Monthly Financial Report: August 2005

Well, in the midst of massive human tragedy (New Orleans) and massive human happiness (Ulrika's Mathilde) , its time for the most mundane subject of all, the monthly financial report for Neualtenburg.

As usual, the Balance Sheet is at: http://www.tospitimou.com/Neualtenburg/BalanceSheet.pdf

and the Income and Expense report is at: http://www.tospitimou.com/Neualtenburg/IncomeExpense.pdf

This is really, financially, a big moment for Neualtenburg, because this is our 3rd monthly set of reports. That's a quarter of a year! A big thing for accountants, at least. But, a big thing for us as well. We're still here! And, doing not too bad.

Except, we're still losing money . And now, unlike for last month, where the big problem was one thing alone, needing more members; now we have a second big problem. Currency value.

For reasons best understood by others, (and maybe you'll identify yourselves, and speak up!) the Second Life currency is losing serious value against the US dollar. Obviously, if we receive our monthly fees in Linden$'s, and those Linden$'s become worth less and less compared to the US$ that we have to pay our monthly fee to the Lindens in, then we'll need more and more Linden$'s to pay it.

On August 31, the Linden was worth about 4% less than it was on June 30. And in the intervening time, its been as much as 5% lower than that. That could have a huge impact on our ability to pay our monthly fee.

So, why do we bother? Why don't we simply collect all our payments in US$'s, and guarantee that we'll make the monthly obligation? The answer, really, is philosophical. You'll see that all the financial reports are in Linden$'s. That's the currency of this world. The whole idea of "wealth" and "dollar value" in SL is defined in Linden$'s, not in US$'s.

Of course, LL "throws a wrench" into this system by insisting on payment in US$'s. From their point of view, of course, it makes perfect sense. All *their* expenses are in US$'s. They want their company's financial reports to look good, so they've backed out of the Linden$ currency value risk.

But we have that risk. I figure it would be an impossible hardship for many citizens to be forced to make all their payments in US$'s to Paypal. It's also a pain, and it may compromise your privacy. Most of all, its an arbitrary imposition on the economy of Neualtenburg.

So, a better way to see this depreciation of value of the SL currency is to understand it as an increase in our expenses. Our monthly fee to the Lindens simply continues to increase every month. Here's the figures from the last three reports:

June..........48,996
July...........50,257
August.......51,047

With another 4000 or so expenses in bank fees and interest on our bonds, our monthly expenses are now 55,343. Our income for last month, though, was only 43,592, so we lost a bit more in August than we did in July.

I have three observations about this. The first is REALLY familiar.

1) We need more members. Our 19th member has just contacted me, and he'll be deeded and all set in the next day or so. We're all hoping that the Expo will mean a great increase in awareness of Neualtenburg, and with that hopefully new members.

2) We need to help boost our other small sources of income. Casino revenues and beer stein sales appear to have been very small in August.

3) We need to consider whether we should notch up the monthly fee to follow the increase in the monthly fee the Lindens charge us. Since this is a budget issue, please bring your feedback and opinions to the RA.

Thats the big message of the financial reports. We lost 11,751. We need to work on improving that number. Carrying that over to the Balance Sheet, which is how much we own minues how much we owe, the Balance Sheet is worse by that much money. And, its worse by the depreciation of the Linden$. So, at the end of July, our net worth was -110,823. Now, its -130,194.

There is still strength in cash. We have 112,165 in the bank, which is more than 2 months fee to the Lindens. But thats down from 121,627 at the end of July. And it will continue to go down until we start having a positive number on the Income Expense report each month.

Well, I'm sorry for being my usual grump about all this. I'm happy to leave it to others to see the cheery side. As usual, if there are any questions at all, please contact me. Even if I'm not on line, I'm usually near a computer, and I'd be happy to come in and discuss Neualtenburg finances.


Sudane

Thanks for keeping us informed, Sudane - even despite the not-so-good-news (and hello to the two new members ).

Although one thing we need is to boost up the income, the other is dealing with the challenge of the US$/L$ ratio. Some of you may have noticed the hubbub raised in the forums (well, one source for it...) because of the many changes that LL is going to implement related to the stabilisation of the economy, as they see it. Stipends are going to be reduced drastically with 1.7, as ratings won't count towards the weekly "bonus" we used to get. And at the same time, LL will introduce a way to buy L$ in-world, with absolute anonymity (it will be charged to your avatar account's credit card). This, of course, will completely change the parity of the US$ to the L$, in unpredictable ways. Reducing stipends will make less money available, thus, in theory, control inflation; undermining GOM and the other exchanges is mostly a psychological matter (because people don't trust Linden Lab to have a "free" market in-world and expect LL to control the US$/L$ ratio artificially by removing some offers on their own market), but for the upcoming weeks, most expect the L$ to drop slowly towards the abyss. And since a free money exchange is really just psychological, I expect this trend to continue, with or without reason.

So, I think that we have no choice than to set the value for the deed fees in US$, and adjust every month the corresponding value of the L$, by explaining all citizens why we are doing this. In a sense, it means that the cost of anonymity is rising. We just must be very careful to make people understand that we're not endorsing revelation of RL data with this measure, but just adapting to a reality that we also dislike: the L$ is being artificially reduced through the psychological fear that its value is going to me much more in "control" of Linden Lab.

In theory, eventually, the US$/L$ ratio will stabilize again when we understand better how LL is going to "control" the economy. This ratio may, however, be much lower than it is right now, and we would always need to change the fee in L$ to reflect this.

This will not be a popular measure. Perhaps I should suggest that we hold our own first Neualtenburger Town Hall meeting, explaining things to the citizens, and ask for their input. There may be other alternatives (ie. assume increasing expenses, as you have done, Sudane...) and perhaps someone has a good idea on that. Eventually, since this is a measure that will affect us all, we could have a referendum (although in theory it's the RA's responsability to set the values of the fees in their budget)

Why not use our treasury to some advantage? Let's sell security.

The idea of basing a bank on a fluctuating market is interesting and could work to our advantage in some ways. I suggest we form a sort of "Neualtenburg Savings Bond".


The concept is this. Bonds can be issued as shares based on the value of the Linden vs. US ratio. For example let's say Fraulein Avatar purchases 10K in Neualtenburg Bonds on September 1st at the price of $37.50US for a 3 month term, and we set it at an accruel of monthly interest of say 5% monthly (paid quarterly and only on withdrawl) Fraulein Avatar is pleased! She has set her Lindens to a fixed rate AND is collecting interest, in a real SL Bank.

Three scenarios can occur

1) The Linden falls and by December her 10K is valued at only $35. She cashes out after 3 months and nets herself a small profit in interest and has retained the former value of her Lindens.

2) The Linden remains stable and if she cashes out all we lose is the nominal interest, if she stays on we retain her funds in the treasury.

3) The Linden rises dramatically and Fraulein's Bonds at the end of 3 months are worth $44.50US! She has recieved $1,500L in interest, but her Lindens which were set at $37.50 yield the Neualtenburg Bank a small profit.

This would not be so much a profit making venture, as a method to keep Neualtenburg liquid. What think?

I think this idea is very interesting, and should be intently discussed. But we're not exactly at "zero point" on this. Here's where we are at.

Back in the spring, while trying to scrounge the cash for the new sim, and at the same time come up with a justification for doing so, Gwyn proposed the idea of Neualtenburg "City Bonds". It was not a detailed proposal; just a concept by which individuals could put $$ into the project and feel that those funds were there on their account; possibly even pay interest.

Three of us (current members) and one of us (former member, tho he thought he was giving a gift, we've recorded it as a "bond" did so. That's how we were able to raise the cash to buy the sim. I've always felt strongly that the "bonds" should bear interest (for the same reason I've always felt strongly that people providing time and materials to the city should be compensated). So, based on that original proposal, I've posted 6% annual interest to each of these bonds each month. It's a tiny % in SL terms, and it can always be reversed should the financial decision-making process decide so.

Because this was and is a very simple concept, where the only risk we felt we assumed was the ultimate survival of Neualtenburg, I have not done anything sophisticated like you suggest, Kendra. I've simply posted interest in the currency in which the funds were originally provided.

But I feel your idea merits some real discussion and study. Neualtenburg is, after all, a Bavarian town (close to Switzerland) where there exists a substantial interest in the financial marketplace. Back in the spring, Ulrika and I discussed briefly the idea of founding a bank, but the idea was shelved. Setting up a system where the individual can, if they chose, gamble on the value of the L$ vs the US$, in a fashion which is win/win for Neualtenburg, might be very interesting.

I too would be interested to hear other's feedback.


Sudane

I have more lindens now than I ever usually have, being unable to cash them out via GOM or IGE at the moment. I'd be happy to invest in Neualtenburg's own bank.

I have been working on this reply for two days but keep getting interrupted. I finally was able to finish it.


Linden to Dollar Exchange

Accepting L$ as payment for land and land-use fees was added on shortly before we began to sell land, in order to compete with other groups which accept L$. We added a 5 or 10% overhead to the exchange rate as a buffer for fluctuating rates and stated in a footnote on this webpage that:

Since then, it appears that L$ has become our default currency for city accounting and the prices we offered in L$ have become locked in. Instead we should do all our accounting in US$ and convert using a floating exchange rate (this is what everyone else does).

I think we should use the US$ as our base currency and publish an exchange rate on our website for L$ payments for several reasons:

1. Investment bonds should reflect the risk of the Neualtenburg Cooperative only. By accounting in L$, the risk of the exchange market is injected into the bond market. This degrades the quality of the investment to that of the currency market.
   
2. Almost 90% of the bond investments in the city were done in US$, so any interest gained on the investments will be lost due to inflation, when investors convert back to US$.
   
3. The cooperative's monthly liability to LL is in US$.

To formalize this, we should add to the ToS in Section 3, Billing Policies, that the base currency is US$ and that the exchange rate will be set by GOM (or LL) plus a buffer to handle short-term variations.


Convertible Bonds

We should also officially formalize the nature, return, and duration of our bonds. Read up on bonds here.

As I understand it, our city offers bonds, sometimes known in finance as a debenture. A bond is a debt instrument that obligates the issuer (in this case the Neualtenburg Cooperative) to the bondholder the principal plus interest. Our corporation borrows the face amount of the bond (the principal) from its buyer, pays interest on that debt while it is outstanding, and then redeems the bond at its maturity date by paying back the principal. Our bonds are convertible, in that they can be converted into land shares and monthly payments. This convertibility means our bonds have a "put option", which means investors can (at least partially) withdraw money.

Because this is a debenture, it's important that it has a maturity date, the date when the city returns the principal (original investment) and that the interest is not compounded like it is in a savings account. The value of a compounded account will grow exponentially in time (starts out small and then grows quickly), whereas the income of the cooperative is logistic in time (grows quickly and then levels off).

So things we need to decide are:

1. Rate of return, floating or fixed. This depends on the maturity date and what currency we use. For instance if we use 6% APR in L$, those who invested in US$ have already lost most of their interest to inflation.
   
2. Whether we will allow partial withdrawals (a put option). I think we should only allow partial withdraws if they are converted by the city directly to land and land-use fees.
   
3. Whether we will allow the city to pay back the bonds early (a call option). I don't think this is necessary.
   
4. The maturity date. At our current rate of growth, I think six months might be a good duration for the bonds.
   
5. Currency. Since the Cooperative is a RL entity and 90% of investments are in US$, it makes sense that the investments should be tracked in US$.
   
6. How interest is returned. Currently I believe that interest is being compounded. Should we instead issue a final value (US$1 invested becomes US$1.10 in six months) and then linearly prorate it based on withdrawal date?

Banking System

Banking systems that are private are fine but they should not use the Neualtenburg name nor use the city infrastructure in any way that other private banks (Ginko) could not do as well. Personally, I'd like the city itself to create a nonprofit cooperative bank that initially could be used to hold L$ for citizens for automatic land-use payments.

~Ulrika~

I was also curious how close we are to break even on our monthly payments. According to the data on this webpage, we are only US$4 away from break even, yet I've been hearing that we're almost US$40 away. Can someone explain or find the bug in the webpage?

I'd do it but it would take a week at the rate I'm going.

~Ulrika~

Also, even if making the US$ the standard isn't accepted, I think we should certainly encourage more payment in US$, at least above the threshold that the declining L$ costs us more than the Paypal fees.

Still, even though there are sound philosophical reasons to have the L$ as the standard, I suspect so long as we have to pay the sim bill in US$ that SHOULD be our yardstick.

Sadly, I'm back to work, and overwhelmed with it (again!) so I won't make many comments here, juts to say that I definitely promote a finantial institution in Neualtenburg, either as a "state bank", or as an independent bank run by citizens. For me, right now, both approaches are reasonable choices.

As for having the US$ or the L$ as the official currency, well, I have my doubts. Ulrika's arguments are undeniable - if we assume the L$ as the official currency, we'll simply lose all our investment + interest due to inflation. We could use the same approach that overinflated countries use - an interest rate of 6-10% over inflation! I don't know how much that turns out to be, but if we just take into account the depreciation of the L$ to the US$ - about 7% per month or so, and rising slowly in the last month - this would mean an interest rate of something very near to 100% per year or so. It's not surprising that Ginko, for instance, pays out 0.19% compound interest per day.

Living under heavy inflation and with a galloping depreciation of the currency is something I've experienced in the past in RL. It's no fun. But people certainly survive - although psychologically it's very, very stressing to see how money quickly becomes worthless.

On the other hand, using the US$ as the official currency also poses an ethical problem - it would mean that one of the most self-conscious groups that is proposing an exercise in self-government simply doesn't trust/believe in the SL economy and prefers to rely upon the more stable "real world" economy instead. That is a harsh decision to take.

So, we have pragmatism on one hand (nobody wishes to lose money), and an ethical aspect on the other. It's hard to chose. Right now, I feel I'm trapped among both suggestions and can't decide what is best for us short-term and long-term.

On the other hand, it's not sheer pragmatic thought that determine this. The Linden dollar is, ultimately, simply a way to easily execute micropayments within SL; Linden Labs does not take payment in L$ (as opposed to say, real-world governments that issue a currency and take it as payment for debts owed). Neualtenburg is an exercise in self-government, true, but we are not a sovereign nation; our situation is more akin to a RL city government within the larger context of the national government, the primary difference being that Linden Labs, as the "national government", is largely content to not do so.

As the primary expense of the city - paying the sim bill - is in US$, I think it is arguable that using a different currency in our accounting is inappropriate.

The bond discussion is a little off topic but still important, so I'll create a new thread for it.


On the topic of the shortfall on the monthly payment, I thought I'd go over the figures again. On the Nburg land page, it shows that our income from land-use fees is US$190.64, which means we're only about US$5 away from break even, not including fees.

The PDF file posted above states that our income is L$40745. The conversion rate from L$ to US$ isn't provided but assuming US$1 is L$250, L$40745 is equivalent to US$162.98. This is off by US$27.66 or -14.5%. Using the current exchange rate of US$1 is L$285, L$40745 is equivalent to US$142.96 or -25%!

(Note that we should abandon the L$ as a reference ASAP, as it alone pushes us 10% away from our goal of break even.)

I'm curious where the discrepancy is and what we're using for the exchange rate.

~Ulrika~

Well yes - I think pragmatism should be, at the end of the day, the approach we should pick, although I'm pretty sad about it, really. It means once more that we can't trust LL's economy model, although I guess that in 6 weeks' time we'll see what the new measures (no more L$ bonuses from ratings) will do to the economy. It's also highly likely that the new system for buying L$ from in-world be implemented by that time as well. It will be interesting to watch how the economy is shaken with those measures

Let me try to clear this up. I will warn anyone reading this that maintaining books in two currencies is rather mind-boggling. The result of this is that numbers will never come out exactly, since conversions change, and, in our case, payments can be made in either currency, at any time, subject to a variable conversion rate.

I will also declare that although I've been doing the accounting for various organizations for about 35 years, I have not previously dealt with books in multi-currencies. So, please, I am open to any comments and corrections that you may see fit to make.

Also, the complication of this is an urgent reason for having a "finance committee", a group with whom I can share the details of the transactions. I strongly feel that it is not appropriate to air in the forum the details of any given individual's transactions, and I will not. On the other hand, these details are very much in the interest of the city as a group, and it is not appropriate that only one citizen should be knowledgeable and responsible for them.

So, the monthly tier fees. First, let me refer you to the actual spreadsheet from which the data for the website page is taken:
http://www.tospitimou.com/Neualtenburg/NeualtenburgLandJournal.pdf
This link is actually always available at the top of the website "Land" page: "Download Land Journal PDF".

There is a column on that sheet labeled "Sold". The data from that column is collected at the very bottom right hand corner of the report (page 4), where, as you can see, the Total Monthly Land Fees show "Committed Fees in US$" as $190.59. This agrees with the website.

However, as of August 31, not all of these parcels were sold. I have used the very right hand column of that same sheet to mark which parcels were sold as of August 31, and therefore which had due a Monthly Fee. The total is not displayed on the sheet, but it's US$182.92, or L$50303.

Going to the Income Expense Report, we have collected L$40745 in Monthly Fees. Using the GOM exchange rate on Aug 31 of 261.78 Lindens to the US Dollar, that translates to US$155.65. Seven of the 16 Monthly Fee payments were made in US$; the other nine in L$. Because of the exchange rate, and because we have placed a premium on the L$ payments, this "collected" amount will not correspond exactly with any of the spreadsheet numbers. In addition, as of August 31, two citizens were in arrears for their August fee, and that amount was US$22.55. Added to the collected $155.65, for a total of $178.20, the amount agrees quite closely (subject to the factors described above) with the expected receipt of US$182.92.

I have not introduced the subject of individuals' arrears in my Monthly Report, because these amounts are what's known in the accounting trade as "Quality Receivables". We will get them. In fact they are not posted (these books are really done on a cash basis; i.e. when the cash shows up, its posted). But I have more than every reason to know that these amounts will be paid. My comments in the monthly report therefore ignored their existence; but they perhaps did create confusion owing the low actual number for monthly "Land Fee Payments". I'll try to be more clear about that in upcoming months.


The prices we offered in L$ have certainly not been "locked in"; the website footnote very much applies to the flexibility with which the City can determine the fees it charges for land. However, it is my understanding that this and other provisions for fee modification were stated not as "policy in place immediately", but rather openings in the covenants to allow the City to make such fee modifications as it might deem suitable in the future. I feel strongly that should we consider floating the Linden-valued fee, that this be a decision of the citizens as a whole, thru the appropriate mechanism.

As to whether the Linden is the "default" payment currency, let me just repeat a few points. As Gwyn has well-expressed, philosophically, it should be. Further, it is easy and convenient for citizens to pay their fee in Lindens. Finally, and very important, we have already determined that Paypal payments present a serious privacy flaw. Unless the citizen goes to the trouble of setting up a "shell" Paypal account with a fictitous personal name or a business name, that person's real name is attached to their transaction record. The administrator of the Neualtenburg Paypal account is the only person who sees these records; but it is ultimately not appropriate and not in keeping with the privacy components of the Neualtenburg founding documents.

I look forward to further discussion of the "loan/bond" issue. The points brought up have been very constructive, and I hope that the City can set up some system like this soon.


Sudane

For the reasons you mention above, I would argue that we should hold off on finalising any decision about switching to US currency until LL has had a chance to define their new economic model.

The recent and publicly announced arrival of a new financial officer at LL specifically to "fix" the economy (which is not really *that* broken after all) is an indicator that they are going to be spending significant resources on making the Linden dollar work.

Wouldn't this be the exact wrong time to jump ship on the Linden?

Well, there never was a decision to use the Linden. It's simply used by Sudane in her spreadsheets, as it made accounting easier. In fact, the default income of the cooperative has always been US$. Our original goal was to use recurring Paypal payments in US$ from the beginning. It wasn't until right before the sim opened that we decided to accept and convert L$ for citizens as a convenience and to compete with other land sellers. Since then it's gone from a convenient form of payment, to the currency in spread sheets, to the "official" currency.

The only modification we need to make is to show values in US$ and publish a floating exchange rate between US$ and L$. That's how the website worked until I modified it to work Sudane's way (before the day of the sliding L$).

If we don't do this, then we'll need to update the land and land-use fees weekly to keep up with the drop in the value of the L$. Is this something that should even be voted on? Heavens forbid that folks (either the RA or SC) feel like they don't want to pay more and vote down an increase in the land rate. It would doom the cooperative to bankruptcy and lead to a loss of all investments. It's better to keep this out of the virtual-world government, recognize that we have a constant real-world US$200 bill to pay every month, and base our finances on that.

~Ulrika~

I see what's going on now. The discrepancy in the monthly income can be attributed to the following:

1. The use of the devaluing L$ for accounting has led to a decrease in revenue.
   
2. Late payments by cooperative members have led to a decrease in revenue.
   
3. Late payments and exchange rates are not reflected in the financial statements.

The solutions to this are simple:

1. Do all our transactions in US$.
   
2. Return the land of those not making payments to the city.
   
3. Make the accounting system transparent.

Transactions in US$

It's important to remember that the Neualtenburg Projekt has two sides, a real-world side and a virtual-world side. The real-world side is the Neualtenburg Cooperative, a group of people who share the cost of a dedicated SL hardware. The virtual-world side is Neualtenburg, a city of avatars that have a governmental system to handle in-world affairs. Depending on the situation, we either interact in the real world or the virtual world. (This is discussed on our website here.)

This is the same with Linden Labs (LL). When LL bills people, they do so in the real world using US$. To enable a virtual-world economy and encourage the creation of content, the Lindens distribute L$. Note that these two forms of exchange are not mixed within the Linden Lab/Lindens duality. That is, the real-world company Linden Labs does not pay its workers in L$ nor does it accept L$ as a form of payment.

It's the same with Neualtenburg. Because our liabilities are in US$, so our payments (and accounting) must be in US$. Otherwise, as we've seen, devaluation of the virtual currency can knock 10% off our earnings in the course of a month. Imagine if LL had a 10% shortfall in revenue because they were using a virtual currency!


Transparency

Because we're part of a cooperative it is imperative that there is 100% transparency of the financial system to all members. We are all equal and we all deserve access to who is paying and when. Transparency is a fundamental feature of our cooperative. It says on our website:

The treasurer makes sure the bills get paid, they don't decide which members of the coop are allowed to see the registry.

As far as privacy goes, the city protects privacy only in that it does not share RL information. Aside from that, the financial system is 100% transparent. You will find no other document (web page, ToS, constitution, post, email, etc.) anywhere that says otherwise. (You can read more about transparency and privacy on our website here.)


Repossession

Finally, it states in the Neualtenburg ToS in Section 3.5:

It's important that the SC knows who is more than 30 days late so they can repossess the land such that it can be resold.

The question I have is how many people have been not paying and for how long? The answer is there is no way to tell because the financial system is not transparent.


Conclusion

As one of the RL founders (real world) and members of the SC (virtual world), it appears that deviations from founding philosophies and legal documents are leading to problems with revenue and transparency. We need to move to a RL currency for RL financial obligations, restore transparency to the financial system, and repossess land that is 30 days behind payment.

~Ulrika~

I understand your point, Ulrika. This mostly means that if we use the L$ as the currency we do our accounting in, we will (or we should) have to change the fees every month. And this is not such a good idea. Hmm.

Well, on the other hand, when a country buys barrels of oil in US$ and has a weak currency, the price of gas will rise every day So, of course, this happens every day all over the world, except on those countries that a) either have their own oil; b) have a strong currency against the US$.

What I mean is that the island fee is a "fixed" amount in an "external" currency from the point of view of a Neualtenburg tied to L$, so this is not an unusual situation in the RL. The only real difference is that most countries can do something about their own currencies, while Neualtenburg can't - we're limited to LL's intervention on that. So, unless we start to "mint" Neualtenburg Talers, we depend on LL to mantain a stable currency.

Dianne, however, also has a point. If by some chance the changes that LL is going to implement will stabilize the economy, all this discussion is pointless, so we should at least wait those 6 weeks to see what happens next. There will be changes after the stipend bonus is removed. Either some residents will leave (thus, less L$ in circulation) or they will start to buy more L$ from GOM (thus, the L$ will rise in value again), unless the in-world L$-to-US$ will make a big difference which we can't foresee.

Ulrika's approach, however, is different - simply sidestep the whole issue and do it all in US$. That way, there are no risks of speculation, and the way citizens look at the fees will have them mentally calculate what they have to pay in US$, independently of what they are going to actually pay in L$.

Hmm. I'm still divided on this issue, but I think I'm pending towards Ulrika's point of view, no matter how much it hurts to drop the L$ as "official currency". In a sense, Ulrika's right, we never "approved" the L$ as the official currency - it was just the way things naturally evolved: the Web site listed the vendor transactions in L$ and not in US$; people asked if it was possible to pay in L$ to remain anonymous; we sold bonds in L$ to some who have invested; naturally enough, there was one major expense in US$, and tons of items in L$; so it made sense to do the accounting in L$. This was thoroughly explained at the time and presented in the forums, and no one raised any issue with this approach.

Well, Sudane, I wonder how much trouble it will be to do the accounting just in US$ again?

This means that if we do a vote on this, I'd go for doing the accounting in US$ for a period of time until we can see what happens to the L$/US$ ratio (say, 3 months) and make a new decision after that. If we don't ever vote on this issue (Ulrika's suggestion), well, the best I can suggest is having an informal poll on the group, and see what people think about it...

Also - and I postpone this discussion for a later date - I wonder if, after the creation of a banking system in Neualtenburg (being discussed as well), we shouldn't have a "Neualtenburg Taler" as our own currency. The talk about resident-created currency is quite old as well, and the principle behind it was similar - the L$ is not so well controled as LL would like it to be. Planned communities have a much better chance at control, but they can't influence the value of the L$ directly. But, as said, this really is something to be discussed elsewhere at another time!

While I'm against this philosophically, for reasons well stated by Gwyn, I'm not at all against doing this in practice, for the very logical reasons you suggest. But, implementation is of the essence here.

We have issued deeds indicating the amount in US$ and L$ that each deed holder must pay per month to maintain their citizenship. We have indicated in the covenants that this amount may flucuate. We have not said in the deed that the face amounts are good only for the date the deed is issued, and will change next month. That was not intended at the outset, and that is what has been conveyed to each new citizen.

Therefore, to float the monthly fee in L$ continuously against the US$, we must approve this. I feel it should be an approval by the people whom it affects. Planning one's personal finances is changed by having the L$ value of your fee float. This is an organization (a cooperative) owned by and operated for the benefit of the people who make up its citizenry. They must make this decision.

And, let me be very clear. We *must* continue to accept monthly fee payments in L$. Many of the citizens cannot pay any other way. Even if those amounts change monthly, we must continue to be a "two-currency" system.

The "treasurer" is proposing that a small committee of members of the coop make the commitment to respect all members' privacy and to share the details of and the responsibility for the financial transactions. The "treasurer" is not proposing which members of the coop are "allowed to see the registry", or who are appointed to that committee.

In RL coops, as in many areas of RL, the financial transactions between payor and payee are considered, on the first level, confidential. I as a shareholder in a NYC apartment cooperative, am not privy, nor should I be, to the date on which my neighbor pays their monthly manitenance charge. On the other hand, I, as a member of the Finance Committee of the same coop, *am* privy to that information. And by being so, I am under obligation to respect the privacy of that transaction, and to reveal its details only insofar as that is needed in pursuance of some more significant and public concern, such as beginning eviction proceedings against a non-fee-payer.

These are common understandings, so naturally I have adopted them in setting up the fee collection system for Neualtenburg. While it might be irregular, and also I might suugest embarrassing to some, were the log of monthly fee payments posted and maintained on the forum; if that's what the community decides they want, I have no objection.

But, as with the issue of currency, I will implement a procedure like this only on the decision of the people affected by it, the citizens. Stating "Transparency" as a principle does *not* imply, in and of itself, that every transaction of every citizen will be published in the forum. The accounting system now, by every commonly understood accounting principle, is "transparent".

And the answer is, which I have stated in an earlier post, that several people did not make their August payments during the month of August, to the tune of US$22.55. No one is 30 days late. We have previously defined the "Due Date" as the 21st day of the month to which the payment applies. If any of these individuals do not make their August payment by September 21st, then they are in default, and are subject to repossession, and well as the loss of any priviledges as citizens they may now possess. That is the "law" as it now stands. That is the way it is being administered.

I have tried to explain in an earlier post the concept of the "quality receivable"; funds which we *will* receive. Whether these funds are "late" or not does not affect our Income/Expense Report, which is the fundamental measure of the health of the community; i.e. do we have enough expected revenue to offset our expected expenses?

Let me put this another way. Those late fees, anticipated to be received, represent a portion of the real revenue base of the city. Its *real* revenue; only if the parties become deadbeats, and the amounts are no longer "quality receivables", does it lose its value. On the other hand, as soon as you "repossess" the land, you instantly remove that source of revenue. If you "repossess" a revenue source which is deemed to be "good", then from my point of view you are "cutting off your hand to spite your foot".

Neualtenburg is a marketplace. And its one that is not yet financially solvent. It seems to me that we should be bending over backward devising ways to be flexible for the citizens we do have, and devising in every way we can think of a supportive and encouraging style of relating to those who are potential residents. Storming about repossessing the land of late payers does not achieve that goal.

On the other hand, when there exists a waiting list of people desiring to live here, I'd be all in favor of a Due Date of the 15th of the month, after which your land is automatically repossessed.

This is the marketplace. We *must* understand that.


Sudane

I think if we are going to be updating the fees for land, we should update the land prices as well.

As it is right now when you purchase a lot, you pay the price the lot was when Nburg purchased it (significantly higher than the current market). If Nburg wants to collect updates or floating land use fees, then the prices should also float no?

I would also like to see the current residents "grandfathered in" to the non-floating, fixed rate fees.



Also, if someone who can actually follow the financial arguments in this thread could let me know if this "US dollar" issue is seperate from, or linked to the issue of paying Nburg by credit card instead of PayPal or Lindens, I would appreciate it.

The first argument seems technical and unlikely to affect me very much, whereas the second item may be a determining factor in whether someone even wants to be in Nburg or not.

The current rates are fixed, IIRC, and even if changed they'd be fixed. In US$. Even if you paid in Lindens, it's just a matter of GOMing or Linden-market-ing a few more than usual.

The sim needs US$ to survive, after all.

Also, I don't believe the land prices were particularly scaled to main-grid prices, tho I'd mentioned in the past that I'm not opposed to figuring alternate ways of paying that (as opposed to a big lump-sum payment).



It isn't really linked, but it's not a dissimilar issue. Although we can take credit cards right now THROUGH Paypal, someone who can't register with Paypal (or doesn't wish to) can't pay Neualtenburg directly. To do so, we'd have to incur more expense getting setup with a credit card processor. Thus, many who MIGHT pay by credit card, but cannot do so through PayPal, currently pay in Lindens.

This is funny to me. It's like saying we need to vote to recognize the rising and setting of the sun. It doesn't matter if we vote to float the monthly fee or not its value will float as the currency markets fluctuate.

Here's a fun analogy. We are straddling two icebergs. Our left shoe is nailed to the US$ iceberg by LL. It will not move. Our right shoe is nailed to the L$ iceberg by an arbitrary decision. It will not move. As the two icebergs float by each other we are slowly stretched until our legs are so far apart our fanny is in the water. Why not just stand on one iceberg?

What we should do is:

1. Base all fees on the US$. The US$ fee does not change without a vote.
   
2. Still accept payments in $L. Set an exchange rate based on GOM plus 5%.
   
3. Hold no assets in L$, instead converting them to US$ as soon as possible.
   
4. Return all prior investments to US$ to recover losses due to inflation.

There's no need to vote because this is how the system was originally set up work. It was changed without consulting the rest of the group and it's costing us plenty.


These are your decisions and your personal preferences that you're imposing on us without our consent. Where in the real-world cooperative agreement did we agree to having a select few able to see the registry? Where in the virtual-world government does the treasurer have the power to withhold information from other branches of the government and the citizens? Where in either the real or the virtual world do you have the authority to create a finance committee?

No one cares if someone is late on their payments. It's a virtual world. We all check out from time to time. I've had to reactivate my account with LL three times due to expiring credit cards and account snafus. If someone is gone past 30 days, we just put the land on the market, if they come back before it's sold and pay past dues they can have it back. *shrug*

Frankly, it could be a great way to show that a parcel is about to come back on the market, since many of the most desirable lots sold first.

~Ulrika~

Not funny to me.

I find this post (and your last on this thread), to be unecessarily mean, pedantic, and entirely negative. This kind of argument does not help at all in my view.

The Linden fluctuates, so what? All currency fluctuates.

The idea that because of this fluctuation we are all in terrible imminent danger of losing tremendous amounts of cash (which is the impression I got from your post), sounds like a lot of hype to me. Are we really going to lose 10% a day? I strongly doubt it. And what if the Linden goes up in value (as it certainly might)?

Shouldn't we be worried more about building community, and making resources available than we are with tearing things down (that are not really broken), or hounding people for pennies? Shouldn't we be finding ways for people to increase their enjoyment and satisfaction with Neualtenburg instead of putting up roadblocks like deleting their house if they dont pay on time? Or delving into and publishing their financial details if they dont?

This all sounds like some crazy police state to me.

No. Who said that we'd lose 10% a day?

Then citizens would be overcharged for their lots.

Assuming revenue locked to L$ and payments locked to US$:
Original: US$1 = L$250 - Nominal
Weak L: US$1 = L$300 - The city income drops 16%.
Strong L: US$1 = L$200 - Citizens pay 25% more for their land than originally quoted.

Yes. Eliminating currency fluctuations from investments, land, and land-use fees coupled with an increase in accounting transparency is the hallmark of totalitarianism.

~Ulrika~

Yeah, Dianne, this is a case where Ulrika is recommending an action that is actually very commonsensical in the "real world", and it is a very real problem; one of my favorite roleplaying-game publishers, Guardians of Order, very nearly closed down because they were Canadian, and needed Canadian dollars to pay their bills, but the bulk of their sales were in American dollars, which (as you know) have weakened somewhat. The fact that they were taking in less useful-to-them value on each book (a weaker currency + exchange fees) really hurt them.

We are in a very similar state.

I'm down with this. The value of your plot is backed by Gold (USD). You can pay in lindens to maintain your privacy, but must pay enough lindens to equal the amount in gold.