Thu, Aug 9th 2007 4:47pm
One of the aspects of Second Life that has gotten a lot of hype is the fact that it's not just a virtual world, but a virtual economy as well, complete with trade, currency fluctuations and banking. That being said, people that have actually tried to engage in sophisticated financial activity (e.g. forms of arbitrage) have found in-game institutions to be unsatisfactory for their purposes. These problems seem to be spreading, as in-game banks that offered depositors sky-high interest rates on their Linden Dollars are experiencing what could be described as a 'run on the bank'. It can't be a surprise to the depositors that these institutions are having trouble remaining solvent, seeing as offered interest rates were in some cases near 100%. Those are the kinds of interest rates tend to be indicative of Ponzi schemes and other fly-by-night operations rather than stable banks. If anything, this raises more of a psychological question more than an economic one: why would people trust their money to a bank offering these kinds of rates when they almost certainly wouldn't do so in the real world? Then again, these issues aren't really unique to Second Life. France's biggest bank, BNP Paribas, has just announced that it will freeze the assets of three major funds, as it struggles with issues related to the US mortgage market.
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