Barbarians at the Gate

The shoe dropped from the other foot today as I learnt that Maelstrom Blaphomet, CEO of Dragon Global Diversifed, has decided to close up shop and liquidate the fund's assests. I am in no way surprised by this news as I am fully aware of just how much DGD's growth depended on interest-bearing deposits. (It has been my predominant investment.) With those gone, along with the distinct possibility that dividend-paying companies might be required to fold or change models, Mael's decision is rather sensible.

I managed to chat with him for a while as he was going between different financial institutions trying to withdraw Linden dollars that belong to the fund. As I've come to know, Mael plays very conservatively in the greater sense. The liquidation of DGD will result in a final dividend that's greater than the IPO price, and already much of that is held by an alt as a reserve measure. His conservative stance goes along with a justifiable pessimism regarding the future financial state of Second Life. I happen to agree with him in terms of a very real possibility.

On the other hand, at least three stock exchange heads are expressing optimism, indicating that the policy will have no or very little effect on their operations. I believe that to be technically correct, for they are or will soon be declining to pay interest. Ah, but what of dividends? They are public companies themselves with shareholders. Plus they host companies that pay dividends apart from the exchange. Is that in the same class as interest?

The most likely answer is yes. If Linden Lab is applying a sledge hammer to banks, it has to hit the listed companies as well as it would be all too easy to intermix the distinctions. An example would be JT Financial's Investment Certificates listed on SL Capex. They are effectively tradeable bonds just as any company's shares and pay a monthly dividend that they refer to as interest. How can LL parse the difference if banks suddenly started to act as credit unions instead? Within the spirit of the new policy, there is no difference.

What I fear is happening is the rapid collapse of capital-based economics within Second Life. Apparently LL will allow groups to operate as businesses, but that is limited to equal partnerships which a market-type system cannot accomodate. As the dominos fall, either CEOs will display honour and reimburse shareholders as much as possible (which Mael is taking the lead on) or simply run away with whatever assests they can. In the former case, which I believe to apply to most CEOs on all exchanges, this will mean estates will be liquidated in many cases as that is the only true asset.

When going through historical comparisons of other economic collapses, it's easy to invoke the stock market collapse of 1929 and the subsequent depression. However, I think that too mild as while many firms did fail, many others managed to stay in operation. Furthermore, the government did not cause the collapse, although failure to regulate certain aspects did fail to prevent it.

No, I believe the apt parallel would be 5th century Rome. Unlike the Great Depression where things were just simply not as well off as before, the fall of the Western Roman Empire led to a near total collapse of civilisation itself. The central government's failure to maintain the infrastructure of the provinces (which Rome relied on for necessities) led to the loss of even basic functions such as food storage and water supply.

The SL grid will not be collapsing because of this, but it's as if the barbarians are at the gate, rushing in to ransack what residents have built up over the last few months. Unfortunately, it seems that the barbarians are the gods themselves.