January 23rd, 2008
As reported in today’s Wall Street Journal, just as real-life banks are reeling from the subprime-mortgage mess, a shutdown of the virtual banking system in Second Life, is causing real-life havoc for thousands of people. As the article notes:
“…the San Francisco company that runs the popular fantasy game pulled the plug on about a dozen pretend financial institutions that were funded with actual money from some of the 12 million registered users of Second Life. Linden Lab said the move was triggered by complaints that some of the virtual banks had reneged on promises to pay high returns on customer deposits.
…The banks of Second Life were operated by other players, who enticed deposits by offering interest rates. While some banks paid interest as promised, others used depositors’ money for unsuccessful Second Life land and gambling deals. Under its new banking rules, Second Life says only chartered banks will be allowed — though it isn’t clear any real chartered banks will operate in the virtual play world.
The shutdown has caused a real-life bank run by Second Life depositors. Though some players managed to get their Linden dollars out, others are finding that they can no longer make withdrawals from the make-believe ATMs. As a result, they can’t exchange their Linden-dollar deposits back into real dollars. Linden officials won’t say how much money has been lost, but a run on another virtual bank in August may have cost Second Life depositors an estimated $750,000 in actual money.
…Linden announced plans for yesterday’s shutdown two weeks ago, and since then Second Life players have been streaming into the fantasy banks to withdraw their deposits, which are convertible into U.S. dollars at a floating rate. Yesterday, one U.S. dollar was worth an average of 269 Linden dollars, its typical exchange rate.
…The banking crisis at Second Life surfaced during the summer, when Linden banned gambling on the site, citing “conflicting gambling regulations around the world.” That caused a run on Ginko Financial, a Second Life bank that had invested heavily in the virtual world’s gambling operations. Ginko capped withdrawals, and ultimately issued bonds to customers instead. The bank went out of business in August.
The collapse led to an outcry from depositors at Second Life banks. Linden responded on Jan. 8 by announcing the broader shutdown, claiming it would “protect our residents and the integrity of our economy….”
This entry was posted on Wednesday, January 23rd, 2008 at 3:09 pm and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
