First Entry on the Collapse of the SL Economy

I've had this particular account for a while, but I usually am on other blogging sites, focusing on things outside of Second Life. I do sometimes reference my SL experiences there. However, the recent change in Linden Lab's policy toward financial institutions has made me think a lot of what is going on, so I feel that I need to address it in its own space. Thus, here I am. :-)

For starters, I'll look at the slippery slope that this decision can generate. Taking a look at the FAQ for the policy on the support page, I note that the intent of the banking ban is to prevent residents from scams and defaults. It sounds like a noble idea, but according to their blog release, this came after numerous complaints regarding the collapse of Ginko, Allenvest, and Midas Bank, plus the whole issue of Jasper Tizzy's departure. If the noble thought was there, why did it wait until now? This has been several months in the making.

Financial institutions in Second Life have been called nearly every name in the book. It is probably for this reason that many of the comments on the blog entry are in favour of Linden Lab's decision. However, what ever happened to the issue of rationale? Is there a single reason for these collapses?

Absolutely not. Ginko collapsed because of panic withdrawals that took place after the gambling ban. When depositors became unable to withdraw from their accounts, many of them cried foul. Of course Ginko was going to run out of their reserves when a huge segment of the SL economy became prohibited. This isn't saying that Ginko was a mere victim; their contingency plans were rather inadequate to say the least, but they didn't do it all to themselves.

Allenvest is even easier to see, and that is entirely Allen's error. When the move of SL Capex from his bank to JT Financial occurred, of course the exchange customers wanted their funds to go with them. Oops! Didn't plan for that, I suppose. Allen place blame on Ginko in terms of cutting short a long-term deposit, which Ginko denied. If only it were possible to see the transaction log for when the supposed withdraw took place. Regardless, Allenvest's collapse was poor execution of the AVIX sale. (That Allen is also some other avatars of low regard it not truly relevant here.)

With Midas Bank, I just heard a lot of second and third-hand knowledge. However, surely it couldn't have been because of Hope Capital's default on bond interest. That's what the Sell order is for. Yes, it would have hurt some in the long run, but otherwise they would like still be in operation if that were the only cause. I don't think that WSE is blameless, but it was more of a coup de grace than the actual firing squad.

In none of these cases can a scam be absolutely determined. A legitimate cause can be found in at least the first two. This is not to say that there are no scams, but it's dangerous to lump all banks under the same umbrella. Unfortunately, that is exactly what happened.