Ginko vis-a-vis Northern Rock

They say that virtual reality emulates real life and in the last few days there is now a real life direct comparison between SL and RL banks via Northern Rock.

Northern Rock (epic code NRK) is a major UK clearing bank, although NOT in the big 4/5 that are central to the UK/US economy. NRK's business model was to source funding via third party securitisation to fund longer-term UK house mortgages. More than 75% of funds to source new mortgages were dependent on this business model, only around 25% or less was funded by conventional UK deposits from retail clients.

This BB post is not intended as financial advice BUT it would appear NRK is essentially broke, do a Google on it for background news but in the last few days it has been bailed out by the UK government as a real life bank run started following an emergency injection of funds by the Bank of England.

The core reason why it is technically insolvent (without BOE funding) is the CDO/CLO issues the started in the USA on sub prime mortgages. In short banks will not currently lend to one another.

There is a lot of uncertainty over NRK's actual assets - in short it is difficult to value

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Ginko as we now know suffered a similar problem after Linden Labs banned gambling. It now appears a core part of Ginko's business model was based on revenue from gaming thus sustaining the interest rate paid to deposit holders.

When that was removed Ginko defaulted.

Unlike the UK Government and the Bank of England with NRK, Linden Labs allowed Ginko to fail.

Currently within SL there now appears to be a depression on land values. This in part may be attributed to the fall out after Ginko. This may impact on Linden via a suspension of actions on new servers and people abandoning land

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In hindsight would it have been better for Linden to bite the bullet and bail out Ginko to avoid loss of confidence within the SL economy?

Clearly (and at present) the real life markets have rebounded following on from the UK Governments actions re NRK and other banks. Time will tell if this was the correct action to take.

SL (as I said earlier) is suffering financial fall out

Finally Ginko was not deemed to be central to the SL general economy AND NRK is not deemed to be central to the UK/US economy.

Interesting times, views anyone?

Well, the US rate cut helped too. Maybe if LL wanted to raise prices they could sell a ton of L$ on the lindex. One difference I guess is that LL wants land prices to fall whereas no-one in the UK wants a house pricing crash.

it sort of shuts down the argument that was made previously about RL land and homes being a good investment *s* .. all investment has risk. Certainly being a brit ive been aware of Nothern, I dont feel its in anyway based in similar circumstances to Ginko,
Northern is sufferning becasue the cash injection caused a panic amongst its depositors, therefor giving a "Wonderfull life" run. No bank or building society can lend money and still have it all at the same time, its all brokered on the money I give it .. it gives to somebody else with valid investment and insurences there is nothing wrong with this system as its manageable, certainly financial houses work well with this system all the time.
The main problem is when you are lending more than you are recieving and your investment market is as "safe as houses" as long as those houses arnt mortgaged in the USA. So Northern were cash strapped for a little bit.

Ginko on the other hand was I take 5 peoples money and give 10 people 10% each as interest. No investmnt.... No interest PURELY greed based and ultimately theres no way you can continue UNLESS you have an ever increasing income. The minute that revenue stops you cant meet demand .. you go into difficulty and everything crumbles. It equates to the same as "IVE LOST MY LAND TO A BOT ... Therefor LL need to give me the money I WOULD have had if i hadnt screwed up" The SL economy is made up with content creators .... land dealers...add farmers .... hookers ... you name it ..everything, But the lack of in world investment is more down to the lack of investors in the world

I too had noticed similarities between Ginko and Northern Rock. An interesting analysis of real reflecting virtual again?

Interesting views ...

I'm gonna put that to my banker Engish student when next I see him (which is going to be in two weeks). As you might know, we have already done Ginko, and I had wanted to discuss Northern Rock with him, anyway.

Interesting analogy between the BoE and LL. When it became evident early last Friday that the apocalyptic tones of the media were about to trigger a bank run at Northern Rock (and I do think Sky News and BBC News 24 were partly responsible for the panic), I advised friends with savings there to withdraw them immediately if access to them was required within a few weeks.

Of course, this is hardly beneficial to the institution if a bank run is gathering pace, but my advice was based entirely on my Ginko observations in recent months. (Never let it be said that SL is uneducational huh?)

My advice may also have seemed illogical given Northern Rock's "don't panic, your savings are protected" response, but people are so mistrustful of banks and money lending institutions thanks to extortionate penalty fees and deceptive small print that I think the financial sector has a lot of inward soul searching to do about that.

As it happened, they weren't being totally honest because savings of more than £32,000 pounds weren't protected at all. The Bank of England changed that on Monday though by guaranteeing to honour any amount at all in the event of Northern Rock's collapse. You can understand why managers were barricading themselves in their offices and calling the police on furious millionaires prior to that. Said millionaires must have realised, although why they'd dump their fortune in a building society like Northern Rock is beyond me.

I guess the best advice to anybody with savings is: find out how much of your deposits are protected, and if your total savings equal more than that, spread it around a little. There's no point putting all your eggs in the same basket, as my granny used to say. Oh, and don't put any money in Second Life's banks at all until they are forced to obtain a license from LL, who will thenceforth offer BoE-like protections.

Have some further figures (for interest only)

In Linden Labs case it would have cost around (an educated guess) three quarters of a million US dollars to save Ginko.

The current position in the UK following on from the Gov statement is that any UK Bank can now approach the BOE for a similar deal if needed. The potential cost/liability (tax payers revenue) of all UK deposits is estimated to be around 1,800 billion pounds sterling. I understand that is the equal of our entire national annual output

In Lindens case I guess 3/4 million US would wipe out revenue/profit for a year or so.

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For whatever reason Linden (Ginko) and UK Gov (NRK) have reacted in opposite directions

Both the real and the virtual have a type of functioning economy and I think both need some type of bank to transfer fungible value. For example within WoW it is the Blizzard run and sanctioned Auction Houses that meet that role transferring economic value from one player to another, although with a type of "exchange control" on the "bind on pickup" equipment function (thus preventing inflation).

I hope folks are now starting to see where I am coming from.

As for the bank run caused by media (like the blog announcement), yes. That is about the only similarity.



The core business was advertsing just like Google. It was never scalable like Google, however. That is why as more people were added, less interest was paid. Even for Google, this is not a highly liquid market for a bank. Interest has to acrue over a base time.

The gaming ventures came at the end. That is when the interest rate jumped 6 points. That is hardly a core part of the business, but it was one of the more liquid aspects.



The bank run dried up the liquid assets. NP forced the rest of the asset to convert to GPB sooner than planned.

Still, none of that says has anything to do with the comparison between Northen Rock and Ginko besides the media hysteria.



"Allowed"?



First you pin gambling on Ginko and then blame Ginko for the recession. I believe you can just leave Ginko out of it for the sake of that argument and just say that the gambling ban caused a recession.

Do that and then you can come back and say LL's method to ban gambling was rather quite the wrong way to do it even if it was done in the the best intentions. At this point, any comparison to BoE just won't work with the way you used Ginko.

Biting the bullet and banning Ginko and all the other "Banks" might restore more confidence in the SL economy than bailing out Ponzi Schemes.

John, I wonder whether it would not have been possible for LL just to replace all lost deposits (less the fictitious interest credited) to individual avatar balances on condition that those L$ cannot be converted back to US$?

If you want to completely destroy the economy, sure.

I rather see bonded companies.

Since they can (and do) print lindens all the time ..

If they really had wanted to they simply could have bailed everyones accounts out with Lindens, with no such restrictions.

Sure there would be some bit of inflation.

Inflation doesnt really cost LL actual Money directly. There would have been no need to come up with real money.

Basically they would do what the government does in a bail out - get ALL the people who didnt lose money to pay for the ones who did.

I totally disagree that removing the "SL financial community" would destroy the economy.

For one thing its not nearly as big an aspect in the everyday SL economy as the myopic involved in it seem to think.

And secondly the message that they were serious about fraud prevention would lead to a large increase in consumer confidence.

With a restriction it wouldn't cost LL any real dollars, because the money would stay in the game.

Thats my point it STILL wouldnt have cost LL any real dollars.


even without those restrictions.

Simply becuase Inflation doesnt directly hurt Linden Labs. It only hurts those looking to sell Lindens.

The only time Inflation hurts Linden labs is when it becomes severe enough to influence how much USD is being spent on SL.

A restriction on converting those L$ would prevent residents from taking that value out of the game which would cost LL real money.

I dont see the connection.

When you sell L$ on the LindenX, someone else Buys it.

you arent really taking out anything from the game.

Bailing out Ginko would have about the same total effect on the L$ as giving out more in stipends for a little while.

Seeing as SL is suffering from deflation (land prices) inflating the money supply would actually help.

Scams need to fail.



Besides the moral, ethical, and legal issues, bailing out any scam is just plain begging for trouble, as in, "Thank you, may I have another?" *sound of fist to face* "Another?" *smack* "Moar please?" *thud* ....


The cost would trickle down (flood down?) to you and I, and I can't afford such foolishness.

I think scams need to twist in the wind, slowly, a stark reminder to all that yes, being stupid is just plain bad for you.

Calling scams a 'bad investment' is like calling flatulence a 'personal fragrance' - no matter how it's talked up with pretty words, the reek is identical and unmistakeable.

And even if it's not an intentional scam, in real business there is such a thing as due diligence and criminal negligence.

what colette said!

i for one welcome the so-called "depressed" land values. i bought first land in late november 2006 and thru march bought up surrounding plots. of course, at that time, i was paying thru the nose anywhere from L$10K to L$15K for a 512 plot. older friends were appalled at these prices. i was told that the normal price for a 512 plot had been around L$3K give or take before this boom.

so now, i can get back to buying land at pre-november prices before they rise again.

unlike rl land speculators, sl land speculators seem to forget (or be unaware) that real estate is a cyclic market.

besides, not everyone is in sl for profit.

Look at the economy here due to the gambling ban, it took a dive and affected many businesses. That also had a chain effect to affect those that were never involved in gambling.

It was smart that BoE did stand to prevent any chain effect on the UK economy.

I don't think more linden dollars would help in this case. What would help is to prevent the media hysteria which causes bank runs.

Impossible!

Look...

http://games.slashdot.org/comments.pl?sid=302203&cid=20666415

Oops.. I pointed to that comment, read the parent when ready!

Another good one...

http://games.slashdot.org/comments.pl?sid=302203&cid=20666415

Absolutely not. Having people lose confidence in unregulated and murky financial schemes created by other residents is a good thing, not a bad one.