Well, it's been an eventful week in the financial sector of the metaverse. Linden Research has released a new policy regarding the banking business, which has already begun to cause widespread panic in some quarters. The meat of the new policy, as quoted from the release, is this:
"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."
I'm not a lawyer. I dated a lawyer once, but that probably doesn't count... I don't know the applicable laws, particularly since I am not in the US. However, I have read the post and FAQ carefully, and this post looks at what it actually says and how it is said, to get some insight into what it actually means...
The wording of this is quite interesting, as are the implications and limitations it suggests. Clearly, any of the "banks" that have been operating in SL recently, which have used ATM's to receive deposits, and have provided interest on balances, will be affected by the new policy, and basically have until January 22nd to settle with their customers and remove the offending objects. Also clearly, however, the policy is limited in its application to removing objects that interact with residents inworld. While the spirit of the new policy clearly implies that Linden Research wants to shut down the banks, the method of implementation at this point seems limited to removing ATM's and other objects that collect or disburse money which has garnered interest, or any other direct return.
At this point, and based on the policy as posted, and the associated FAQ, it appears to me at least that LL is limiting the policy to interest-bearing vehicles, and businesses such as stock exchanges that do not offer interest on balances should be exempt. Investing in a virtual business and receiving dividends based on profits or market performance, for example, is not interest or direct return, and so should not be included in the targets of this new policy. The quote from the FAQ is a bit vague, as is a lot of it...
"As of today, this policy is generally focused on objects and schemes that involve real-time transfers of L$ and payment of interest or rates of return. Exchanges may or may not do this, so they may or may not be covered. In addition, we reserve the right to remove any objects and take action against any Residents who are violating U.S. or other laws. If you are unsure whether a business you’re operating abides by applicable laws (e.g., banking, securities laws), you should get a formal legal opinion, from a personal lawyer acting on your behalf. "
The wording of this is very interesting. Clearly, Linden Research is targeting payment of interest, but leaves the door open to censure other types of businesses as well, if they break the law. At the moment, however, based on what the announcement and FAQ actually say, they have not yet decided exactly what to do about any businesses other than banks. Whether or not the policy will be expanded in the future to include a wider range of activities remains to be seen. The FAQ does contain some language that implies that it may,
"There’s no guiding law or precedent we know of that tells us whether these practices are legal. Depending on what statements these so-called “banks” make, and what depositors’ expectations are, they raise the possibility that banking or securities laws may apply. If so, they would need to be chartered or registered with applicable real world regulators, and to our knowledge, none of them is."
Although only "banks" are specifically mentioned in this passage, the reference to security laws might be telegraphing future plans to regulate, or outlaw, stock exchanges and other businesses that require registration and regulation to operate in RL. We will have to wait and see. In part, I presume it will be based on the behaviour of the stock exchanges, for example, and/or the number of complaints that are received from LL about them.
What is clear is that the rampant speculations being made about the new policy are just that - speculations. What it actually says, at the root, is that LL will begin to remove the ATM's and other objects of banks that have promised interest and other direct returns on investment. Everything else is implied, hinted at, or being left as LL reserving the right to do something else in the future...
So, if you have money in a bank, what to do? Well, clearly there will be a rush on all of the banks, and a lucky few will be able to get their money out. Some banks will close their ATM's and restrict withdrawals. None of the banks will be able to honour withdrawals of all of their depositors balances before January 22nd, and so will simply run out of cash. The good ones will likely keep track of investor balances and develop a plan to recompense them as they are able to liquidate their assets. Some will likely go underground and try to continue to operate without an inworld presence.
In short, who knows?? Try to get your money out of the banks if you can, and then wait for developments. There's nothing else you can do.
As for the WSE, Luke's announcement seemed pretty upbeat and unconcerned about the new policy, and I think for the time being, the WSE should be ok. how long this lasts is anyone's guess. I would expect a serious run on all the exchanges as people try to cash out once the WSE is back up and running. You'll need to make your own educated guess about whether or not WSE will be viable into the future and act accordingly.
Any thoughts and comments would be appreciated.