amount of time put in to do it. Good luck.
• Group Mechanics: Could a public corporation in Second Life be run through the mechanics of a Second Life group? I think that would have an easier time being approved than an ATM-based exchange.
• A New Model: You fill in the blank here. The next generation of Second Life money attractors. First it was gambling, now it is stock markets. What's next? I think there may be some room in skill-based player games, for example.
  

Throughout all of this, try to keep a level head, look at your options, make decisions rationally. Note that it could be a rational decision to withdraw your funds from the bank, and this is different from panicking. If you keep a logical view on things, you're much more likely to recover all of your at-risk funds, and possibly even make some money on the volatility of the markets.

Until next time,
GM