As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ 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.
Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world “banks” defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized.
Usually, we don’t step in the middle of Resident-to-Resident conduct – letting Residents decide how to act, live, or play in Second Life.
But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.”
There is no workable alternative. The so-called banks are not operated, overseen or insured by Linden Lab, nor can we predict which will fail or when. And Linden Lab isn’t, and can’t start acting as, a banking regulator.
This is going to cause more turmoil short run. However it is also a needed step.
It's also not being done for entirely pure motives. One part is that it could have, and should have, been done with the gambling ban. It was not because that truly owuld have crashed the economy. Second it is being done now because of the scalability problem. LL cannot easily add more mainland servers, the load problems with the land they have are already at the brink. IF LL is to add more land, they would much rather add more land at 295 a month tier, all of which would be paid every month, than 195 tier, some of which will be abandoned back to Governor Linden. As they are running out of land, more needs to be forced into play. One way to do this is to liquidate, or force the liquidation, of direct banking activities.
Land is up 5% in the last month from a base of 8 to a base of 8.4. The long land pause means that virtual land really does act like real land for a short time. With real population coming back, that means higher prices. LL has said their "target" price for land is 6. That's a lot lower than today's price.
SO banning banks is again necessity, because LL will not fulfill functions of a government. The only way that you can be sure that you can get your money back from a bank, is for their to be deposit insurance and a law enforcement agency. Absent these two things, banks are unworkable.
Now eventually I think there will be a virtual government, and that it will piece by piece invent the things that are needed to function in a virtual environment. It's just that King Linden doesn't have an incentive to do this, since honest government is largely a break even proposition.
It is another piece of Old SL gone. And with it will go other things. For one thing, every time I wanted to grouse about land sellers, my partner pointed out that they don't use much in the way of prims or lag, so they actually make mainland more habitable by holding space open. Maybe ugly open space, but still, open space. Let us hope that LL gets the scale issues down to a dull roar soon, or it is going to be very painful.
Eye roll moment: metanomics is pushing A complete bozo for their guest on this. Someone who so pervasively misunderstands what he is analogizing to is bozo. Onder and 57 - why are you promoting this bozo? It makes you look like apologists for scam artists.
I left this comment:
Illegal banking activities have been doomed for some time, because sooner or later LL was going to be put in the position of being legally entangled. It should have been done some time ago.
1. Drug trials start with drugs that have proven efficacy.
2. Drug trials don't continue if large numbers of patients start dying.
3. Unregulated banking is the drug, not regulation.
4. There's no group getting "regulated" banking in sl versus the unregulated kind.
5. The banking seen in sl was not new but theoretical sound, but a re-enactment of every John Law scheme known to history.
6. Drug trials work on substances which are, while they aren't known to the people taking them, are known to regulators.
In short we do not do drug trials by letting anyone set up a table and sell anything they want and see who lives and who dies. LL is not a controlled experiment, nor were the places selling banking meeting any sort of standard with transparent experimental controls.
In short, I really hope you are never put in charge of the FDA, because you will kill an awful lot of people.