RSS
No, Second Life's Bank Crash Did Not Predict Real World Bank Crash
from the get-real,-people dept
MSNBC is running an article claiming that last year's virtual bank collapse in Second Life somehow foretold the current financial crisis. It makes for a good headline, but it's simply not true. The factors that resulted in the real world financial crash, as compared to the one in Second Life were entirely different. While there may have been some similarities (people not taking the time to understand the risk of certain investments) to compare the two is a pretty big stretch. From there, the article gets even worse, pretending that both financial crashes show that free markets don't work.
That's simply not true.
The eventual crash actually does show that free markets can work properly, punishing those who took risks without fully understanding the risks. The response in Second Life, to ban banks like the one that crashed, seems like the wrong way to go about things as well. Yes, many people were fooled, and ended up losing money, but that should help educate people not to blindly rush into putting money in a totally unregulated "bank" that made promises that were clearly beyond reasonable (40% interest?). Having regulations that prevent outright fraud (lying) seem reasonable, but banning all banks in response to such a poorly run one seems like going to far. The problem isn't just with the fact that it was an "unregulated free market." It was with the fact that people blindly believed that something too good to be true was legit.
That's simply not true.
The eventual crash actually does show that free markets can work properly, punishing those who took risks without fully understanding the risks. The response in Second Life, to ban banks like the one that crashed, seems like the wrong way to go about things as well. Yes, many people were fooled, and ended up losing money, but that should help educate people not to blindly rush into putting money in a totally unregulated "bank" that made promises that were clearly beyond reasonable (40% interest?). Having regulations that prevent outright fraud (lying) seem reasonable, but banning all banks in response to such a poorly run one seems like going to far. The problem isn't just with the fact that it was an "unregulated free market." It was with the fact that people blindly believed that something too good to be true was legit.
I have an app...
App Developer Conversations: What Does The iPad Mini Mean For The App Economy?
Developer Census: Be Counted. It takes less than two minutes.
I have an idea...
Securing Venture Capital for that Next App Development
Finding Co-Founders in a Recovering Economy
I’m looking for policy...
Policy Resources: Data Privacy & Security
Developers On Patents: Five Employees, Six Lawyers
Reader Comments (rss)
(Flattened / Threaded)
[ reply to this | link to this | view in thread ]
I Do...
Kind of different from what Banks are experiencing today.
[ reply to this | link to this | view in thread ]
Re: I Do...
[ reply to this | link to this | view in thread ]
Naive Parallelism at its best
Must have been a slow day in the newsroom. Coming up, did Star trek predict the flip-phone and should Paramount pictures sue for copyright infringement?
[ reply to this | link to this | view in thread ]
common sense
Greed will always trump common sense. Be it in a game or in the real world.
[ reply to this | link to this | view in thread ]
[ reply to this | link to this | view in thread ]
Re: Re: I Do...
[ reply to this | link to this | view in thread ]
Free market
[ reply to this | link to this | view in thread ]
That's simply not true."
You note the similarities, can't identify any differences but insist there is no relation. The only thing that convinces you that you are right is your religion.
[ reply to this | link to this | view in thread ]
Er, no it doesn't since the people that take the punishment are almost exclusively the tax payers not the risk takers.
You really should get past your blind faith.
[ reply to this | link to this | view in thread ]
RE: Mightymaz
Er, no it doesn't since the people that take the punishment are almost exclusively the tax payers not the risk takers.
You really should get past your blind faith."
You really didn't think that arguement through, did you? Why do the tax payers get hit with an increase due to a companies spectacular failings? Cause the companies know the government will bail them out if they cause enough debris during the crash. Of course, this can't be laid at the feet of a free market, because in a free market the government wouldn't bail out the company. Yes, there are wide spread effects when large companies fall hard, but if the full effects are allowed to be felt by the populace then they will learn to put more thought and effort into choosing what companies they use. Look at credit cards for an example of American Consumer Stupidity. Look into the costs to the businesses and private citizen.
Think this is to harsh? Well, make a choice, feel the effects and have an involved and educated populace, or let the government bail out every idiot and scam victim and turn the country into lethargic mindless drones and unaccountable shysters.
[ reply to this | link to this | view in thread ]
Re:
The taxpayers getting punished is not the free market. It's the opposite.
[ reply to this | link to this | view in thread ]
Re:
This is not true at all. The SL scenario did have zero regulation, but the actual financial world system had a ton of regulation -- it was just misplaced. The scenarios are quite different.
And, no, having no oversight concerning financial institutions does not automatically lead to an untenable situation. People not understanding risk leads to an untenable situation.
While the specifics might be different, the results were similar: no oversight led to greed which led piss poor investing and lending policy which led to collapse.
No, sorry. Greed remains pretty much constant. It's not "greed" that's the problem. You can't stop greed. The problem is bad information, which leads people to think that highly risky investments are not risky.
[ reply to this | link to this | view in thread ]
Re: RE: Mightymaz
"...Why do the tax payers get hit with an increase due to a companies spectacular failings? Cause the companies know the government will bail them out..."
So they know they're not is a free market and so they don't behave like it.
I agree with Mike "The taxpayers getting punished is not the free market. It's the opposite."
[ reply to this | link to this | view in thread ]
Add Your Comment