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January 24, 2008

First Banks of Second Life — Episode 2: Crash and Burn


In Episode 1 on January 10, 2008 I lamented my tardy arrival to this promising space.

Story of my life.

But I digress.

Yesterday's Wall Street Journal front page story by Robin Sidel related how the virtual banks of Second Life, now collapsing or shuttered, are costing real people real money.

I am delighted to say here that not one bankofjoe customer has ever lost a penny.

Nor will they.

That's probably because I don't have any customers.

It's hard to have customers when you don't have a bank.

Wait a minute....

Never mind.

Here's the WSJ article, along with Second Life screen grabs (above and below) which accompanied the paper's coverage.

Cheer Up, Ben: Your Economy Isn't As Bad as This One

In the Make-Believe World Of 'Second Life,' Banks Are Really Collapsing

In the real world, banks are reeling from the subprime-mortgage mess. In the online game Second Life, a shutdown of the make-believe banking system is causing real-life havoc for thousands of people.

Yesterday, 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.


Second Life is an elaborate online world where players create new identities for themselves — images called avatars. These avatars can own land, run businesses and build homes. And there's a link to the real economy: To buy things, players use credit cards or eBay Inc.'s alternative payment service PayPal to convert actual U.S. currency into "Linden dollars," which can be deposited using pretend ATMs into Second Life's virtual banks.

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.

"Everyone thinks that because you're losing play money, it excuses everything, but it's convertible to real money," says a Second Life player whose avatar is named UpMe Beam. On Sunday night, the female character was wandering topless through the virtual lobby of a Second Life bank called BCX Bank, where a sign said it was "not currently accepting deposits or paying interest."

In real life, UpMe Beam is a man who says that he is a certified public accountant who has audited banks. He wouldn't disclose his name, but says he has been unable to withdraw $5 he deposited in November to see how a Second Life bank works.

Steve Smith, who runs BCX bank under the avatar name Travis Ristow, yesterday said depositors — who are owed a total of $20,000 — will be able to get their money back next week. The bank, which had promised to pay depositors more than 200% in annual interest, is now allowing only small withdrawals.

"This won't affect us long term. It's just a short-term difficulty," said Mr. Smith, 40 years old, who also has significant land and real-estate interests in Second Life. He said he retired from the real-life mortgage business to devote his time exclusively to his Second Life enterprises.

"There is not a whole lot that is fake about this," says Robert Bloomfield, a professor at Cornell University's Johnson School of Management. Mr. Bloomfield's own Second Life avatar, named Beyers Sellers, hosts a pretend television show in the online game about virtual economics.

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.

On Monday, avatars strode past empty seating areas and potted plants in the spacious, modern lobby of JT Financial, a mostly deserted virtual bank located in Second Life's CapEx mall. "Due to an extreme surplus [of withdrawals] since the announcement of the Linden Labs new policy regarding inworld banks, we have temporarily disabled the withdraw feature on ATMs until further notice," read a big sign.

Linden officials won't confirm the number of players affected by the shutdown, how much in deposits is likely to be lost, or whether any real action will be taken against operators of the virtual banks now facing a run from depositors. The losses clearly are tiny compared with the more than $100 billion in recent write-offs by actual banks and securities firms.


"When virtual environments first started, they were viewed as libertarian dreams with no interference," says Behnam Dayanim, a lawyer who specializes in Internet law at Paul, Hastings, Janofsky & Walker LLP in Washington. "As companies that sponsor these environments become more accountable to investors or regulators, they are starting to encounter real-world limitations."

Second Life has attracted many actual companies, including Adidas AG, Coca-Cola Co. and the Ben & Jerry's unit of Unilever, which see virtual environments as a promising haven for marketing and advertising. Real banks have steered clear of the make-believe world so far, partly out of concerns that interacting with avatars could cause them to run afoul of federal "know your customer" rules, which are meant to prevent money laundering.

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."

Linden essentially acknowledges that the financial services being offered in its virtual society have evolved to the point that they need to be regulated in the real world.

From now on, "proof of an applicable government registration statement or financial institution charter" will be required of anyone collecting deposits in Second Life, according to Linden. The company insists it "isn't, and can't start acting as, a banking regulator."

"If this is real money, there is an argument that you need to follow real law," says Benjamin Duranske, a lawyer who runs the Second Life Bar Association and is writing a book on virtual law.

Some players think the shutdown might not prevent future losses, because a shady real-life bank operating outside the U.S. still can set up a virtual branch in Second Life. Other players see the crackdown as diluting the game's free spirit.

Joshua Zarwel, a 29-year-old graduate student at New York University, has spent the past few weeks returning real money to depositors in his virtual bank, called SL Bank. Launched in 2006, SL Bank had been paying an annual interest rate of 24% to 30%, compared with less than 5% for savings accounts at most actual U.S. banks.


Mr. Zarwel's avatar, named Teufel Hauptmann, used the deposits — averaging $25 per user — to buy and sell Linden dollars on the Second Life currency exchange, known as the LindeX. He says he parlayed his currency arbitrage into about $15,000 in actual profit. "It started as a hobby and grew into something more," he says.

January 24, 2008 at 05:01 PM | Permalink | Comments (1) | TrackBack

Auto Mechanics as Experts: Tony Molla Strikes Back


Mr. Molla is a spokesman for the National Institute for Automotive Service Excellence (ASE).

His comment on yesterday's post headlined "When Trust In An Expert Is Unwise" just came in and — in my opinion, at least (and you know how it goes around here, don't you? "My room, my rules," like when we were little) — deserves the main stage; it follows.

    Tony Molla on 'When Trust In An Expert Is Unwise'

    Since I was quoted in this piece (barely), and in the interest of full disclosure, it might be interesting to know that the author printed one comment from about a 90 minute interview, wherein I pointed out some rather significant shortfalls in this research study, not the least of which is the small sample size. He surveyed 40 automotive repair shops in one state (Connecticut). Last time I checked, there were over a quarter million repair shops in this country doing mechanical repairs alone. Projecting the results of only 40 data points across the entire nation is dubious research, at best.

    The author also chose to characterize what he did use of my input (which he requested) as "arguing," which would also seem to cast some doubt on the impartiality of this particular piece of journalism. I also find it interesting that this study was origninally intended to be an indictment of the health care industry. When that didn't work, the researcher sabotaged his older Subaru with over 150,000 miles on the odometer and embarked on a hatchet job of the repair industry. Some might consider this a classic case of finding research to fit the conclusion, rather than the other way around.

    To be fair, I have no doubt that there are good repair shops and bad repair shops out there. I do have some serious doubts that only 20 percent of the repair shops in business are honest, however. I think it's also significant that even as seemingly biased as this study was, ASE-certified technicians still did better than those with no qualifications. And to correct at least one misconception that even a cursory fact checking by the journalist would have uncovered, there have been many websites rating all kinds of businesses out there for years (my Google of "repair shop rating' returned 690,000 links). But, that said, I guess at least one truth did come out of the article — you just can't trust the experts — not even Cornell professors or NY Times journalists. Anybody else see the irony here?

January 24, 2008 at 04:01 PM | Permalink | Comments (1) | TrackBack

Wearable Treadmill Workspace


You knew


it was only


a matter


of "when,"


not "if."

[via James Thornburg]

January 24, 2008 at 03:01 PM | Permalink | Comments (0) | TrackBack

The Beatles Perform 'Stairway to Heaven'

Spectacular mashup.

[via Saul Castellanos]

January 24, 2008 at 02:01 PM | Permalink | Comments (3) | TrackBack

Bic Dining — Episode 2: The Designers


Episode 1 yesterday occasioned no small interest, including numerous inquiries by readers as to where they could buy these wonderful accessories.

I hadn't a clue how to respond until reader Carol emailed me last night with the news that the devices, collectively called "Din-ink" — by Italian designers Andrea Cingoli, Paulo Emilio Bellisario, Cristian Cellini and Francesca Fontana — were a winning entry in designboom's macef 2008 competition, "dining in 2015."

Thus, it would appear they're still a concept and not an actual mass manufactured product.

Consider that the accessories are made from corn and potato and spontaneously biodegrade in 180 days.

Sure hope it doesn't take 'em long to scale up....

January 24, 2008 at 01:01 PM | Permalink | Comments (0) | TrackBack

Throwback Turntable Wristwatch


Hey, DJ!

Wear your classic Technics 1200 — on your sleeve.

From the website:

    TableTurns Wristwatch

    The TableTurns watch tips its fitted cap to the art of the DJ by slapping the object of your affection right on your wrist.

    The TableTurns is more than just a simple effigy, it redefines "keeping it real" by being true to form down to the most minute details.

    This watch is bound to scratch the surface of more than just a few conversations.

    Leather or Steel band.




[via Jay Garrett's Gadget News at idleparis.co.uk.]

January 24, 2008 at 11:01 AM | Permalink | Comments (3) | TrackBack

Wifinder — WiFi Sniffing Luggage


"Now, if you are fed up with peering into places to see if they have WiFi or find yourself walking around to find the ever elusive hotspot, why not use your luggage to tell you?" wrote Jay Garrett in his Gadget News blog last Thursday, January 17, 2008.



• Integrated WiFi finder + LCD Display with clock (WiFi: 2.4G, 802.11b/802.11g)

• Pen, mobile and MP3/MP4 player compartments

• Removable laptop protection cover

• Inner dimensions: 35 x 26 x 4.5 cm

• Outer dimensions: 38 x 31 x 11 cm

• Adjustable shoulder strap

• Holds laptops up to 15.4"

• High-density nylon


January 24, 2008 at 09:01 AM | Permalink | Comments (4) | TrackBack

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