invest make believe money in make believe hot companies?

Without much fanfare, Linden Labs announced on January 8, 2008 that any Second Life banking and investment business which might, “offer interest or any direct return on an investment” in ANY currency, would be prohibited from doing so as of January 22, unless these activities were performed by an organization with, “proof of an applicable government registration statement or financial institution charter”. This policy decision followed the past few years maelstrom of SL bank closings about which most of us have heard, and through which many SL residents have suffered.

The sad fact is virtually all such SL financial ‘institutions’ were ineptly run at best, Ponzi schemes at worst, and largely the worst case. Although some SL banks being run by financiers with real world creds, and tossing out enough jargon to impress a B-school grad, the bottom line is – Second Life financial trading and banking in particular, has been a bad investment.

One wonders what was behind some of the banks that went under, and I’d like to offer some small insight from personal experience.

Last year this time, I was hired as a freelance writer by a person who owned a reasonably successful SL bank, as they began to launch SL real estate ventures, primarily ‘planned residential communities’. They intended to ‘go public’, which means to offer shares in their firm for investment by any interested parties. This is done through one of the SL stock exchanges. A company publishes it’s business plan (called a prospectus), offers a number of shares for sale, then sits back while the shares are purchased by investors, or not.

I wrote several documents toward this end for my employer, including the initial public offering (IPO)prospectus, progress and special investor reports, as well as descriptive marketing materials for the developments.

This person showed me their real estate properties, and described their business plan in great detail. Communities were laid out on rigid grids under constantly monitored and controlled conditions. I saw the intentionally realistic developments as cold, unimaginative and uninviting. They seemed antithetical to the fantasy spirit of SL. If anything, they were places the typical resident might not want to live for very long. They reflected the values of their progenitor – a business-like convenience that winkingly abided in-world convention, where the high-rolling avatar could ‘play along’ while waiting for his SL investment to produce that promised double digit return.

In my three months of daily association with this person, I observed that they constantly spoke of themselves as ‘a business person’, and repeated their past real world and SL achievements. It seemed as if they were attempting to make themselves legitimate through repetition of such statements. They never once asked a single question about me; had I not volunteered my writing credentials, they may never have known, much less cared, who I was and what I could do for them. They had decided I was the person for the job, someone to do their bidding, and that was it. The pay was generous, so I agreed.

I’ve encountered this personality in the business world before, and while I hesitate to use the dramatic term megalomaniac, their tremendous bravado and self-centeredness was apparent. Having succeeded in an online business in the real world, this person believed they could easily handle their new SL ventures. They viewed SL as yet another chicken poised to be plucked. While believing they are smarter than average, this kind of person has not examined their business risks because their ego prevents them from admitting anything might go wrong due to their lack of experience or information. I believe what happens with many highly ambitious but failed SL ventures is their creators are either fooling themselves, or fooling us, or both.

Also, the failure of high-end profitability of the investment kind in SL just might be because, although SL is delivered via ‘technology’, SL is ultimately about the heart. In spite of the facade of an avatar, SL has the potential to strip a human to the bare bones of their personality, warts and all. Sooner or later, all or part of one’s REAL self could be exposed, even, or perhaps especially, if one runs a profitable SL enterprise. As in the real world, success in SL business is not for persons (or avatars) who are neither experienced, nor honestly in touch with their capabilities.

Through my writing assignments for them, the real name of this SL banker became known to me, and of course, I googled it. I dug up enough information that, while not horrific, showed a history of inconsiderate business behavior. To me, it all added up to an unfortunate situation, and I ‘fired’ myself by flying below this would-be Trump’s ‘radar’, ceasing to respond to requests for more material.

Three months later, their SL bank had closed, and that avatar had disappeared, along with the considerable ‘fictional’ cash reserves of their SL bank. To compound the problem, they had pointed the finger of blame at someone else. I was glad I had seen it coming, and that I never invested a single Linden in their ventures.

The SL stock exchange on which my former employer’s IPO was listed is currently closed. A recorded announcement at that site today informs you the exchange is undergoing rennovation per the Linden’s new investment policy, which they have embraced. I counted, and the word ‘fictional’ in reference to Lindens currency is said SEVEN times by the recorded voice. ‘Virtual’ in relation to currency is mentioned twice. Single references such as ‘simulated’, ‘role playing’, ‘not real’, ‘conditional trading system’, and ‘no monetary value’ are also made. In spite of Linden Labs forbidding ATMs, this exchange plans to get around that problem by not providing interest to its ATM customers. Customers will still reap the benefit of the return on their investments, all in make-believe money.

I also visited another, long-standing SL stock exchange. They appeared to be operational, so I read their policy statement. That policy repeats numerous times that Lindens dollars are ‘VIRTUAL – not real’.

This is great news for potential investors. It surely must mean that even without a cent of real world cash, we can get in on the financial fun by simply telling these institutions to invest our make believe money in their make believe hot companies. I don’t think so. I think some people are in deep denial about Lindens versus real currency.

I predict we’ve not seen the last of this financial derangement, or the possibility that outside governmental and legal involvement may one day bring it all crashing down. It’s still a money hack, and you’re best advised to take your business elsewhere.