The Banking Code

People,

The economy in SL works as such. Money rots. If you save it as land, you lose money in taxes. If you save money as objects, they are worth $10 and are taxed $1 a week. So put simply, objects lose their entire value in just ten weeks...

There is no way to save money. If all your money is tied up in objects you have 0$ in 10 weeks. The only way to stay where you are right now is hussle, hussle, hussle. You have to make your sales quotas or dwell quotas or you just slide into poverty.

So what if you want a day, or a week off to view the beauty of SL? What if it's been a good week, you're flush with cash and you want to stay ahead? Tough. Buy anything and it'll lose it's value - invest in land and it's taxed.

People what we need is BANKING! The ability to invest in something that has fixed value and does not get taxed!

If we could put the odd $1,000 away for a rainy day, our hussling for sales would be less desperate, and we would have time to hang around and chat more. People don't answer my IMs anymore cause they reckon I'm trying to sell something, and I ususally am, but I need to be selling 24/7 to stay where I am now.

Please developers, either some special brick you can buy that holds it's value (IE no tax) or just a bank function where you can send off x dollars, and reclaim them anytime later. If you implement this, things will be MUCH better

Jsecure

I am confused... the money on you is not taxed. If you keep your taxes from land/objects below your stipend+bonus, your cash on hand will not decrease. The only way it will decrease all the way to poverty is if you over-exert yourself. Even if you have an account which taxes can't touch, you just would drop into negative money.

As far as object's worth, sure, a basic prime is just worth $10. However, I sell quite a few primes that sell for over $200 each. System worth, and the worth to people are two different things.

If I go on vacation for a month, even if I sell no products, I will not lose a cent.

The way I heard it, should you work hard and get to be worth more than $3,500, your stipend is taken away.

So either you keep making money hand over fist, which is all too often not the case, or you keep losing it on taxes till you're worth less than $3,500 again...

The way out of this is to always have a stipend or to have a bank account to put all your money into...

And if you have more than 3500 you don't NEED a stipend. You're already flush. The reason for the 3500 rule is simple: It's to prevent inflation. As a former Everquest player I'll fight to keep this in place.

I was under the impression that if you have more than $3500 you don't lose your stripend per se, you just don't get the difference between your taxes and your strip.

So if you have more than $3500 and your taxes are lower than your stripend you have play money that doesn't rot or go away unless you spend it.

What was it someone said recently -- it helps to think of the stripend as a tax credit.. something like that.

Siggy.

Siggy is right, if you are below $3,500 you get taxed, and then get your full stipend. If you are above $3,500 you get taxed and then recieve your stipend up to the point that it pays off your taxes; unless of course, your stipend is less than your taxes.

On the OTHER hand, though, there is no reason that we can't have a PROPER banking system. I would love to put my money in a bank, have the bank invest in large or profitable ventures, make money and then pay me interest.

I suggested this during the beta days, but there wasn't any way to have a monetary fund outside private ownership. Now there is. I would love to see some sort of banking - perhaps Savings and Loan - that loans money and charges and pays interest.

Go for it. Let me know how I can help. There's no need to get into a pro- vs anti-stipend discussion. Just say it proud, "Who's for making some money?"

I think we need to remember that this is SecondLife, not real life. This is a virtual world with a virtual economy.

In the real world, money is a scarce resource issued by government. There's a finite limit to how much can be produced. Inflation in a real economy is still an issue, but it can be managed. (The Federal Reserve can change the money supply if inflation starts to become a problem.)

In SL money is a semi-scarce resource issued by the Lindens. Aside from arbitrary limitations there is effectively no upper limit to how much can be issued. The normal limitations of the real world don't apply.

The 3500 limit is in place to prevent SL's economy from becoming Everquest's economy. In EQ the economy is dominated by older players who have accumulated vast sums of money simply because they've been there for years..... and unlike a real economy gold/platinum isn't a scarce resource. (Monsters respawn with a set amount of loot on them.) Newbies are basically out of luck.... because they can't afford decent equipment because it's all priced at levels geared toward the older players who are financing new characters.

As I've said.... implement banking and you'll be paying 5000 lindenbucks for a shirt.

It ain't broke. Don't fix it.

Corwin,

An eloquent post, but you stopped short of explaining how a properly run bank leads necessarily to inflation.

I'm not recommending banks as a way to get around the stipend limits. I think the "government" will find a way to tax you properly, and to give welfare only to those who need it. Perhaps we should look forward to banking as a place the Lindens can insert controls and have an even more subtle way to control the economy.

All I am suggesting is that legitimate investors should be able to invest and collect a profit thereof.

By the way, banking is not something that we are waiting to be implemented. All the tools are here now for the beginnings.

All we need now is someone with an actuarial bent and a long-range view.

An interesting way of looking at the EQ system because really the end result is better gear for the lowerlevel players at cheaper prices.

Why? Because with the constant influx of money is an influx of items, characters buy, quest or find items use them until they find something better right? Well they then sell that stuff. Because it doesn't leave the world (no item decay in EQ) there just gets to be more and more and more of the items in the world. The more there are the cheaper they become. When I started EQ a Short Sword of the Ykesha was extremely valuable and worth a few k at least. When I left 2 years later, on the same server, they went for 100 - 200plat.

SL is unique from this though, and so your line of reasoning might hold more sway. SL has no flood of items, that concept is entirely foriegn from SL as far as I can tell.

The real problem that has been the case with banking and any sort of loan system in the past is enforcing the repayment of money.

What SL needs is a basic contract system.

What would be great is an advanced contract system. And contracts should cost the same as uploading a texture (processing fees).

I don't have a problem with investment banking or loans per se in SL.... those work with existing in game money. (I have moral issues with it, I loathe the banking industry and how we're forced to deal with them whether we want to or not.... but that's the society we live in.)

Kathy... what's been suggested is definitely a way of getting around the stipend limit. There are already perfectly adequate ways of doing this. (He's complaining that there's no way to do it without being taxed.... pobre sito. The problem with the suggestion is that it WILL allow for the accumulations of huge amounts of in game money just from stipend. This will put a huge amount more money in game and raise prices overall. The basic problem is trying to apply real world rules of scarcity economics to a virtual world of semi-scarcity. In the end, it doesn't work.

Ama... 100 plats is still an amazing amount of money. And more recently the only things that SELL for any decent amount in the Bazaar have become extremely rare drops. (Spider silk, etc.) Prices for anything decent (especially haste items, even ones that aren't very good) are still out of reach for new players. The bazaar has improved things.... but unless you're funded by a guild or unless you're a twink.... you're still out of luck.

Ama,

Is there any way the current group account system can be stretched into service for a Savings and Loan?

If not, we need a clever person to figure out what is missing. Then we can ask for those features from the Lindens. At the same time, I would encourage reporting of deposits to the Lindens so that they can preclude people getting an advanced stipend while having money in the bank. I am not convinced that they SHOULDN'T get a reward for having a savings account, but I'm sure others think that would be bad.

The Lindens have said they won't be the regulators. However, I think we can automate this to the extent where it can be practical. Besides, doesn't being the givers of welfare make the Lindens the regulators of those payments?

The advantages of banking are too dramatic to avoid. The biggest change - from my perspective - would be the huge increase in potential projects and infrastructure.

But as in any case, the advantages need to be balanced against the damages. Yes, there would be an advantage to people being able to build more in some cases.... it would also be a disadvantage in some cases. (More money to good builders is good... more money to builders who build laggy structures that break up the terrain and cause more lag is bad... this is more or less what the ratings system already does... or is supposed to anyway.)

SL is currently a cash based economy. It's not over inflated, things are simple. Why complicate it?

Well since I posted that first comment, I have signed up a second account and use this as a person with no posessions or land, a tax free haven for funds. This makes the basis of a current account.

But just having several thousands in the 'bank' has led me to rediscover what makes banks great.

I have found several new guys who don't have enough money for the total amount of land they need, and I've worked out this deal for them.

I buy the land they want, and let them build on it. I take the dwell money from the land as a loan interest, and bit by bit as they get the money, they buy the land back off me. See how the money I've now saved is empowering people to have the structures they've always wanted.

Once I make an amount of money more in the tens of thousands from this, I shall have significant enough capital to invest in larger projects that need... well a bank, to invest in them.

The Banking Code will help us all in the end.

Kathy,

From what I can see the need is a contract system. The exact details of which I am not sure about.

The group system turns out to be not much of a help because at the end of every week the money held by the group is divided among all the members of the group. That is also the only way to get money out of a group fund.

What is needed is a contract. An object that:
- Gives one person an item(s) or money
- Gaurantees the payment from one person to the other person either in lump sum or payments.

So I make a contract. It says the following:

I, <my name>, hereby give [ <name of other party> ] the following:
1. [ <item, amount of money or plot of land> ]
2. [ <item, amount of money or plot of land> ]
3. [ <item, amount of money or plot of land> ]
4. [ <item, amount of money or plot of land> ]
5. [ <item, amount of money or plot of land> ]
[ <name of other party> ] agrees to make [ <number of payments> ] payments every [ <number of days> ] days until the total amount of [ <total amount to be payed> ] has been paid in full. [ <name of other party> ] offers [ <item or land> ] as collateral for such payments.

Items in [ ] are parts to be filled in by the contract maker. When I give the contract to a person SL pops up a window 'Ama would like to enter a contract agree ment with you. View the contract? <yes> <no>'. When they open it they see an uneditable contract, with the buttons on the bottom <Agree> and <Decline>. Pressing Agree will also pup up a summary box that says something like:
This contract will give you X and Y in exchange for $Z paid over a period of N days ($L per payment), are you sure you want to agree?

If they do agree then $10 processing fee is charged the initiator and a new locked object called 'Signed agreement with <other players name>' is put into each persons inventory. Opening it up lets both players review it at any time, and has a button there to '<Cancel Agreement>'. Any cancelation will require both players agreement and the initiator will also get a summary window that says something like 'Are you sure you want to cancel? There is still $X uncollected.'

And as for processing: every [ <number of days> ] the [ <total amount to be payed> ] / [ <number of days> ] is taken from the second players account and put into the initiators account.

If a person is unable to pay, then they return ownership of the items granted in the contract and/or any collateral.

It has room for tweaking of course, I thought it up as I typed it. Possibly leave the option for multiple pieces of collateral, and a way for that collateral to be the same items given. And perhaps the only [<amount of days>] between payments could be 1 week - make all contracts collect on Tax day like everything else, you just get to choose the number of weeks (that might be best). And how exactly to handle a defaulted loan. Do they get 1 week extra to get enough money to cover the missed payment, they next payment and a small surcharge (payed to the contract initiator)?

That is what I think is needed for banking to work.

[edited - collatoral is required, if contracts allowed players balances to go negative it could be grossly abused.]

The suggestions in here can work up to a point.... for one major reason: They use existing in-game money. Inflation can still be an issue, but like the stipend and RL it's manageable. The system Ama proposes would seem to prevent the RL practice of making up money that banks engage in on a regular basis. Howerver, I strongly oppose an attempt to (as the OP seems to imply) create a tax haven that would allow people to have tons of money and still get their stipend. If you have 3500 and still want more, either buy up more land, build more, or open a shop.

I drool over the thought of Ama's contract system... great idea!

Is there anything stopping one player from deleting thier copy of the contract and then denying signing it in the first place?


The only way a bank would work is if there was some way to enforce payment.

What happens if someone borrows a large sum for a project, decides not to pay it back, deletes all their objects and gives the money to a third party? I don't think there are any way for a player to track the transactions of another. Meanwhile any who put their money in the bank would be left holding the bag.

The only people who would be able to enforce payment would be the lindens. I don't see how any banking system would be able to function without their involvment.

I'm not saying I'm against the idea. I'm not sure if there is any real way of making it work though. Then again what do I know

The copy held by the other player.

I would be very wary of giving my cash to another player for "safe keeping". Just as a general rule.

I have full faith in the ability of the lindens to disable the ability to delete contracts still in effect. I mean, if they can pull off the rest of that, disabling 'delete' is a minor detail.

Contracts that are completed I would recomend being able to delete those, but don't just make them poof.

Also make the option for copy or no copy. If a signed contract is copyable then a copy can be given to a third party. The third party can only read it, no other options. A no-copy contract is private and can't be shared. Both of these should be set by the initiator.

In the system I designed above it is sort of one way - one person makes a contract and another agrees to it or not. It would be better if it could be extended to support groups as both initiators and second party.

Idea for groups: The contract is designed by 1 person then 'given' in some way first to the first party, the initiators. A vote is setup and run like officer election is done now. If approved the contract is sent to the other party with a similar vote. There might need to be more strict regulations on what type of votes will pass contracts.

I haven't read the entire thread, but I just HAVE to put in my two cents before I lose sight of it (as it is 3 AM and i'm dog tired).

The bank I envision in SL would not really be a bank per se... more of an investment firm.

Consider these things:

1) You cannot just make money up in SL; it has to come from somewhere. That and interest rates are kinda hard to calculate, especially for potentially hundreds of accounts. Result: no savings/bank accouns.

2) Therefore, the bank needs to be more of a loan/venture capitalist group, with aims of making money for the bank, and, therefore, for its members.

My version of a bank would work on what I call the "110% principal." Basically, I (as the bank) will give you 100% of your funding requested. In return, you give me back 110% of the original investment.

So, if you needed $500, I would expect back $550 before a set time.

A way to prevent deliquent payments would be thus:

1) Set up the main Bank Group, composed of actual investors.

2) Set up a secondary group as the "holding company" of the bank.

3) A client comes up and requests xxx amount of dollars from the Bank. The Bank then transfers said money to the holding company, and the person joins the group. All things made for that project get deeded directly to the group (all tangible assets, which is why you would need a loan in the first place).

4) The holding company would keep track of money spent, and money received for payoff. When the payoff amount is reached, the holding company officer (the members of the Bank) would then transfer the tangible assets (prims, scripts, etc.) to the client.

This could further be simplified by setting up client/project "boxes" where the client would come up to it, type in some commands, and pay the "project box" an amount of money. When the amount of money required (in my example, 550 dollars), an IM is sent to the Bank officers, who then do the needed steps to get the resulting stuff back to the client.

Furthermore, the bank could set up profitable ventures this way, with minimal income loss.

This is very doable now, now that we can deed things to groups. Does anyone see any flaws in my system?

LF

With any player based banking system you will run the risk of conflict of interest. The risk of abuse by either the banker or the person receiving money is too great for the people who will intrust thier money to the bank.

The only banking system I would trust would be one the was programed in by the lindens themselves or at the very least endrosed and backed by them.

The whole things sounds like a very interesting experiment. I'm curious to see how it all works out.

In the meantime, can I make a suggestion? Try not to jump on the newbies *as* they arrive in-world for the first time. You might give the impression that banking is a normal or required part of game play, which it is not. Maybe soliciting in the Welcome Area isn't such a good idea.

Thinking about it some more there may be a way to make a banking system work as long as the bank only deals with one type of investment.

I think the idea of a bank lending money is doomed to fail. It would only take one player to default on a payment and the whole system would fall apart.

A bank may work if it deals only with land investment. It would be kind of like getting a mortgage for a new home.

The bank would buy the land and the mortgagee would pay the taxes, some portion of the principle, and whatever interest the bank wishes to add.

If the mortgagee defaults on payment the bank simply reclaims the land.

This way the bank has some garantee on the investment.

Another thing that would be nice but I have no idea if it can be done would be a digital signature for each player for signing contracts and such.